US body has doubts over matching accounting reform

LONDON, May 22 (Reuters) - Piecemeal reform of accounting rules to please politicians and help banks fails to represent progress or responsibility in financial reporting, a top U.S. industry official said on Friday.

After pressure from European Union finance ministers, the International Accounting Standards Board (IASB) has agreed to revise its fair value rule faster so it starts taking effect by year end.[ID:nLL149932]

Ministers say the rule amplifies the credit crunch by forcing banks to value some assets at depressed prices, triggering huge writedowns.

The IASB sets rules used in over 100 countries, including the EU and is also forging a set of global standards with its U.S. peer, the Financial Accounting Standards Board (FSAB).

The U.S. body said it won’t be shoehorned into change.

“We desire to get to a common good answer with the IASB and we will make best efforts to do so, but some of the directions we are currently headed in are not to the liking of our board,” FASB chairman, Bob Herz, told a meeting of the Financial Crisis Advisory Group.

The group was set up last year to take the political heat of accounting but appears to have had little impact.

The IASB will split revision of its IAS39 fair value rule into three parts, starting with classification and measurement in July and wants to work in tandem with its U.S. peer to keep the global standards project on track.

“We will work out a model, FASB will work out a model, and we will try to bring them together and then decide can we take one or the other or a mixture. If we can’t agree, we will put both out.” IASB chairman, David Tweedie said.

This will be followed by impairement and provisioning later in the summer, with a final section on hedging thereafter.

“The idea would be that probably in a year or so we would have a new IAS39 dealing with those three major categories,” Tweedie said.

Herz wants the first two stages treated together.

“We dont think that is a step forward in financial reporting... The appetite in the U.S. for the sake of convergence versus improvement is not there,” Herz said.

“We don’t think you can responsibly issue a standard without talking about impairment,” Herz said.

Some group members were alarmed by political pressure on the IASB and FASB -- the latter was forced by Congress to tweak its fair value rule in April.

“If we go on with such an approach we will end up with a situation we were in 15 years ago, which is obviously a disaster,” said Michel Prada, former head of the French markets regulator AMF.

Junichi Maruyama of Japan’s Financial Services Agency regulator said rules should not be compromised by pressure from some regions or sectors otherwise it will affect the momentum at which Japan is moving to adopting IASB standards.

Making bank stress tests public in Europe would do more to help investors than changing accounting rules, added Hans Hoogervorst, head of Dutch market watchdog AFM. [ID:nLM391417]

Stephen Haddrill, just named as chief executive of Britain’s Financial Reporting Council regulator, said piecemeal changes would mean changes to systems with the cost borne by investors.

“I hear the voice of banking regulation coming through. We must reinforce the voice of the investor,” Haddrill said.

But Sylvie Matherat, director of financial stability at the Bank of France, said accounting rules were linked to a “vicious circle” that worsened the credit crunch and the IASB should listen.

“You have to understand there are things we can’t accept,” Matherat said.

There should be ways to hear all views in the debate without disrupting high quality standard making, added Jerry Edwards, an adviser on accouting to the Bank for International Settlements.

Within the IASB some are still leery of changes, saying accounting rules did not cause and won’t solve banking problems.

“So it’s change the X-ray and I don’t have a tumour. I don’t think it works that way and it’s the same thing with these losses,” IASB board member Jim Leisenring said.

Editing by David Cowell