By Huw Jones
PARIS, Feb 23 (Reuters) - A global accounting standard setter will publish a draft rule later this year aimed at replacing and simplifying rules which critics say have forced writedowns, exacerbating the credit crunch. The International Accounting Standards Board (IASB) sets accounting rules used in over 100 countries and is mandatory for the 8,000 listed companies in the European Union.
Its IAS 39 standard on fair value obliges banks to mark to market or value assets on a regular basis, a process that has forced writedowns which have unnerved investors as asset prices sink.
This "procyclical" effect must be eased, critics say as the credit crunch has frozen trading in some assets, forcing banks to use their own models to price them.
"We plan to replace it, the whole thing. We want to stop patching up the standard and we want to write a new one," IASB board member, Philippe Danjou, told Reuters on the sidelines of a regulation conference. "We are aware that the current model is too complex. We need to simplify... We will move to exposure draft hopefully within the next six months," Danjou said.
The IASB was forced by the EU to tweak the existing standard last October to move in line with changes to accounting rules used by the United States.
The IASB eased the burden of marking assets to market prices on some types of assets, if banks wanted to. The change allowed Deutsche Bank (DBKGn.DE) to show a much better than expected third quarter pre-tax profit and net income but many banks have chosen not to avail themselves of it.
Gerard Gil, group chief accountant for French bank BNP Paribas (BNPP.PA) said the only real future for fair value was in liquid markets. Fair value represented the "primacy of the balance sheet" when analysts preferred to look at a company's net cash flow, Gil said.
"We need accounting standards that help strengthen the financial system and not the opposite," Gil said.
Bank of Spain's director general of regulation, Jose-Maria Roldan, said IAS 39 could be improved to elminate excess "procyclicality" by widening the "parameters" of valuation models and putting any profits into a reserve fund.
Fair value and dynamic provisioning -- another demand of many policymakers -- have become simplistic "buzz words" and must not be allowed to undermine credibility built up in Europe by the switch to IASB, said Stig Enevoldsen, chairman of the European Financial Reporting Advisory Group.
Spanish banks have used dynamic provisioning by building up reserves in good times to cover any losses when markets turn rocky, a model many policymakers say has worked.
Roldan said there was also a need to minimise differences between accounting rules.
"Having a single set of accounting standards globally and for all users would be extremely powerful," Roldan said.
The United States uses its own GAAP accounting rules and was pursuing a roadmap towards converging with IASB, perhaps by 2014, but momentum appears to have slowed.
A source familiar with SEC thinking said the deadline for consulting on the watchdog's roadmap had been extended and that no deadline was "cast in stone".
"It's intentionally open ended. There are some milestones in there but they are suggestions and ideas. It's an open roadmap," the source said.
(Reporting by Huw Jones, editing by Ron Askew)
source :Reuters UK
