Corporate disclosures are about to get a lot longer and a lot more complicated. The International Accounting Standards Board has released its revised set of rules dealing with the classification and measurement of financial assets, such as loans, as well as debt and equity securities using fair value. Sox First will remember how the banks were screaming about fair value, claiming that it resulted in the market meltdown. As if it had nothing to do with them.
Read the IASB standard carefully and you will see that it will make disclosures a lot more complex and longer. “Under the proposals expected losses are recognised throughout the life of the loan (or other financial asset measured at amortised cost), and not just after a loss event has been identified. This would avoid the front-loading of interest revenue that occurs today before a loss event is identified, and would better reflect the lending decision. Therefore, under the proposals, a provision against credit losses would be built up over the life of the financial asset. Extensive disclosure requirements would provide investors with an understanding of the loss estimates that an entity judges necessary.”
In other words, disclosure requirements are about to get more “extensive”.
Part of the problem here is that it makes the assumption that banks are good at forecasting and managing risk. So far, their track record would suggest the opposite.
As Marie Leone points out in CFO.com, it will force companies to evaluate their business models more carefully, which might be a good thing. As long as it suits them.
But as Accountancy Age says, it’s not over yet. The new standard has to get past the Europeans who, led by France, have been working hard to undermine the global standard setters. The world of accounting rules is about to get even more political.
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