Global Business

IASB Calls Special Credit-Crisis Confab

Up for discussion will be potential changes to the standard covering fair-value measurement and off-balance-sheet risk.
Stephen TaubSeptember 23, 2008

The International Accounting Standards Board has called a special meeting for October 2 to discuss a pair of issues that have become lightning rods in the current global credit crisis: fair-value accounting and off-balance-sheet accounting.

More specifically, the IASB meeting will discuss possible amendments to IFRS 7, Financial Instruments: Disclosures, which pertains to fair-value measurement and off-balance-sheet risk.

The special meeting comes as the global financial markets have been rocked by perhaps their biggest crisis since the Great Depression. The Financial Timespointed out that this is the first time IASB will have held an extraordinary meeting of this sort.

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A number of critics have called for the abolishment of — or a moratorium on — fair-value (or mark-to-market) accounting. The suggestion has been made that while it is suspended, banks’ estimates of hold-to-maturity prices should be used. Not surprisingly, many banks support this.

However, others assert that doing this would only hurt investor confidence, because nobody knows what the true hold-to-maturity price is. Without a market to determine that price, investors would have to trust the internal estimates of banks.

“The IASB has already accelerated its work on these two issues in response to the recommendations of the Financial Stability Forum, and holding the additional meeting will enable the staff to make faster progress on those projects,” the board said in a press release last week.

Another topic of discussion will be on the board’s recent exposure draft of a proposed standard on how parent companies should consolidate subsidiaries’ results on their balance sheets. IASB is particularly focused on the consolidation of special-purpose and structured-investment entities.

At its scheduled meeting earlier this month, IASB considered papers on disclosures related not only to off-balance-sheet risk and fair-value measurement, but also financial-instrument risk, including liquidity risk. Later this year, the board will publish proposed amendments to the disclosure provisions of IFRS 7.

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