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The International Accounting Standards Board, the developers of the International Financial Reporting Standards (IFRS) had hoped for a relatively unopposed campaign in their implementation of IFRS as a global standard. For this, US adoption was the key. Now this is looking increasingly difficult and the battle is being fought on the mark to market front.
Government and regulators in the USA have been aggressively pushing the IFRS standards, and the Bush Government’s Treasury Secretary Henry Paulson attacked IFRS opponents, saying "There are different accounting regimes with different standards and different requirements. That doesn't make them worse than ours. We've had plenty of issues with our accounting regime." However we now have a new government and it is not a given that they will continue to support IFRS.
One of the cornerstones of IFRS is rule 7 and, regardless of the US adoption of IFRS, this is now in US GAAP accounting rules as FAS 157, effective for fiscal years starting after November 14th last year. FAS 157 says that assets must be priced at a fair value defined as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." In other words, they must be marked to market.
This week, William Isaac, the former Chairman of the Federal Deposit Insurance Corporation (FDIC) told the SEC Fair Value review panel that mark-to-market accounting rules were the cause of the current financial meltdown and that, before FAS 157, sub-prime losses were "a little biddy problem". He said that he wasn't "asking that we change the whole system of accounting that has been developed for centuries", but that "A very bad rule to be suspended until we can think about this more and stop destroying so much capital in our financial system. I think that's a basic step that needs to be taken immediately."
With FAS 157 under fire, with US accounting hostility to the "foreign" IFRS accounting standards, with a new US government and the resulting changes in the heads of the US Treasury and the SEC, with a strong element of protectionism, even isolationism, in President-elect Obama’s rhetoric – with all these, what odds will we get on the future global implementation of IFRS? And where will that leave finance departments, IT developers and risk managers working towards their implementation?
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