IASB : Chairman's Statement to the European Economic and Monetary Affairs Committee

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Statement of IASB Chairman Sir David Tweedie, 28.09.2009, European Parliament, Brussels

Madam Chairwoman, Members of the Economic and Monetary Affairs (ECON) Committee, I welcome this opportunity to appear before you today to present how we at the International Accounting Standards Board (IASB) are responding to issues arising from the financial crisis. I will focus my formal remarks on our response on the financial crisis and, in particular, our response to issues raised by EU institutions. However, I should be happy to discuss any other issues that members of the Committee wish to raise.

I am particularly pleased that you have made time to allow me to provide an update on the IASB’s work at this critical juncture for financial markets. I and my colleagues on the IASB look forward to working with the Committee in the coming years, and we remain committed to seeking your input on important aspects of our work at an early stage in the decision-making process. I also know that the Trustees of the IASC Foundation, the IASB’s oversight body, have already expressed their willingness to meet the Committee later this year.

This session is particularly timely. The G20 leaders met last week and have repeatedly affirmed the importance of achieving a single set of high quality global accounting standards. This is something that the European Union and your predecessors on this Committee recognised well in advance of the current crisis. The European Union’s strategy to adopt an international standard, rather than a particularly European one, has been vindicated.

As a direct result of your leadership in this area, over 100 countries now require or permit the use of the International Financial Reporting Standards (IFRSs) issued by the IASB. It is crucial for the achievement of global standards and the effective functioning and prosperity of the European economy, and indeed the global economy, that the EU remains committed to global standards.

An active and measured response to the financial crisis

Today, in the limited time that we have for this session, I should like to explain what we have already done and what we are currently doing in response to the financial crisis. It is a priority of the IASB to keep EU institutions – and other relevant stakeholders - informed of our activities. I would certainly welcome your views today.

Earlier in the year, I had the opportunity to meet with EU Finance Ministers in June and I have been invited to their October meeting to provide a further update. We are also in regular contact with the European Commission. I am also including, as part of my written statement, a copy of a letter that Gerrit Zalm, the Chairman of the IASC Foundation Trustees, sent to the G20 on 15 September that describes our actions in greater detail.

Today, I want to give members of this Committee confidence that the IASB has responded appropriately to the crisis and to the specific issues raised in Europe. Last week, the Monitoring Board, in which the European Commission currently participates, set out important principles to guide our response to the financial crisis.

The Monitoring Board emphasised, ’the primary objective of financial reporting as being to provide information on an entity’s financial performance in a way that is useful for decision-making for present and potential investors. To be considered decision-useful, information provided through the application of the accounting standards must, at a minimum, be relevant, reliable, understandable and comparable.’ These are principles that we have applied and will continue to apply in response to the financial crisis.

In developing an effective response to the crisis, the IASB has sought the advice of experts from a wide range of backgrounds. Jointly with the US Financial Accounting Standards Board (FASB), we asked the Financial Crisis Advisory Group (FCAG), a group of leaders with broad experience in international financial markets to advise the two boards on their joint response to the crisis.

Prominent European members of this group include:

Hans Hoogervorst
Chairman of the AFM (the Netherlands Authority for the Financial Markets)
Stephen Haddrill
Director General of the Association of British Insurers (ABI) and shortly to become Chief Executive of the UK Financial Reporting Council (FRC)
Michel Prada
former Chairman of the Autorité des Marchés Financiers (AMF)
Tommaso Padoa-Schioppa
former Finance Minister of Italy
Klaus-Peter Müller
Chairman of the Supervisory Board of Commerzbank
Lucas Papademos
Vice-President of the European Central Bank

The FCAG reported at the end of July, and the IASB is working to implement the relevant recommendations.

Actions taken to respond to global concerns

From the outset of the crisis, the IASB has worked on a defined programme with time lines to address issues arising from the financial crisis. Our initial focus was on the three areas identified by the Financial Stability Forum: 1) the application of fair value in illiquid markets; 2) accounting for off balance sheet items; and 3) disclosures related to risk. On all three points, we have acted urgently.

On fair value in illiquid markets, we produced a report in October 2008 that the European Commission praised. We have consistently stated that IFRS and US guidance are consistent in this important area. I know that there was concern that the recent FASB Staff Position on fair value measurement might have created a new unlevel playing field. It is for this reason that immediately after the FASB’s publication, we posted a press release reiterating that our approach was consistent with the FASB’s. As an extra precaution to ensure that global consistency is maintained, on 28 May 2009 the IASB published an exposure draft on fair value measurement that directly incorporates the relevant FASB guidance.

On off balance sheet items, the G20, the Financial Stability Forum, and this Council have all emphasised the need for more transparency in the accounting for these items. There is some evidence that IFRSs have held up relatively well on this issue, but we have now proposed tightening our rules further.

On risk disclosures, in March 2009 the IASB published improvements to the disclosure requirements for fair value measurements and reinforced existing principles for disclosures about the liquidity risk associated with financial instruments.

Read the full statement at: http://bit.ly/wd70n