UPDATE 1-Accounting rule setter speeds up fair value reform
(Adds more detail, reaction)
By Huw Jones
LONDON, May 21 (Reuters) - A top international accounting standards setter agreed on Thursday to speed up the revision of a rule criticized by European Union finance ministers for amplifying fallout from the credit crunch.
The International Accounting Standards Board (IASB), which sets financial reporting rules used in more than 100 countries and the EU, made the decision at a board meeting that ended on Thursday.
"It's true we are trying to be responsive to them to get something urgent, but what we are focusing on is the G20 request to reduce complexity by year end," IASB board member John Smith told Reuters.
The G20 group of industrialized and emerging market countries agreed in April that accounting rules should be less "procyclical," that is, avoid exaggerating downturns.
The existing rule forces banks to value complex assets at current depressed market prices, resulting in huge write-downs that have unnerved investors.
The IASB's original plan was to propose a complete draft revision of its fair-value rule in October.
This timetable is too slow for the EU's executive European Commission, which wants changes in place in time for banks to compile their 2009 annual reports at the end of the year.
"We have decided we would split the project into three pieces," Smith said.
He said the July draft will look at the classification and measurement of assets. A second document would follow later in the year on impairment and provisioning, with a final document on hedging.
"We want to do the classification and measurement as a first step, and try to get an exposure draft out by July with the idea that we could get it effective by year end," Smith said.
Smith said there were 22 ways to measure impairment of assets, and the aim was to boil them down to two to four -- divided into assets that are marked-to-market and those valued in a different way.
RESTORING INVESTOR CONFIDENCE
Auditors and accountants have expressed concern at the way political pressure is sparking hasty changes in rules, particularly in a piecemeal way, to cloud the real balance sheet picture.
Jeremy Newman, chief executive of BDO International, the world's fifth biggest auditor, said the profession was against changes for political expediency as they would not restore investor confidence and could backfire.
"The losses that have occurred at banks are real losses and changing the method by which you account for them does not recreate the money lost or restore liquidity into the system," Newman said.
"I don't think you can tinker at the edges without creating unintended consequences elsewhere," Newman said.
The IASB has come under intense political pressure in Europe in recent weeks to relax its fair-value rule quickly and match changes introduced by its U.S. counterpart, the Financial Accounting Standards Board, after heavy lobbying from Congress. Both boards had already relaxed their fair-value rules last year.
Newman said hasty changes could make it harder to create a single set of global accounting rules and create frustration among those countries committed to adopting IASB standards.
China, which is adopting IASB standards, signaled last week it did not want to relax its fair-value rules. (Reporting by Huw Jones, editing by Ron Askew and Padraic Cassidy)
