In a report issued Wednesday, June 17, the Obama administration touched on its vision for regulation of financial reporting in the U.S. Not yet possessing statutory authority, Financial Regulatory Reform is more a statement of strategy and intention with respect to regulation of banks and all matters related to financial markets in the U.S.
I see two provisions affecting accounting. The first, from page 11:
The accounting standard setters (the FASB, the IASB, and the SEC) should review accounting standards to determine how financial firms should be required to employ more forward-looking loan loss provisioning practices that incorporate a broader range of available credit information. Fair value accounting rules also should be reviewed with the goal of identifying changes that could provide users of financial reports with both fair value informationand greater transparency regarding the cash flows management expects to receive by holding investments.
Quite simply put, fair value reporting by banks of financial assets is reaffirmed. However, bank desires to avoid recognizing losses in declines in value should also be accommodated. Nice work if you can get it (and you can get it if you try).
The kicker is on pages 19-20 (with more detail provided on pages 86-87):
J. Improve Accounting Standards
1. We recommend that the accounting standard setters clarify and make consistent the application of fair value accounting standards, including the impairment of financial instruments, by the end of 2009.
2. We recommend that the accounting standard setters improve accounting standards for loan loss provisioning by the end of 2009 that would make it more forward looking, as long as the transparency of financial statements is not compromised.
3. We recommend that the accounting standard setters make substantial progress by the end of 2009 toward development of a single set of high quality global accounting standards.
The G-20 Leaders agreed that the accounting standard setters should make substantial progress toward a single set of high quality global accounting standards by the end of 2009. The IASB and FASB have engaged in extensive efforts to converge IFRS and U.S. Generally Accepted Accounting Principles (GAAP) to minimize or eliminate differences in the two sets of accounting standards. Last year, the IASB and FASB reiterated their objective of achieving broad convergence of IFRS and U.S. GAAP by the end of 2010, which is a necessary precondition under the SEC’s proposed roadmap to adopt IFRS. Currently, the SEC is considering comments submitted on its proposed roadmap that sets forth several milestones that could lead to the eventual use of IFRS by all U.S. issuers.
Does Paul Volcker want the U.S. to move to IFRS? Why yes, bears shit in the woods. Obama and Volcker wishing it, however, does not mean that it will happen. I hope someone in the Obama administration finds a brain. And soon.
Debit and credit – - David Albrecht