Fitch Unveils Global Accounting Outlook Report

by Philip Morton, Investors Offshore.com

24 January 2008

Fitch Ratings expects that fair value measurement will continue as the central accounting focus for analysts and investors, according to its 2008 accounting and financial reporting global outlook report, published on Wednesday.

The ratings agency explained that:

"As Fitch expected at the beginning of 2007, fair value measurement was the main accounting theme over the course of the year. The importance of this accounting element was magnified in the 2H of 2007 with the prevailing credit and liquidity crunch, particularly for subprime mortgage-related assets."

It went on to observe that:

"As the rest of the world coalesces around International Financial Reporting Standards, the US authorities seem set to follow suit. The FASB and the IASB are working hard to maintain their convergence agenda, with many projects on going."

"The financial reforms of the convergence project have tilted financial reporting toward more fair value, although those opposing further movement in this direction are finding that they have more traction given the reliability issues surrounding valuations that looks set to prevail into 2008."

Other topics that Fitch believes will dominate the accounting debate in 2008 - which are discussed in the 2008 outlook report - include:

• Off-balance-sheet accounting;
• Financial Statement Presentation (joint project between FASB and IASB);
• Global convergence of accounting standards;
• Business combinations;
• Insurance accounting, particularly as it relates to how fair value should be defined for insurance reserves; and
• Defining liabilities vs. equity.

Fitch announced that it will also publish a report on fair value accounting this month, and will publish additional reports on some of these other specific topics throughout 2008.

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