Accounting
The head of IASB retires with the dream of convergence not yet realised
Jun 23rd 2011 | New york | from the print edition
Sir David, accounting GoliathACCOUNTING has very few rock stars but Sir David Tweedie is one of them. True, the Scot may not trash hotel rooms but as the first head of the International Accounting Standards Board (IASB), which sets accounting standards for most of the world’s major economies outside America, he is the profession’s towering figure. After ten years in the chair, he will hand over to Hans Hoogervorst, a Dutch financial regulator, on July 1st.
Sir David’s biggest project has been convergence of IASB’s rules with those of America’s Financial Accounting Standards Board (FASB). The two had set a June deadline, timed to coincide with Sir David’s retirement, to iron out their differences. That won’t be met. In April they announced a postponement on four issues: revenue recognition, lease accounting, insurance contracts and which financial instruments to record at “fair”, or market, value.
How to treat financial instruments is by far the toughest question. In 2009, under its previous chairman, Bob Herz, FASB narrowly voted 3-2 that all assets should be booked at fair value on banks’ balance-sheets. IASB proposed a less zealous, split model whereby loans held mainly for their income rather than for trading purposes could be booked at amortised cost.
Mr Herz left last year, to be replaced by Leslie Seidman. FASB’s expanded, seven-member board has now “tentatively” decided to move in IASB’s direction. Under a yet-to-be-released proposal, assets to be traded or held for sale would be booked at fair value in profit-and-loss statements. Traditional loans to customers would be booked at amortised cost. In between would be a new category. Debt instruments such as ordinary government bonds would have changes in value booked to “other comprehensive income” (ie, reserves) and not on the income statement until they are sold. So a bank holding Greek debt would immediately take a hit to its reserves if the market price went down. The IASB rule would show the loss only when the bonds were sold, provided they were held for their cash flows.
Mr Hoogevorst planted his flag in February, saying “stability should be a consequence of greater transparency rather than a primary goal of accounting standard-setters”. This will please the fair-value partisans. When FASB issues its proposals, IASB may put them to its own members.
Sir David should not be too disappointed that convergence is not complete. That the process has come as far as it has—and that America’s Securities and Exchange Commission might decide later this year to adopt IASB’s standards—is something no one could have predicted ten years ago, says Nigel Sleigh-Johnson of the Institute of Chartered Accountants of England and Wales. The June deadline was useful for concentrating minds but now, he says, it is more important to get things right.
from the print edition | Finance and Economics
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