Fair value accounting reform - IASB

20 October 2009 |

The International Accounting Standards Board (IASB) published a draft change to narrow the scope of its fair value or mark-to-market standard in July. It seeks to classify assets for valuation either at cost or at the going rate.

The measure was in response to calls from the Group of 20 group of leading economies to simplify fair value accounting rules in time for 2009 annual statements.

Policy makers blamed the rule for unnecessarily forcing banks to value some assets at depressed going rates amid extreme market turmoil, triggering huge writedowns and the need to recapitalise in a frozen credit market.

A key change will be much greater emphasis on the bank's business model so that many big banks in Europe with portfolios of low risk corporate or government bonds can value them at cost, rather than at fair value as they must do at present.

A ban on reclassifying of financial instruments has also been removed from the draft so that when business models change and become more focused on the longer term or are less risky, some assets can be valued at cost rather than fair value.

Sources:Reuters , IASB

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