Riding the Rails

Balancing efficacy and expediency, the international accounting standards setter settles on a timetable for amending fair-value rules.
Jason KaraianMay 11, 2009

It was an apt analogy. At a meeting last month of international accounting experts in London, Gene Ludwig, a former American banking supervisor, called for standard-setters to establish clear priorities for their work, given the myriad projects they face and the political pressure they are under. After performing a “gap analysis” on the issues at hand — fair-value measurement, impairments, leases and the like — they could decide to take some on with great speed, like a Japanese bullet train, Ludwig said as he nodded to Toru Hashimoto, former chairman of Deutsche Securities in Tokyo, at his side. At the other extreme, most trains in the US, he noted, run at a fraction of the pace of their counterparts in Japan. Faster, but not as fast as the Japanese trains, is France’s TGV network, represented symbolically on Ludwig’s other side by Sylvie Matherat from the Banque de France.

At the meeting of the Financial Crisis Advisory Group, a body assembled by the International Accounting Standards Board and the US’s Financial Accounting Standards Board to provide high-level advice on reporting issues stemming from the credit crunch, the IASB’s chairman, David Tweedie, and his counterpart, Robert Herz of FASB, received plenty of advice on priorities. Earlier in April, FASB rushed through amendments to its standards on fair value. In response, the IASB asked its constituents to comment on the Americans’ amendments. (See “Substandard,” April.) Perhaps its most important constituency, the EU politicians scrambling for solutions to the banking crisis, were clear: hop on the bullet train and “fix” — or, more accurately, relax — the rules on fair value, following FASB’s lead. French finance minister Christine Lagarde recently said that the IASB “has a lot of homework to do in the short term.”

“Rightly or wrongly,” noted Michel Prada, former chairman of the French markets regulator, at the London meeting, there is a sense among those outside the standard-setting process that it is “not speedy or accountable enough.” Given that political pressure led to hasty changes by the IASB in October last year, it was somewhat surprising when the standard-setter announced late last month that rather than reacting immediately to its American counterpart’s actions, it would set out a “detailed six-month timetable” for revamping IAS 39, its standard on measuring financial instruments. It argued that FASB’s changes to fair value were broadly consistent with existing international standards, and though the amendments to impairments created more substantial divergence, these would be addressed as part of its “comprehensive projects to ensure global consistency in impairment approaches.” Instead of lurching from crisis to crisis, with piecemeal changes to financial instruments standards along the way, IASB chairman Tweedie urged standard setters to “fix this once, fix it comprehensively, and fix it in an urgent and responsible manner.” Or, as IASB board member Jim Leisenring put it at a meeting on the eve of Tweedie’s announcement, the standard-setter would “swallow hard and do nothing.”

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In this context, “nothing” is the six-month plan to revamp fair-value rules, already an accelerated schedule as far as the traditional standard-setting process goes. But politicians have threatened before to legislate changes to standards if they feel that their concerns are not being addressed. Will they be satisfied that the IASB is moving fast enough?