May Be A 'Silver Lining' to Current Non-Endorsement of IFRS 9 By European Commission, IASB Board Member Says

In remarks at FEI's 28th annual Current Financial Reporting Issues (CFRI) conference earlier today, International Accounting Standards Board member Patrick Finnegan noted that the IASB's issuance of IFRS 9 (Financial Instruments) last week was met by non-endorsement by the European Commission.

According to a separate report by Duncan Wood Nov. 13 in Risk.net, entitled Confusion Reigns as Europe Fails To Endorse IASB Standard, an unnamed partner at a Big Four audit firm who participated in meetings with the European Financial Reporting Advisory Group (EFRAG) - formally tasked by the EC in 2006 with "provid[ing] advice to the [European] Commission on all issues relating to the application of IFRS in the EU" - said of EFRAG's recommendation to withhold endorsement of IFRS 9: "I assume the IASB will be very unhappy."

Silver Lining
Finnegan told the FEI conference that in his view:

"If there is a silver lining [to the lack of European Commission endorsement of IFRS 9], it is that it will allow us to finish our work under the [valuable] and deliberate process with the FASB."

Finnegan was referring to the fact that the two boards had been working under different timetables to complete their versions of improved Financial Instruments standards, although the boards are aiming to reach a converged standard in this area, along with completing other major convergence projects, by June, 2011, the date reaffirmed in the Nov. 5 IASB-FASB joint statement.

The IASB had been under pressure separately from various authorities, including the G-20, to complete the first phase of its financial instruments project by the end of 2009 (resulting in issuance of IFRS 9, focusing on classification and measurement of financial instruments, on Nov. 12.)

As reported by Wood in Risk.net:

[EFRAG] has promised to revisit endorsement in January, but opinions are split on whether that will happen, with some observers believing the EC would prefer to wait until the second and third phases of the reform have been published. The latter course of action would massively delay a process that European politicians had previously trumpeted as one of extreme urgency. The second phase of the reform, dealing with loan loss accounting, was published last week and the comment period does not close until June, 2010.

In light of presssure directed at the IASB as noted above, they split their project to amend their Financial Instruments standard (IAS 39) in three phases. As previously reported, the IASB recently released for public comment an Exposure Draft of its proposed standard on Financial Instruments: Amortized Cost and Impairment (with comments due June 30, 2010.). The third phase will include the release of an Exposure Draft on Financial Instruments: Hedge Accounting.

In contrast, FASB has been proceeding with a unified approach to amending its Financial Instruments standard(s) - and as noted by FASB Technical Director Russell Golden at the FEI conference today - FASB expects to release an Exposure Draft on Financial Instruments for public comment (addressing measurement, recognition, impairment and hedging) early 1Q2010.

Golden explained that part of the reason the IASB and FASB boards decided to begin holding monthly joint board meetings (by videoconference or in person; previously, the boards met jointly 2-3 times a year)was, in part, to try to avoid 'leap-frogging' wherein one board is working separately on a different phase of a project than the other.

Now, said Golden, "We have asked the leading board [on a particular project] to reconsider, rethink conclusions based on what the other board has done, so they can proceed together." This move to pace convergence projects in tandem, vs. leapfrogging, will apply to convergence projects generally, not only on financial instruments. On the financial instruments project specifically, Golden said, "We may need to make some changes to FAS 157 (Fair Value Measurement), or the IASB may need to make changes," as some differences between the two approaches are significant.

We will have separate blog posts today providing additional highlights from the FEI CFRI conference, including on the subject of convergence and more. Follow the FEI blog on Twitter at www.twitter.com/feiblog; read other's commentary on the conference (and add your own) by following/using hastag #feicfri.

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