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Financial Stability Board Wants Consistency in Writing Down Bad Loans and Securities

With a public forum scheduled in April, the Financial Stability Board (“FSB”) hopes to push the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) to follow suit with its approach for marking down bad loans and securities. At its roundtable discussion, the international group of banks, financial regulators and finance ministries seek a common approach that inspires banks to adopt standards for impaired assets similar to the accounting boards’ ongoing efforts.

Both accounting boards have been working on their own standards; IASB’s International Financial Reporting Standards (IFRS) 9, Financial Instruments, and FASB’s Proposed Accounting Standards Update (ASU) No. 2012-260, Financial Instruments—Credit Losses (Subtopic 825-15). Originally planned to be converged, the standards include details about borrowers’ credit quality and payment histories. The intent is for losses to be identified earlier in the credit cycle by using an expected-loss approach, instead of the incurred-loss approach used during the 2008 financial crisis.

According to FSB adviser Richard Thorpe, the roundtable discussion will focus on the challenges of switching to the expected-loss loan approach. Additionally, he hopes the FASB and IASB will address concerns over comparability and consistency for Global Systemically Important Banks. Also speaking on the public forum, Federal Reserve chief accountant Steven Merriett commented that the discussion will help encourage a consistent application of IFRS 9 and the ASU No. 2012-260.

In regard to the forum, a FASB spokesman said that the standard setter is looking forward to attending. While not giving a definite answer on the IASB’s attendance, spokesman Mark Byatt remarked that the board is a FSB member and attends most of the group’s meetings.

We will provide a recap and updates regarding this meeting in a future blog post. If you have questions regarding this meeting or need assistance, contact a member of the Firm’s Financial Services Group.