A fairly late night for me – just finished this webcast (sorry, slides only ATM – they are releasing the webcast later). While the IASB were pitching this as a bit of a status update, they could not help but give some interesting pointers on where they are going and, as a result, what issues they feel fairly strongly about.
The main issues identified in the recent ED were:
- There seems to be a fair amount more clarity needed about the
instruments that were to be allowed to be treated as amortised cost –
the wording about “basic loan features” was considered a bit woolly.
I would agree – but to me this should be able to be handled in some application guidance not in the main standard. - There remain a number of questions around the own credit rating
issue – if you fair value your own traded bonds you are implicitly
including your own credit rating. This issue seems to be rather thorny.
It may not go any further in any case as the IASB seem to be backing
away from this, calling the method “not decision useful”.
I would disagree – the issue is not difficult. An entity should not be able to recognise any possibility that it will not be able to meet its obligations as and when they fall due in any way, shape or form. This is a violation of the going concern principle.
Other issues covered were:
- Progress on the impairment model seems to be progressing – the use
of an expected loss model seems to be one of the barrows the IASB are
pushing, with the difficulties seen to be more around cost and
practicality than general principles.
They are proceeding to establish an experts advisory group to advise them on operational issues, application guidance needed and to facilitate field testing.
I may have misunderstood here, but I do have a problem with this and on several levels. For anyone other than a very large corporate or a sizable bank this is not cheap to do. In Australia at least, this standard applies to all entities, so this is likely to be a significant cost.
The other main problem I have is one of the whole principle. An EL model is inherently forward looking – yet a “Statement of Financial Position” is a point in time concept and an income statement is (by definition) backward looking. To me, the current impairment method is one of the strengths of IAS 39. Making it easier would be good. Violating the whole principle of financial statements is not. This seems to be one of the areas that the BIS would like to see in – but I have given my opinion on that before. I will be keeping a close watch here. - Our old favourite of hedge accounting got a good look in as well,
with an ED likely to come out in December. The changes here may well be
extensive, with the IASB looking to simplify cash flow hedge accounting
and making the fair value method more like the cash flow hedging. This
could be achieved by changing it to have the hedged item left at
amortised cost and changes in FV of the hedging instrument going through
OCI.
One word here – “yay”. If you want some more words – I have dealt with many clients that just gave up on this whole area – sometimes on my advice – as it was just too difficult. Changes here (the FAS 133 shortcut method, please and at first impressions I like the possible new FV method) would be very good.
The other areas that were discussed were the likely effects on the upcoming insurance standard(s), particularly WRT to 2 above; the possible removal of the cost exemption for instruments that are difficult or impractical to value and some consideration of what to do with these in interim accounts.
The IASB will be moving to weekly board meetings to try to get all this done in the timescales they have set themselves. Personally, I think this may be a sign that they are preparing to slip the deadlines.
The questions period was short – and the IASB wanted only process questions – but they could not really help themselves on a couple. The best question though, was on the convergence between IAS 39 and FAS 133, in that they both have very different timelines for releases but both are saying they want to converge. All I can say is “get on with it guys”. One standard (as long as it is simple and makes sense) is much, much better than two (or more).
2 comments
11 November, 2009 at 00:39
bruce
Andrew,
Any comments on the latest update from the IAS 39 replacement project?
Proposals have now been announced for the impairment calculation method for Am-cost exposures.
Would be interested to hear your thoughts.
11 November, 2009 at 13:33
Andrew
Thanks – I had been trying to avoid this for a few days to get something finished. I should have something in a day or two. This is a big one – 71 pages long of really good reading.