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Accounting bodies, regulators and other financial experts gather in London to bemoan political interference in the standard-setting process and to discuss a timetable for overhauling rules on valuing financial instruments.
Jason Karaian, CFO.com | Europe
May 25, 2009
It is somewhat ironic, Harvey Goldschmid said, that only the first hour of the day-long meeting on Friday was open to observers. After all, one of the goals of the Financial Crisis Advisory Group (FCAG), convened by the International Accounting Standards Board and the Financial Accounting Standards Board last year to provide guidance on thorny reporting issues that arise during market turmoil, is to promote openness and transparency in the standard-setting process, according to the group's co-chair, former commissioner of the U.S. Securities and Exchange Commission.
Indeed, added Hans Hoogervorst, chairman of the Dutch markets regulator and Goldschmid's fellow co-chair of the FCAG, the banks and politicians who apply "continuous pressure" on standard setters to alter fair-value and impairment rules have "no natural interest in transparency." The Dutchman feels "increasingly uncomfortable" with the "lopsided" standards that may result if they get their way.
A final report by the FCAG with advice for standard setters is due this summer. Hoogervorst urged the group to strengthen the tone of the document to make it more "open and honestly critical" of outside interference in the accounting rule-making process.
David Tweedie, chairman of the IASB, noted that the pressure to follow FASB's lead on tweaking the rules for other-than-temporary impairments has been a "major distraction." Reiterating what the international standard setter announced last month, Tweedie said that a complete overhaul of its standard addressing financial instruments—IAS 39—should be completed by the end of the year, with an exposure draft on proposed changes published in July. Given this timetable, ad-hoc changes to the rules in the meantime would be counterproductive, "a short-term fix for something we intend to abolish," he said.
The IASB chairman hopes to develop a new financial-instruments standard jointly with FASB, and although his American counterpart, Robert Herz, pledged to "move heaven and earth to come to a common solution," he expressed reservations about the gulf between U.S. GAAP and IFRS when it comes to impairment, which he described as the "flashpoint of the crisis." If there is to be a truly "level playing field" between the standards, Tweedie admitted, "this project will be vastly delayed."
Keeping the discussion of technical matters to a minimum, the 25 global financial experts gathered around the table returned time and again to the subject of political interference in accounting, as they have in previous gatherings. With the deadline for delivery of the FCAG's final report approaching, more disagreements between the group's members appeared to emerge than in previous meetings. It is not unrealistic to assume that the divisions were more pronounced during the subsequent closed-door sessions.
During the public session, Goldschmid bemoaned the "scapegoating" of accounting standards for playing a part in the current financial crisis, calling it "unconstructive, to put it in the most gentle way." He was later less gentle, describing the behaviour of accounting's critics towards the IASB and FASB as "throwing bricks at the two boards."
Sylvie Matherat, director of financial stability at the Banque de France, told Goldschmid she was "surprised at the strength of [his] comments," adding that there was a broad consensus that accounting played a role in exacerbating the impact of the credit crunch, even if it was not its original cause.
Dennis Chookaszian, chairman of the U.S. Financial Accounting Standards Advisory Council, shot back, noting that it was easy to say that accounting was "some contributing factor" to the financial crisis. However, he said that there is no definitive information or research supporting the claim.
Don Nicolaisen, former chief accountant of the SEC, likened the thinking on accounting standards' role in the crisis to a thermometer—if global warming is a problem, it's nonsensical to ask scientists to change the readings on their instruments to make it appear cooler, he said.
Jim Leisenring, an IASB board member, agreed that accounting didn't cause the crisis, nor is it able to fix it. Recovery will come when investors have more confidence in financial reports and might be delayed if standard setters do anything to increase the already-high cynicism of investors, he claimed. To this end, the FCAG's report should emphasise that sound, stable accounting standards could provide a "catalyst for recovery," he said.