Published February 25, 2013
LONDON – Investors will have to grapple with two sets of rules for how banks recognize losses on loans after the world's two main accounting regulators failed to agree a common approach.
At the height of the financial crisis in 2009, the Group of 20 industrial and industrializing nations asked the International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) to align their rules to make cross-border comparisons between companies easier.
They specifically requested new rules to force banks to acknowledge impaired loans much sooner, which might allow them to address problems in good time and prevent a repeat of taxpayer bailouts.
IASB Chairman Hans Hoogervorst said on Monday the board's new impairment rule would be published in early March but alignment with the U.S. equivalent was highly unlikely.
"It's still a long shot. We are taking a different course," Hoogervorst told a meeting of the board's advisory council, and ruling out a shift by the IASB to the U.S. model.
FASB wants all expected losses on a loan to be recognized up front while the IASB, whose rules are used in over 100 countries, thinks there should be an actual deterioration in a loan, such as late payment, before losses have to be recorded.
"The outside world, especially the regulatory community, is growing increasingly restless. I understand that and we are going to finish, whatever it takes," Hoogervorst, a former Dutch finance minister and markets regulator, said.
"We cannot wait for a magic moment of convergence to come. If we can't get a joint solution, then so be it."
In a public consultation of its proposals, the IASB will ask whether a planned January 2015 start date for its new rule is still practical.
IASB officials also said requiring banks to make disclosures to bridge the gap between two different sets of rules could be costly.
The IASB will also publish in June draft revisions to its insurance contracts accounting rule but seek feedback on only a handful of elements, raising concerns in the industry.
"We believe there are still a lot of important issues. It's very difficult to have a clear view of how the model proposed will work," Jacques Le Douit of the European Insurance and Reinsurance Federation told the meeting.
The changes proposed could introduce volatility into financial statements, added Jerry de St. Paer from the Group of North American Insurance Enterprises.
Hoogervorst said the sector had already won several concessions and, despite a decade of deliberation, there was still no accounting rule to show where insurers stood.
Accounting risked failing to flag problems unless the rule was changed in a timely way, he said.
"We have got to get this done. I am much more worried about this than impairment. At least everybody knows the banks are in trouble and they are probably hiding some losses. In insurance, I don't think we know," Hoogervorst added.
(Reporting by Huw Jones; Editing by Mark Potter)