FASB-IASB Advisory Group (FCAG) Updates, Cautions G-20

Yesterday, the Financial Crisis Advisory Group (FCAG), formed jointly by the Financial Accounting Standards Board and the International Accounting Standards Board to advise the boards on accounting issues arising from the credit crisis, issued a letter to the G-20. The April 29 letter updates FCAG’s March 31 letter to the G-20, and has been sent in an advance of FCAG’s final report expected in July. Attachment 1 of the letter provides a list of FCAG members. Attachment 2 of the letter provides a chart outlining FASB and IASB actions completed, underway, and next steps planned, in response to the Nov. 2008 and April 2009 recommendations of the G20 with respect to accounting.

The G-20's recommendations relating to accounting and other matters can be found in our previous posts: G-20 Leaders Pledge Action (April 2-includes link to G-20 Leaders' Statement), and Under Pressure (March 16-includes link to G-20 Progress Report)

In its April 29 letter, FCAG provides its views on some high profile projects FASB and the IASB are undertaking which relate to the G-20 recommendations. Here are some excerpts from their letter (subtitles inserted):

• Consolidation and derecognition: "The IASB issued proposed improvements in the area of off-balance sheet items (consolidation and derecognition standards) earlier this year and is working jointly with the FASB in this area. The FASB will issue in May improvements to the current US standards in this area. These projects follow a number of other improvements the Boards individually and together have been making over the past several months."
• Fair value: "The two Boards have provided globally consistent fair value measurement guidance for inactive markets and enhanced fair value disclosure requirements. In early May, the IASB will publish a proposal to enhance disclosures related to fair value measurement. The FASB also published, in March 2009, improvements to asset impairment guidance related to a US-specific impairment approach." (See NOTE below)
• Financial Instruments: "We at the FCAG are united in recommending to the two Boards that these joint and comprehensive projects [on financial instruments and consolidation/derecogntion] be the focus and chief priority of both organizations. We are also convinced that these projects present a tremendous challenge to the two Boards. The financial instruments project, in particular, is very wide-ranging and complex, and issuing a comprehensive proposal by the end of 2009, as the G-20 has urged, is ambitious and challenging, requiring significant resources, coordination, and focus."
  

NOTE: Some, particularly in the European Union as noted in the following articles, may take issue with the second bullet above; see e.g. IASB Plots Out Impairment Revisions (WebCPA, April 27) and IASB Rejects EU Calls For Immediate Guidance Changes (Reuters, April 24).

FCAG Cautions G-20
FCAG members expressed concern at their most recent meeting about political pressure being brought to bear on FASB and the IASB, as noted in Jason Karaian's summary of the April 20 FCAG meeting in CFO.com, Herz: No Convergence for 10-15 Years. (See our related blog post and detailed summary.) The political pressure as viewed by some relates to the March 12 Congressional hearing on mark-to-market accounting, at which FASB Chairman Robert Herz and SEC Acting Chief Accountant Jim Kroeker were asked by members of the House Financial Services Committee-Capital Markets Subcommittee, to commit to issuing guidance on fair value in inactive markets and other-than-temporary-impairment within 3 weeks (coincidentally, the date of the G-20 meeting). (For background, see our blog posts on March 12, April 2, and April 3). Similarly, some point out pressure in the European Union on the IASB, as shown in these recent articles: EU Could Take Back IASB's Power - ECB's Noyer (Reuters, April 25), and France's Lagarde: Need Global Financial System Regulation (WSJ, April 27).

In an apparent attempt to defuse political pressure on the FASB and IASB boards, FCAG's April 29 letter to the G-20 states: “We fully understand that policymakers are under tremendous pressure to provide both short and long term reforms for the many challenges with which they are confronted. We stand ready to help where we can."

"However," the letter notes, "the FCAG strongly believes that the two Boards can only achieve what the G-20 seeks if they can completely focus on the highly complicated technical work that these projects entail."

Therefore, FCAG cautions, "Additional work on other issues, beyond the commitments the Boards have already made, will inevitably lead to delays on the projects that matter most.” FCAG closes its letter to the G-20 by stating it will “continue its constructive dialogue with the two Boards,” adding that besides issuing its final report in July, its members have agreed to hold a meeting in December to "discuss the Boards’ efforts and proposed guidance in these important areas for financial reporting, the financial markets, and the financial system."

The next FCAG meeting is slated to take place May 22 in London. This is currently scheduled to be the group's final meeting, although a tentative date of July 10 at Baruch College in NYC is on hold if the group decides one more meeting is necessary before issuing its final report. FCAG is co-chaired by former SEC Commissioner Harvey Goldschmid, and Hans Hoogervorst, Chairman, AFM (the Netherlands Authority for the Financial Markets).

Monitoring Board Takes Shape
Hoogervorst was also recently named chairman of the new Monitoring Board, formed as a link between the International Accounting Standards Committee Foundation (the parent of the IASB) and public authorities (including national and international regulatory bodies). Other members of the Monitoring Board currently include: Junichi Maruyama, Deputy Commissioner for International Affairs of the Financial Services Agency of Japan (JFSA), Guillermo Larraín, Chairman of the IOSCO Emerging Markets Committee and the Superintendencia de Valores y Seguros of Chile , and Mary L. Schapiro, Chairman of the US Securities and Exchange Commission.

The role of the Monitoring Board has also been the subject of debate over whether it poses inappropriate use of political pressure on the IASB, or whether it imposes an appropriate level of oversight and due process over a standard-setter whose standards are required by law in the European Union and are used in over 100 countries around the world.
There were a couple of references to the Monitoring board at FCAG's April 20 meeting.

• FCAG Co-Chair Harvey Goldschmid said, “As good as they are on Capitol Hill, they cannot understand the complexity of [what the FASB and IASB] boards do] beyond a couple talking points; there is plenty of oversight, accountability should be real, but the SEC is there for FASB, and the IASB has a new Monitoring Group; the idea that a layman can come in and set deadlines and know about timing somewhat frightens me.”
• Another FCAG member, referencing the 100-plus countries that have adopted IFRS, said, “The hope from these 100 plus countries is that entities like the [IASCF’s] Monitoring Board, or the prestige of the IASCF, might … convince these politicians, maybe there are things that should not be determined on a deadline basis, just like it is unwise for politicians to tell the pharmaceutical industry you must find a cure for cancer tomorrow morning.. let them do high quality work… for high quality standards.”
• Taking a slightly different point of view, Sylvie Matherat, an observer from the Basel Committee of Banking Supervisors, said, “Everybody agrees standard-setters should be independent; that doesn’t mean they shouldn't be accountable.”
  

The IASCF Monitoring Board held its first meeting on April 1-2 in London, the next meeting is slated for July 7-8 in Amsterdam.

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