FASB and IASB Struggle to Meet in the Middle

While banks and politicians have leaned on accounting regulators to incorporate economic stability concerns into their accounting rules, the question of how banks should value financial instruments remains a subject of intense debate.

“Politicians have been saying a major objective of financial reporting is stability — we think it’s transparency,” said International Accounting Standards Board Chairman Sir David Tweedie.

The IASB had proposed to have assets valued at “amortized cost,” while the U.S. Financial Accounting Standards Board suggested that all financial instruments 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 reconcile their views.

Transparency is a better goal. Mark your bonds or loans to whatever price you think, then let the market decide whether you are a liar, a cheat or a charlatan. You just have to publicly disclose, quickly.