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IASB Chairman Updates EU

by Robin Pilgrim,, London

18 March 2010

Sir David Tweedie, Chairman of the International Accounting Standards Board (IASB), has addressed a meeting of the Council of the European Union (Economic and Financial Affairs) - ECOFIN - on convergence and the classification and measurement of financial instruments.

Tweedie told Ecofin that the IASB and the US Financial Accounting Standards Board (FASB) planned to publish seven joint proposals in the next quarter and would also propose other changes to bring their own standards in line with each other.

Tweedie underlined the US Securities and Exchange Commission (SEC) reaffirmation of the US commitment to make a decision in 2011 to adopt IFRS by 2015 or 2016. The SEC had "emphasized the importance of convergence in improving financial reporting and reducing the cost of the transition to IFRS".

IFRSs were accepted globally and already used in more than 115 countries, according to Tweedie. This year and going through the year 2012 would bring the second major wave of IFRS adoption which included Brazil, India, Korea, Canada, Japan, Malaysia, Mexico, Argentina, and Indonesia.

After completing convergence work in 2011, a period of stability of accounting standards would be allowed for newly adopting countries, similar to the “stable platform” given to European companies and investors between 2004 and 2009, said Tweedie.

Tweedie said the IASB had accelerated the issuance of its standard on the classification and measurement of financial instruments, IFRS 9, on November 12 in response to the request, "expressed most strongly" in Europe and in particular by ECOFIN, that the new standard be available for 2009 financial statements.

Japan, Brazil, China (including Hong Kong), South Africa, and Australia, had initiated the use of the new IFRS 9; many stakeholder groups, in Europe and elsewhere, including national standard-setters, had called for the endorsement of IFRS 9, according to Tweedie.

However Tweedie acknowledged that the European Commission now needed time to "understand better how the remaining phases of the project that address liabilities, provisions and hedging fit with the first phase of the IAS 39 reform" and proceeded to address some of the issues that had been raised in consultation with the European Commission, the European Central Bank, members of the Basel Committee and other interested parties.

Concern had been expressed that IFRS 9 would result in an increase in the use of fair value, although the IASB had not sought this. On the contrary Tweedie said its aim had been to "find the right balance and establish appropriate criteria for determining whether to use cost or fair value." This decision should depend upon whether cost or fair value provides the most useful information about likely future cash flows, according to Tweedie, and was consistent with the business model approach advocated by the European Commission and the Basel Committee.

'Cost based measurement is required when a financial asset has predictable cash flows and if the objective of the holder is to collect principal and interest over the life of the asset rather than to collect cash proceeds from sale. For a traditional bank, being one that takes deposits and lends money to customers that it holds to collect principal and interest,... IFRS 9 should result in fewer rather than more items being measured at fair value,' said Tweedie.

Tweedie also confirmed that the IASB had removed the treatment of liabilities from IFRS 9 and that subsequent decisions made meant that financial liabilities after IFRS 9 would not result in an increase in the use of fair value in the measurement of financial liabilities.

TAGS: South Africa | business | India | law | accounting | Australia | China | Mexico | International Accounting Standards Board (IASB) | international financial reporting standards (IFRS) | Brazil | Canada | Hong Kong | Indonesia | Malaysia | financial reporting | Financial Accounting Standards Board (FASB) | standards | European Union (EU) | Argentina | Japan | Europe | Africa

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