IASB proposing new fair value rule in wake of crisis
THE International Accounting Standards Board ( IASB ) yesterday proposed to simplify a key valuation rule that European Union finance ministers have blamed for amplifying the financial crisis.
The Group of 20 (G20) industrialised and emerging market countries agreed in April that the fair value rule should be revised to make company statements clearer for investors, after banks shocked markets with their holdings of so-called toxic assets.
“The proposals… will significantly reduce complexity and make it easier for investors to understand financial statements,” the IASB said in a statement.
The IASB has faced heavy political pressure, particularly from countries like Germany, to ease the impact of fair value in time for 2009 annual reports, which are compiled from December.
The proposal reduces the categories to two — fair value and at cost, and only one method for measuring impairment.
Assets that generate a stable and predictable revenue and are being held on the bank’s book and not being traded, such as bonds, will be priced at cost.
Traded assets like derivatives with unpredictable revenues would be priced at fair value under the draft proposal.