83

We have agreed that the accounting standard setters should improve standards for the valuation of financial instruments based on their liquidity and investor's holding horizons, while reaffirming the framework of fair value accounting.

To date, the International Accounting Standards Board (IASB) published in May an exposure draft (proposed accounting standard) on fair value measurement that directly incorporates the staff guidance issued in April by the US Financial Accounting Standards Board (FASB) to better identify inactive markets and determine whether transactions are orderly. Comments were due by end-September, with the final standard expected in 2010. Also, in June the IASB published a discussion document on the effects of fair value gains arising from deterioration in a company's own credit risk, with comments due by the beginning of September. Based on its review of comments the IASB will decide how to address this issue in its standard or guidance on fair value measurement. See also Action 85.

84

Accounting standard setters should take action to reduce the complexity of accounting standards for financial instruments by the end of 2009.

The IASB plans to address the G20 Leaders' call for reduced complexity of accounting standards for financial instruments through the development of three new standards, based on exposure drafts issued in 2009. An exposure draft (ED) was issued in July 2009, which proposes to reduce the number of categories of financial assets and liabilities to two (fair value and amortised cost). A number of changes have been made by the IASB in recent Board meetings to the approach set forth in its July 2009 ED on classification and measurement of financial instruments. This final standard should be published by the IASB in November and will be available for use for 2009 annual reports. Proposals on the remaining portions of IAS 39 – covering an expected loss approach to provisioning (see action 85) and hedge accounting – are to be issued by the end of 2009.

The FASB continues to move toward its goal of issuing one ED in the first half of 2010 that incorporates a single, comprehensive model for accounting for financial instruments. The FASB published its tentative approach to inform and solicit comments from its constituents. Unlike the IASB, the FASB is preliminarily moving toward an approach that is based on fair value measurement for all financial instruments, which will include balance sheet categories for (i) financial instruments for which changes in fair value are recognised in net income and (ii) financial instruments (including loans) for which fair value changes are recognised in 'other comprehensive income'. On provisioning, see action 85.

85

Accounting standard setters should take action to strengthen accounting recognition of loan-loss provisions by incorporating a broader range of credit information by the end of 2009.

See also action 52.

The IASB plans to issue for public comment an exposure draft on expected loss provisioning in the first half of November 2009. The comment period will last for eight months. The IASB published initial proposals on its website in June to seek input regarding the feasibility of this expected loss approach.

At its 21 October 2009 Board meeting the FASB preliminarily decided to focus on a credit impairment approach that would require, at the end of each period, an impairment loss measured as the present value of management's current estimate of cash flows that are not expected to be collected. The FASB plans to issue an exposure draft in the first half of 2010.

The IASB plans to continue discussions with the FASB to seek convergence in this area and will establish a new joint IASB-FASB expert advisory panel to assist the Boards in addressing a number of practical issues associated with their respective credit impairment (provisioning) approaches.

86

Accounting standard setters should take action to improve accounting standards for provisioning, off-balance sheet exposures and valuation uncertainty by the end of 2009.

The IASB is working to enhance the accounting and disclosure standards for off-balance sheet entities. The IASB plans to finalise the consolidation standard by the end of 2009 and the derecognition standard in the second half of 2010.

In June 2009, the FASB published its final standards, Financial Accounting Statements No. 166, Accounting for Transfers of Financial Assets, and No. 167, Amendments to FASB Interpretation No. 46(R), which change the way entities account for securitisations and special-purpose entities. The new standards will impact financial institution balance sheets beginning in 2010.

The IASB is giving further consideration to a possible approach to address significant valuation uncertainty through clarifying its existing guidance on valuation adjustments as part of its plan to finalise its exposure draft on fair value measurement.

On provisioning, see Action 87.

87

Accounting standard setters should take action to achieve clarity and consistency in the application of valuation and provisioning standards internationally, working with supervisors by the end of 2009.

The IASB published in May 2009 an exposure draft (proposed accounting standard) on fair value measurement that largely incorporates the staff guidance issued in April by the FASB to better identify inactive markets and determine whether transactions are orderly.

In July 2009 the BCBS proposed to the IASB high-level principles for replacement of IAS 39.

88

We call on our international accounting bodies to redouble their efforts to achieve a single set of high quality, global accounting standards within the context of their independent standard setting process; and complete their convergence project by June 2011.

The IASB and FASB held a joint meeting in October at which the Boards tentatively agreed on core principles for converging their approaches to accounting for financial instruments. The IASB and FASB have agreed to meet monthly, starting in January 2010, to achieve the goal of converging IFRSs and US GAAP to the greatest extent possible by June 2011.

In addition, nearly all FSB jurisdictions have programmes underway to converge with or adopt the standards of the International Accounting Standards Board by 2012.

89

The IASB's institutional framework should further enhance the involvement of various stakeholders.

The IASB is working together with supervisors in key areas, including provisioning and valuation, and has had a number of meetings with the BCBS on these issues. In addition, supported by the FSB, the IASB held a meeting with senior officials and technical experts of prudential authorities, market regulators and their international organisations to discuss financial institution reporting issues on 27 August 2009. This meeting included senior representatives from a number of emerging market economies that are FSB members. The IASB plans for the next enhanced dialogue meeting to take place in the first quarter of 2010, and the FSB Secretariat will assist the IASB in setting up this meeting.

90

Regulators and accounting standard setters should enhance the required disclosure in relation to complex financial products by firms to market participants. (By end 2009).

National authorities have taken, and are continuing to take, steps to encourage firms to provide disclosures consistent with international best practice by the Senior Supervisors Group and the FSB, as appropriate. Firms have continued to enhance their risk disclosures in their published annual reports.