I offer three observations related to keeping IFRS 'healthy':

• My first 'healthy habit' observation relates to square one of financial reporting, which is whether investors can determine the basis of accounting under which a set of financial statements is prepared by reading the basis of presentation footnote, which is typically footnote 1.... In today's environment I would suggest that the safe bet is not so safe because more and more often a company's financial statements are likely to be prepared in accordance with IFRS as published by the IASB and/or a jurisdictional adaptation of IFRS. Even in these situations an investor may not be sure what the distinction between the two means and how significant it is for a particular company.
• My second 'healthy habit' observation relates to whether and how those who identify rough spots in IFRS in implementing it locally can – for the good of the international order – make those rough spots knowable on a timely basis to not just the IASB but also to the other parties working with IFRS around the world?
• My third 'healthy habit' observation relates to how to make IFRS as a body of standards robust and adequate for investors' purposes, yet at the same time somehow nimble and not overly complex.

"The analysis shows that the implementation of the prudential filters has improved over time and that a very high level of compliance with the CEBS guidelines has been achieved amongst members.... As concerns the quantitative part of the analysis, the data collected shows that prudential filters moderately reduce total eligible own funds by 0.9% and result in a 5.2% decrease in original own funds, mainly owing to the AFS equity instrument filter recommended by CEBS."

The CEBS 'prudential filter' adjustments include:

• The boundary between debt and equity. Shares in co-operative entities and certain preferred shares that are liabilities under IFRSs are converted to equity for regulatory capital purposes.
• The boundary between debt and equity. An embedded derivative that constitutes an equity component of a compound financial instrument under IFRSs is classified as part of the liability for regulatory capital purposes.
• Available-for-sale (AFS) instruments.Under IFRSs, all AFS instruments are measured at fair value, with value changes recognised in equity subject to loss recognition for impairments.
  • AFS equities. Under IFRSs, all AFS instruments are measured at fair value, with value changes recognised in equity subject to loss recognition for impairments. Under the CEBS guidelines, unrealised losses on AFS equities are deducted, after tax, from original own funds and unrealised gains are only partially be included in additional own funds before tax.
  • AFS loans and receivables. Under CEBS guidelines, unrealised gains and losses, apart from those related to impairment, are 'neutralised' (reversed) in own funds after tax.
  • Other AFS assets, (for example debt securities and financial instruments subject to interest rate risk). Under CEBS guidelines, a bank may choose to classify these either (a) as equities or (b) as loans and receivables.
• Cash flow hedges. There should be a consistent treatment of gains and losses resulting from a transaction whereby a cash flow hedge is created for an available for sale instrument: if the gains on the hedged item are recognised in additional own funds, so should the results of the corresponding cash flow hedging derivative.
• Loan losses. As a general principle, no regulatory adjustments should be made to impairment losses. Impairment related to credit risks should always be taken into account via the profit and loss account and therefore deducted from original own funds.