* Proposal due within weeks on financial instrument acctg.
* FASB, IASB trying to reconcile views
* Proposal will be reconsidered in the fall
By Emily Chasan
NEW YORK, April 7 Two top accounting rulemakers
on Wednesday said they still plan to focus on transparency over
stability just weeks before proposing a new rule that could
change the way banks value loans on their books.
International Accounting Standards Board Chairman Sir David
Tweedie and U.S. Financial Accounting Standards Board Chairman
Robert Herz said on Wednesday that they expect to issue a
controversial proposal in the next few weeks that could change
how banks value the loans on their books.
The proposal on financial instrument accounting would be
open for public comment and considered with other proposals
about how management views credit impairments more formally in
the fall, they said.
"Loans had been a major problem in the (Savings & Loan)
crisis and one of the major problems in this crisis as well,"
Herz said in comments to The Japan Society, at an event in New
The accounting rulemakers have faced pressure from banks
and politicians over the past year to incorporate economic
stability concerns into their accounting rules, especially as
banks have been wary about taking any further write downs on
"Politicians have been saying a major objective of
financial reporting is stability -- we think it's
transparency," Tweedie said.
The question of how banks should value financial
instruments has been subject to stark debate among accounting
rulemakers over the last few months. The IASB had proposed to
have those assets valued at "amortized cost," which would
mostly provide information about expected cash flows, while the
FASB suggested all financial instruments should be valued at
market levels. Valuing loans at a market rate would be a
significant expansion of mark-to-market accounting, which has
been vehemently opposed by the banks.
The FASB and IASB have been working over the last few
months to come up with a reconciliation for their views.
Herz said that in the fall, the boards would also look at
"issues related to management's estimates of credit impairment,
which traditionally have been done with a fair degree of
rose-colored glasses particularly in downcycles."
Banks have drawn criticism over the course of the downturn
for overleveraging themselves, and more recently for granting
"amend and pretend" or "delay and pray" extensions and waivers
to troubled borrowers that some think could extend the crisis.
Herz said the boards were hoping to get "robust input and
comment" on their proposal, particularly on implementation
issues, and concerns about how it would intersect with bank
regulatory capital requirements.
(Reporting by Emily Chasan; Editing by Lisa Shumaker)