IASB response to the
Recommendations of the Financial Stability Forum
In April 2008 the Financial Stability Forum published a
report to the G7 group of Finance Ministers and Central Bank Governors
making recommendations for Enhancing Market and Institutional
The report was the result of collaboration by the main international
bodies and national authorities in key financial centres, including the
IASB. It set out 67 recommendations, which were endorsed by the G7 on 11 April.
Of the recommendations, three relate to enhancements to financial
reporting. Those recommendations form the core of the IASB’s response to
the credit crisis.
- Off balance sheet: The IASB should improve the accounting and
disclosure standards for off balance sheet vehicles on an accelerated basis
and work with other standard-setters toward international convergence.
Response: The IASB already had two projects
under way directly related to off balance sheet vehicles. The Consolidation
project aims to identify when an entity should be brought on to another
entity’s balance sheet, and the Derecognition
project is examining when assets should be removed
from the balance sheet. Both of these projects are described by
of Understanding between the IASB and the US Financial Accounting
Standards Board (FASB) which sets out a roadmap for the convergence of
IFRSs and US GAAP.
The IASB has given both projects
priority in order to accelerate their completion. A working draft
of a revised
standard on consolidation [PDF] has been prepared
by IASB staff, and will be discussed during a series of round-table
discussions, the first of which was held in in London on 17
At its meeting on 2 October, the IASB addressed the
topic of off balance sheet items as part of its Consolidation project. On the
basis of continued progress on that project, the IASB intends to have a
proposal on consolidations ready to publish for comment in November. The
IASB is also developing a proposal on the derecognition of financial assets
and expects to publish an exposure draft on this subject in the first quarter
- Fair value in illiquid markets: The IASB should
enhance its guidance on valuing financial instruments when markets are no
longer active. To this end, it will set up an expert advisory panel in 2008.
Response: At its meeting in May
2008, and as part of its Fair
Value Measurement project, the IASB announced plans to set up an
advisory panel to identify valuation and disclosure issues
encountered in practice in the current market environment. Since its
formation in May 2008 the panel has met on seven occasions (the last on 10
Although the panel meetings were held
in private, summaries of the discussions were presented to the IASB in public
meetings and are available on the Fair
Value Measurement project page.
On 16 September as a first step
in developing guidance on the application of fair value in illiquid markets,
the IASB staff released draft
guidance emanating from discussions of its expert advisory
panel. The panel met on 10 October to discuss comments received on
On 30 September a clarification
to the US standard FAS 157 Fair Value Measurements was made by
the US Securities and Exchange Commission (SEC) and staff of the Financial
Accounting Standards Board (FASB). The IASB considers this clarification
consistent with IFRSs and a useful contribution.
- Disclosure: The IASB will strengthen its standards to achieve better
disclosures about valuations, methodologies and the uncertainty associated
The IASB is reviewing IFRS 7 Financial
Instruments: Disclosures (including as part of its Consolidation
project) to assess its effectiveness in ensuring that entities disclose
information that reflects their exposure to risk and any potential losses
arising from financial instruments with the off balance sheet entities with
which they are involved.
Steps taken to date include consultation with
preparers and users of IFRS-compliant financial statements, an analysis of
good disclosure practice observed in financial reports and a review of good
practice suggestions made by regulatory bodies.
At its meeting in
September the IASB considered a comprehensive package of proposed amendments
to IFRS 7. The package included disclosures related to off balance sheet risk,
fair value measurement and financial instrument risk, including disclosures
related to liquidity risk.
The IASB published an exposure draft on
Wednesday 15 October that proposes enhancements to
disclosure about fair value measurement and about liquidity risks.
Other responses to the credit crisis
The IASB has committed itself to undertake the following:
- Formation of an international advisory group jointly with the US
The IASB and the US FASB at their joint meeting in October
decided to form an international advisory group. The group shall bewill
comprised of senior leaders with broad international experience with financial
They will be tasked with considering how improvements in
financial reporting could help enhance investor confidence in financial
markets; identifying the accounting issues requiring urgent and immediate
attention of the boards as well as issues for longer-term consideration.
The boards will seek to identify external chairs and members of the
group as soon as possible in order forto enable the advisory group to begin
its work expeditiously. The high -level advisory group will also draw upon
work already under way in a number of jurisdictions on accounting and the
The advisory group will meet in public session with
wWebcasting facilities available to all interested parties.
- Organisation of public round tables in Asia, Europe and North
In the coming weeks the IASB and the FASB will
organise three round tables - one each in Asia, Europe and North America. The
purpose of these public round tables is to gather input on reporting issues
arising from the global financial crisis - including responses by governments,
regulators and others.
This should enable the boards to act rapidly
and the advisory group, once established, to advance its deliberations
efficiently. The first round table will be held in Europe.
- Permitting the possibility of reclassifications of certain
financial instruments to align IFRSs with US GAAP
issued amendments to IAS 39 introducing the possibility for companies applying
IFRSs to reclassify assets, which was already permitted under US GAAP in rare
- Consideration of the possible impact of the US Emergency Economic
Stabilization Act of 2008 and other similar programmes internationally on the
valuation of assets and liabilities
The IASB will work
closely with the FASB to develop a common approach to accounting questions
related to the valuation of financial assets and liabilities resulting from
purchases made through the US Emergency Economic Stabilization Act of 2008 and
any other similar programmes internationally, if and when those are
- Willingness to participate in any study on the impact of
accounting in the credit crisis
The IASB recognises the need
to continue to examine IFRS accounting principles for financial instruments.
Earlier this year, the IASB published a discussion paper, Reducing
Complexity in Reporting Financial Instruments.
paper is the starting point for considering a possible replacement for IAS
39. Working with regulators, investors and industry, the IASB will
draw lessons from the credit crisis as it moves forward with its project to
reconsider IAS 39.
Consistently with discussions in the United States,
the IASB will be willing to assist in any study that examines the quality of
existing fair value information provided to investors and any impact of
financial reporting on the credit crisis.
Timeline of key announcements and measures taken by the IASB in
response to the credit crisis (2008)
- Staff presents a first staff draft of an exposure draft of a standard on
consolidation to the Board in its July meeting
meets to discuss the IASB’s responses to the crisis (see Observer
notes [PDF] and listen to the MP3
recording of the debate )