American Bankers Association criticises IASB and FASB

The American Bankers Association (ABA) has criticised the US Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) for trying to reform mark-to-market accounting too quickly and the increasing divergence between their approaches.

“The rapid pace at which both organisations are working, as well as the directions in which they are heading, are causing some to question whether there is due process in evaluating these important issues,” wrote the ABA in a white paper, The current pace and direction of accounting standard setting.

While conceding changes to accounting rules are “urgently needed”, the ABA claims some reforms under consideration could cause disruption, particularly to smaller firms.

“A major concern is that the current directions in which the FASB and IASB are moving appear to be similarly requiring more mark-to-market accounting within financial statements, more capital for existing banking activities and more operational challenges to comply with these rules for banks of all sizes. The cost of accounting compliance puts continued participation in certain market activities at risk for some smaller institutions,” the ABA wrote.

On July 14, the IASB released its exposure draft on the classification and measurement of financial instruments, which will trim the number of measurement categories from four to two: amortised cost and fair value. The FASB plans to issue its own exposure draft in the first half of 2010, which is expected to call for all loans and securities to be marked to market on balance sheet.

The practice of mark-to-market accounting has proved highly contentious during the past two years. Its critics argue that forcing banks to mark assets at less than their true economic value is procyclical and exacerbated the difficulties firms faced during the crisis. ABA says the two boards’ plans to extend the practice is in direct opposition to the Group of Thirty and Financial Stability Forum, which have recommended more counter-cyclical policies.

While the two boards have come under intense political pressure to reform accounting rules, the ABA is concerned “the FASB and the IASB are moving on similar projects, but with different solutions, at different speeds and with different timing for finalising their rules”. The ABA argued that working to different time schedules (as evidenced by the FASB lagging behind the IASB on the financial instruments classification issue) could cause international divergence.

Additionally, the ABA says better co-ordination on reform is needed between the accounting boards and other financial regulators to ensure an “orderly market transition”.

See also: Banks' own credit risk hampers financial results
IASB and FASB differ on approaches for accounting standard overhaul