Friday, June 3, 2011
Controversy Brewing on Financial Instruments Proposal
The change
portended by the fresh U.S.
accounting proposal on financial instruments and its planned shift to recording
loans and many more items at fair value on balance sheets already appears to be
causing controversy in
the standard-setting world, at banks, and in seats of finance and government.
A divided
Financial Accounting Standards Board, which issued the benchmark draft standard
May 26 after a vote of 3-to-2, likely faces a difficult challenge in trying to
finalize the proposal over the next year, as signaled in initial commentary
examined June 4.
The American
Bankers Association strongly criticized FASB's proposal within an hour of its
publication. A leading commercial real estate industry group, the Real Estate
Roundtable, said it would view final rules coming out of the draft accounting
principles as a major setback and potentially “disastrous to the real estate
credit environment.” ABA
and Roundtable leaders did not welcome what they see as a prospect of loan
portfolios being marked down significantly despite positive performance
pictures.
In Brussels, where the
European Commission has long exerted pressure on the International Accounting
Standards Board to steer away from more fair-value-based accounting in response
to bankers' complaints, an EC spokeswoman spoke May 31 about FASB's approach on
instruments. Chantal Hughes told BNA of the EC's hope that the boards will
resolve their differences in accounting principles on the topic.
FASB has set
a comment deadline of Sept. 30 for the proposal. After that, the U.S.
board--acting with IASB, which is conducting rulemaking on the impairment and
derivatives phases in its side of the joint project--would redeliberate issues
raised in the comment process.
As
the debate about the proposal heats up and views of opposing camps may harden,
the stances of the leading accounting firms could be pivotal.
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