Accounting standards overhauled

City A.M. Reporter
THE Financial Accounting Standards Board (FASB), which sets US accounting rules, released a proposal yesterday that could change how banks account for financial instruments such as loans and debt securities.

FASB, which has been debating the changes for months with the London-based International Accounting Standards Board, said it proposes to require that companies provide new information on certain financial instruments on both an amortised cost and mark-to-market, or fair value, basis.

“The proposal would impact the reporting by financial institutions and all other entities that have financial instruments as the goal of greater transparency in financial statements is pursued,” chairman Robert Herz said.

The proposal aims to improve the information investors get about bank balance sheets in the wake of the credit crisis. It will also provide more timely information on expected credit losses, the FASB said.

But the measure marks a widening of the gap between US and British accounting standards. Critics believe the G20 agreement to reach a global accounting standard by June 2011 will be more difficult to achieve as a result.

It is also likely to cause controversy. Mark-to-market valuations were blamed for exacerbating panic during the financial crisis as banks’ portfolios of credit securities plunged.