IFRS update
There is an aggressive push on by the International Accounting Standards Board, and its American counterpart, the Financial Accounting Standards Board, to complete several joint accounting standards projects in the year 2010, including finalising new rules governing the treatment of financial instruments. Although the two boards are close with respect to accounting principles, they diverge on actual rules regarding how to recognise bad debt and book changes in the fair value of loans.
For instance, the FASB favours the current-loss model, which requires banks to measure their credit losses at the end of a reporting period by determining the decrease in the net present value of the company's future cash flows. It says estimates should be based on known factors, including historic and existing conditions that could impair a creditor's ability to pay back its obligation in a timely fashion.
The IASB, by contrast, is a fan of the expected-loss methodology for bad debt—the method also favoured by G20 leaders fretting over the global financial crisis. Under that method, banks make ongoing assessments of debtors and watch for “triggering events” that force them to recognise bad debt earlier than the FASB's rules would require. The IASB has just released its exposure draft on bad debt rules, with the FASB expected to issue its draft by the end of the year or early 2010.
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