Credit crisis causes IASB to review its work schedule 

"Sub-prime" losses and the wider effects of the global credit crisis are continuing. Unsurprisingly, these events have led to demands for the IASB to review the effectiveness of some of its standards against the backdrop of these extreme market conditions. In April the G7 finance ministers and central banks called for the IASB to take action urgently to improve accounting and disclosure standards for off-balance sheet entities and enhance guidance on fair value accounting. How will the IASB respond?

The IASB has a long-running project to develop a consolidation model applicable both to normal subsidiaries and to special purpose entities. It has recently suggested that it will omit the discussion paper stage and proceed directly to an exposure draft later this year. Around the same time, proposals to improve IFRS 7 "Financial Instruments: Disclosures" (the Standard dealing with financial instrument disclosures) may emerge. Additional transparency concerning off balance sheet risks and arrangements is likely to be the main theme of any such proposals although refinements in other areas (such as liquidity risks) could also feature. A review is timely in any case, with 2007 being the first year in which IFRS 7 has been applied widely.

The IASB is also expected to move ahead with detailed guidance on fair value measurement, along the lines of the (US GAAP influenced) discussion paper it issued in 2007. However, it will surely be less sympathetic to calls to limit or roll-back the use of fair value accounting. Some commentators suggest that fair value is appropriate only when items are held for trading or managed on a fair value basis. Others have gone further, suggesting that fair value accounting may have exacerbated the effects of the credit crisis. Proponents of fair value argue that cost-based alternatives would mask the impact of changing market conditions and, in doing so, would ultimately prolong the difficulties. This debate will continue.

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