During the period since the publication of the Commission services's 2nd report, the IASCF and IASB have made important announcements that, if fully and effectively implemented, will enhance the accountability of the IASCF/IASB to their stakeholders and enhance the transparency of their activities.

Most significantly, there is now broad-based agreement to establish a formal public oversight structure for the IASCF. This will also lead to a reform of the appointment process for Trustees, thus abolishing the self-appointment mechanism by granting an external, independent oversight body the power to decide upon the appointment of Trustees.

The Commission services welcome the decisions taken by the IASCF to strengthen the IASB's due process, in particular by carrying out ex ante impact assessments and ex post reviews of new standards and interpretations, as well as by publishing feedback statements. The Commission services are encouraged by the project summary and feedback statement published for the Business Combinations – Phase II project and encourage the Trustees and the Board to pursue their work in this area, in particular by ensuring that impact assessments are carried out earlier in the development of standards and interpretations.

The IASCF Monitoring Group would be responsible for approving all Trustees. Consultation international organisations would be required. It is likely that the proposed Monitoring Group would be composed of:

• four members of the International Organization of Securities Commissions (IOSCO), represented by the Chairman of the Japan Financial Services Agency, the Chairman of the US Securities and Exchange Commission, the chair of the IOSCO Emerging Markets Committee, and the chair of the IOSCO Technical Committee;
• the responsible member of the European Commission [currently the Commissioner for Internal Market and Services];
• the managing director of the International Monetary Fund; and
• the president of the World Bank.

• When asked to give a general opinion on financial accounting measurement concepts, the respondents, regardless of their background, favor the consistent application of fair value accounting for all assets and liabilities, rather than cost-based measurement.
• However, users seem to distinguish between marked-based fair values ('mark-to-market' measurements) and fair values that are determined using valuation techniques ('mark-to-model' measurements):
  • For liquid and non-operating assets, investors consider mark-to-market fair value to be the most decision-useful measurement concept.
    IAS Plus observation: This finding is consistent with the view expressed recently by the CFA Institute strongly supporting the broad use of fair value measurement for all financial instruments. See our 21 April 2008 Story.
  • For non-liquid and operating assets, historical cost and market-based fair value are not regarded as being significantly different in respect to decision-usefulness. IAS Plus observation: This finding is somewhat at odds with the view of the CFA Institute in their 2007 Comprehensive Business Reporting Model: Financial Reporting for Investors, which concludes that 'fair value information is the most relevant information for financial decision making'... Our goal is for fair value to be the measurement attribute for assets and liabilities." See our 20 August 2007 Story.
  • Mark-to-model fair values are regarded as significantly less decision-useful than both market-based fair values and historical cost measures for practically all asset and liability classes. Only for financial assets do respondents view mark-to-model measures as more decision-useful than historical cost values. IAS Plus observation: The CFA Institute states: "With respect to the measurement of fair value, we believe that managers should look first to the most objective sources of fair value, for example, observable prices for the same or similar assets or liabilities in liquid markets. In the absence of such market-determined measurements, managers must report the best estimate of fair value as determined by widely accepted and applied valuation methods and by using market-based inputs."

Accounting losses are accepted by the marketplace when companies face up to them and explain. Evidence is the remarkable 15% hike in UBS shares upon its announcement of a USD19 billion write-down on 1 April.

Conversely, there can be no doubt that reducing accounting transparency, whether by reverting to historical cost or by authorising banks not to reflect market developments in their financial statements, would hurt the market and have negative consequences. This was illustrated by the 1990s Japanese crisis, when the opaque accounts of banks fed the general mistrust.

In a nutshell, fair value accounting may not be satisfactory, but the alternatives are worse. Pending the return of liquidity, investors prefer to view the world through the fuzzy lens of fair value, rather than being left to complete corporate discretion or have information which only reflects an outdated past.

As even individual investors in the United States become globally active, our nation has a good deal at stake in seeing IFRS fulfill its promise. The United States has witnessed a remarkable growth in our own investors' interest in foreign securities. I came to Washington with President Reagan. When he was first elected, US gross trading activity in foreign securities was $53 billion. Today it's over $11 trillion. That's more than the GDP of Japan and China combined. And this isn't just institutional trading: roughly two-thirds of American investors own securities of non-US companies.

The same is true for foreign trading activity in US securities – that has exploded during this period as well. Today, it's over $33 trillion. That's more than twice the GDP of the European Union. It's for these reasons that our work on converging to a single global accounting standard is so important.