FSB takes stock after five years: Convergence of accounting standards still 'amber'

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02 Sep 2013

In preparation for the upcoming G20 Leaders' Summit, the Financial Stability Board (FSB) has released several reports about progress in connection with the fundamental reform of the global financial system initiated by the G20 in 2008. One of the developments that is facing 'difficulties in meeting its objective and/or timeline' is achieving a single set of high quality global accounting standards.

In the letter accompanying the various reports, the FSB Chair takes stock of the progress over the past five years and outlines the major outstanding issues which demand the attention of Leaders. He makes three main points:

  1. FSB members have made major progress correcting the fault lines that caused the global financial crisis.
  2. The work is not yet completed and it is crucial that the G20 stay the course.
  3. The G20’s response will ultimately dictate the openness of the global system and consequently the strength and sustainability of global growth.

Among the developments that are not yet completed the FSB chairman cites global convergence of accounting standards. Although the reports admit that some joint projects have been completed and some some initial progress has been made in other projects, they point at loan loss impairment and insurance contracts as areas where convergence is threatening to come to a standstill:

  • Although IASB and FASB have followed the FSB's recommendations to develop an impairment model that incorporates a broader range of information and recognises credit losses at an earlier stage, the two standard-setters have developed different expected loss models. The FSB stresses that it "is continuing its engagement with the two standard-setters to seek ways to achieve a consensus on a high quality standard in this important area".
  • On insurance contracts, the IASB and FASB are working together but have come to different decisions of several basic matters. This has again led to issuing two separate exposure drafts. The FSB urges further convergence but notes: "The obstacles to finding a converged solution for the insurance contracts project are proving difficult to overcome."

The FSB notes that IASB and FASB have been called on by the G20 to complete their convergence projects by the end of 2013. The boards will report to the FSB on the progress made in November 2013.

In connection with the reform of the global financial system, the FSB also reports on the work of the Enhanced Disclosures Task Force (EDTF), which was founded in 2012 and published recommendations for improved disclosures in October 2012 and a first progress report in August 2013.

Also, in November 2012 the FSB was asked to undertake diagnostic work to assess factors affecting long-term investment financing. Among the factors considered was the effect of current and prospective accounting rules on long-term financing. Among the reported results is the statement that "reporting rules can sometimes have a behavioural impact" and that "there is some evidence that this includes short termism". However, some hope is placed on forthcoming accounting standards and the conceptual framework.

Please click for the following information of the G20 website:

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