international financial reporting standards (ifrs) …...agree but still not as good as all fair...

International Financial Reporting

Standards (IFRS) Financial Instrument Accounting

Survey

Comments

CFA Institute Member Survey

November 2009

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Comments

The amended IASB approach to classification of financial

instruments will improve the decision usefulness of overall

financial instrument accounting.

Comments

Agree Accounting needs to provide meaningful information for at least somebody. Improving the usefulness of accounting information is always a worthy goal, but the question becomes from whose perspective.

Agree agree, you either buy instruments for trading or yield - there's really no need for Available for Sale.

Agree Although most hedges will be structurered to have no "upfront cost" upon initiation (contract terms will be adjusted to ensure no upfront cost), I still think it's a step in the right direction--especially for hedging fixed income-type assets/liabilities.

Agree An amortized cost option needs to be available

Agree But still not as good as all fair value!

Agree except for the concept of OCI, which should be done away with

Agree Global IFRS movement has been begun since 2000 when the EMEA investment was made.

Agree harmonisation still need to happen very much

Agree I agree with respect to financial instruments on the asset side of the balance sheet. In my opinion a company's own liabilities should never be measured at fair value on their own balance sheet

Agree If the reporting entity is a going concern (which is a requirement under GAAP at least), then the assumption for bond holdings should be amortized cost IF the intent is to hold to maturity.

Agree Invokes FAS 157 for all financial instrument measurements--now HTM investment FV disclosures (old FAS 107) not subject to FV hierarchy

Agree

It is already based on a mixed measurement method, so the improvement (or not) is with respect to the new classification conditions. I think that the new conditions will improve usefulness as will help users to understand the purpose certain portfolios of assets are being held for.

Agree It recognizes that one size does not fit all situations.

Agree

One needs the ability to hold long term instruments on an amortised cost basis if such an instrument is being held to maturity. Short term demand supply price fluctutions should not impact the long term yield fundamentals and hence you should not be forced to MTM the instrument purely because it is listed.

Agree Remove mgmt perspective

Agree Requires appropriate provisioning of loan instruments

Agree Should be fair value only

Agree There needs to be nuances

Agree

This would in most cases present well the economic reality of financial assets and liabilities. Inappropriate categorization by managements of assets and liabilities into the various categories would be limited. Reclassification of relaized gains/losses from OCI to net income and then retained earnings should remain.

Agree Yes, but does not go far enough. All financial instruments should be measured at fair value, no exception for loans.

Disagree amortised cost does not take into account market conditions and potential charge-offs

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Disagree amortized cost information is not decision-useful. The equities through OCI bucket is going to get abused.

Disagree As long as both parties of a derivative transaction are free to book at what they consider fair value, regardless of the other party's books, decision usefulness will not be improved

Disagree But could be better

Disagree Choices in accounting standards distorts the comparability of financial statements

Disagree Does not improve consistency or comparability

Disagree Embedded derivatives need to be measured and disclosed. Without disclosure of financial risk, we will create another set of bad banks.

Disagree

Fair value accounting is good in theory, but can't be accomplished in the real world due to the complexity of financial instruments and the existence of illiquid markets. The assumptions used by different institutions will be greatly different, which results in financial statements that can not be compared easily.

Disagree Fair value is more relevant factor in "decision usefulness."

Disagree Gave the financial institutions a break.

Disagree Generally, I agree with accounting that focuses on the use of the asset, but I think fair value through OCI is a better alternative since it has fair value on the face of the balance sheet instead of in the notes.

Disagree Hard to obtain fair value

Disagree

I oppose an accounting measurement attribute for financial instruments that is based on the business model. Fair Value for financial instruments (except liabilities) is the most relevant measurement in all circumstances, regardless of the business model. A mixed attribute model hides losses, and therefore is not useful for accurate investment decision making.

Disagree Investments should be carried at cost or amortized cost, nothing else....Fair Value should just be a foot note

Disagree Loan should be priced at fair value, especially when the interest is extremely high or low.

Disagree maybe for management but not for educated investors

Disagree

Measuring structured securities at fair value is problematic in periods of financial crisis. For entities that are not forced sellers in the market, a fair value measurement approach has the potential to mistate the true value of the asset on the balance sheet. In periods of acute distress, the technical aspects of the market may dominate while fundamentals are thrown by the wayside. However, the buy and hold or available for sale investor is more likely to ride out the period of distress when the intrinsic value of the asset is greater than the current market price driven by supply and demand disruptions. Thus, the fair value measurement should be based on the investor's ability to hold until recovery. Perhaps a balance sheet liquidity approach would be more appropriate in determining whether an investor has the wherewithal to withstand periods of acute distress without becoming a forced seller in the market. Force those entities with insufficient liquidity or capital based on predetermined objective measures to mark to market and disclose as much in the financial statements.

Disagree Primary goal is to assess liquidation value, not yield

Disagree

recording gains and losses through profit and loss does not necessarily improve the decision usefulness because these gains and losses are unrealized. It would make it difficult to tell the difference between true realized gains/losses and those that are due to mark to market events.

Disagree still can be simpler

Disagree strongly disagree and would like to see fv figures on the financial statement accounts

Disagree The chosen criteria is still subjective and companies is likely to choose the method which will give them the results they desire

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Disagree The rules may become overly complex. As an analyst examining the balance sheet it will be difficult to ascertain what on the balance sheet is carried at amortised cost versus what is "fair" valued.

Disagree too complex, confusing

Disagree Too complicated for general public or expert to understand

Neutral investors like to know the MTM gains/losses even on those hodlings-to-maturity

Neutral

For those financial instrument, which its fair value is readily available in the market, and is not recorded at fair value in the books, fair value should be disclosed. Bifurcation makes analyst more difficult to understand the treatment. As long as the dilutive feature is disclosed, bifurcation does not add additional information to the financial statement. ,

Neutral From what I understand of the changes, they will be relatively minor

Neutral hard to know how "fair value" will be determined on instruments w/o liquid markets

Neutral I do not think that the proposed changes and their potential impacts were explained well.

Neutral I feel this isn't "too" different than the FASB concepts of HTM, AFS, and Trading Security accounting.

Neutral In case market value of instruments valued at amortised cost is substantially lower than balance sheet value, financial statements will not be more useful. It should be required to show in notes the difference between at cost values and market values

Neutral increases VOLATILITY of income.

Neutral It depends on the quality of implementation and related disclosure as well as on user performance.

Neutral put both methods in FS notes

Neutral Restrictions over the use of the amortised cost category, allowing only vanilla financial instrument as defined in the standard are somewhat arbitrary and will not necessarily follow management intent.

Neutral Rules governing which instruments stay at amrotized costs should be crafted carefully to prevent abuse. Why leave the OCI exception for equity?

Neutral

The decision-useful information for a financial instrument is provided when accounting for them facilitates inter-firm and intra-firm comparisons. However, paragraph 9 of the ED grants conditional permission for designating an instrument, which otherwise would be accounted by the amortised cost method, as FVTPL. I believe that this option reduces comparability among the otherwise identical instruments which are accounted differently by either amortised cost method or as FVTPL. I believe that FVTPL should be the preferred method of valuing financial instruments and that the amortised cost method should be employed only as the default method.

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The amended IASB approach to classification of financial

instruments will reduce the complexity of current financial

instrument accounting.

Comments

Agree But could make comparisons among firms difficult and will be interesting to apply after mergers and acquisitions

Agree by eliminating the AFS and most of OCI

Agree

Complexity is reduced, but unrealized gains/(losses) flowing through the Inc. Stmt. for a going concern is NOT useful. If the intent is to hold to maturity, then I want to know what the company earns from this, not its value change. The unrealized should flow through equity, not the I/S.

Agree embedded derivatives have been difficiult for auditors to grasp, so eliminating this requirement essentially omits substantial volumes of "fine print" in financial statements and allows for focus to be placed on more relevant measurements

Agree For example, you can explain the difference in classification to people in a sentence or 2.

Agree I prefer using amortized cost on bonds that are intended to be held to maturity for the purpose of earning yield.

Agree IASB has made recent compromises to accommodate. This is the way it works. Convergence will happen naturally thereafter as the markets are let to work.

Agree Liquid instruments should be valued at fair value

Agree Matches up with the business model of the reporting entity.

Agree may likely involve more work to achieve this transparency level, yet that result is the goal.

Agree only 2 categories helps; however comparison between companies get trickier

Agree reduction of complexity is probably not always the right answer, how about keeping things stable for a while.

Agree this stardard might provide some rooms for manipulation. Definition od "loan features" " yield purpose" shall be the key, in my thought.

Agree Would reduce classification categories (held-to-maturity, available-for-sale, etc. and thus simplify reporting

Disagree "However, an exception is allowed for equity instruments as this can be accounted for through the other comprehensive income (OCI).", here is a perfect loophole which would be exploited by financial firms

Disagree A change like this will certainly increase the complexity of financial instrument accounting

Disagree but acceptable

Disagree But could be better

Disagree Carrying assets at cost or amortized cost allows us to get a better idea of managements ability to make wise investments.

Disagree complexity should not "trump" accuracy for reporting

Disagree Complexity will be reduced for reporting entities, Investors will gain only uncertainty, probaly simply driving up the overall cost of capital

Disagree

Fair value accounting is good in theory, but can't be accomplished in the real world due to the complexity of financial instruments and the existence of illiquid markets. The assumptions used by different institutions will be greatly different, which results in financial statements that can not be compared easily.

Disagree fair value is a better approach

Disagree Focuses too much on income rather than economic value

Disagree Frequent changes in accounting standard adds additional complexity.

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Disagree Hard to obtain fair value

Disagree I don't necessarily advocate for full fair value b/c measuring fair value can be very cumbersome and unreliable. That said, any mixed attribute model for similar instruments will have complexity.

Disagree I don't think the complexity can be reduced due to the underlying complexity and variety of financial instruments and the different ways they are used.

Disagree I don't think the Fair Value through OCI category will reduce complexity.

Disagree inconsistent- it is foolish to have accounting statements when some assets are at fair value, and some are measured at amortised cost.

Disagree it is complex nevertheless

Disagree It is difficult to see how different accounting treatments for similar groups of assets (i.e. financial assets) could be conceived as less complex. Also given that some revaluation is through OCI and not P&L makes this process even more cumbersome.

Disagree More complex=more transparent. Life is complex.

Disagree More complexity as some companies will show impact on P&L while other will use OCI. More risk would mean less probability of P&L flow-through.

Disagree More concern about the operationality of "loan like feature" criterion and specifically, the application of "look through" approach may result in diversity in practice.

Disagree strongly disagree. this approach increases complexity because it does not provide the fair value numbers on the face.

Disagree The complexities of financial instruments accounting will diminish as only two categories and a single impairment model are proposed.

Disagree The option as to whether to account for equity investments in P&L or OCI will limit comparability particularly where equity holdings are substantial

Disagree This will increase the complexity of accounting.

Disagree Too much subjectivity and assumption incase of non-public trading investment

Disagree Two measurement schemes = same or more complexity

Disagree Yes, they are reducing the number of buckets from 4 buckets to 3 buckets, but this is a real missed opportunity to do something more meaningful. This is still a complicated model.

Neutral Changes but does not necessarily reduce complexity

Neutral I do not think that the proposed changes and their potential impacts were explained well.

Neutral If the tracking and monitoring is done correctly, the reporting, while detailed and can be subjective, will improve financial transparency.

Neutral In spite of the proposed changes, FI accounting remains highly complex

Neutral It's a complex situation, it's not helpful to simplify just for the sake of simplifying if it doesn't reflect reality.

Neutral Problem is "However, an exception is allowed for equity instruments as this can be accounted for through the other comprehensive income (OCI)."...whats that for an improvement?

Neutral Seems that, when used for hedging, accounting treatment of the derivative should mirror the treatment used for the underlying asset/liability being hedged.

Neutral There is always a trade off between complexity and accuracy. We can make something less complex, and thus easier to understand; but if that deters from the accuracy/usefulness of the information, then what's the point?

Neutral There should not be an exception for certain equity instruments to be accounted for through OCI as this is contrary to the goal of having all instruments recorded at fair value through profit and loss.

Neutral too early to say so right now

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How do you view this alternative approach relative to the

proposed IASB approach? Comments on Response

Worse More uniformity is much better for comparability and the latter is very important for fundamental analysis.

Better The more frequent disclosure of fair value is a great increase in transperency of the financial statements.

Worse A can of worms will be opened to determine fair value of assets.

Better A consistent approach will make the information more useful for comparison purposes.

Worse A hybrid approach will be more time consuming without adding material value to the end user due to the inherent volatility of fair value measurement

Worse A lot of grey area and increased complexity for measuring such instruments. Less comparable across financial accounts

Better Again, could be better but would be an improvement

Better Again, it depends on whether we are talking about both sides of the balance sheet. On the asset side, I think as much as possible should be at fair value. But not on the liability side.

Better All at fair value is a significant improvement, but the use of OCI is a serious retrograde step.

Better All financial assets and liabilities should be measured at fair value

Better

Allows for greater uniformity and less subjectivity when comparing financial statements - the disclosure of both the amortised cost and the fair value gives the user greater flexibility. Avoids manipulation of intent, requires less subjectivity and attributes income (through OCI at least) to the correct period.

Better Along with adequate footnote disclosure, this approach allows a more conservative smoothing of net income with the necessary details for analysts to make adjustments based their own risk-adjusted models.

Worse Although fair value information is useful and relevant, note disclosure, instead of recognition and measurement in the financial statements will provide the same information with less effort.

Worse Any attempt to measure loans and other non liquid assets to a model is diluting the usefulness of financial statements..

Worse

Applying what is effectively fair value to all financial instruments does not follow the manner in which management assesses or 'manages' the business. For example, consumer loans issued by a retail bank with the intention of maximising net interest margin. The additional volatility created in the income statement and / or equity by marking such instruments is neither informative nor useful. This feels much like valuing a business for break up and ignores the basics of the going concern assumption in the preparation of accounts.

Better As long as the proper valuation tool is used to determine FV, the methodology will provdie better transparency. When there is not a centralized market that can be used in determining the FV, the cash flow models can provide too much latitude in calculating the respective FV.

Better at first glance seems to leave less options to choose from, and also better implements fair value considerations

Better Balance sheet accuracy is the primary importance, because it tells investors what they have bought. Recording balance sheet items at fair value is more appropriate.

Better Better, but doesn't address the specifics of illiquid securities--if illiquid securities under duress are allowed to be carried at amortized cost, the problem still remains.

Worse Certain investments should be carried at amortized cost as the reporting entity is relying on P&I from those instruments rather than through sales or trading activities. To force a Company to FV those instruments would be cumbersome and add minimal value.

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Worse complexity reduces transparency

Worse Confusing splitting the fair value into an amortised cost and "excess"

Worse Converge - FASB should forget it. There are differences in the tax systems in the US vs. globally (approach to capital gains and realization)

Not sure

Currently the income statemet is "tainted" by fair value adjustments on investments and thus does not only reflect operational activities. This makes analysis more complex. I am not sure whether this would disappear, but I would recommend that unrealised gains or losses on investments that do not have actual cash flow implications, are directly accounted within equity.

Not sure

Determining fair value is always a crap shot. Markets take wild swings at times, and many assets simply have no active market upon which to base a fair value concept. I think it's better to strengthen disclosure in notes highlighting the differences between book value and assumed fair value, including the key assumptions which are used in both. Then adjustments to capitalization ratios and profits should be presented in the case that fair value was used.

Worse Difficult in practice to obtain fair values for many instruments

Better Easier, clearer, more transparent

Better Equities unrealized should not be allowed in OCI (in my opinion).

Not sure Equity class needs also to be OCI, depending on the judgement of holding purpose

Better Equity instruments should be accounted for through OCI

Better Fair market value better reflects the value of assets at a certain point in time

Better Fair value accounting is preferable provided fair values can be consistently obtained. It makes sense to recognise fair value changes through equity as these are essentially timing differences on held to maturity instruments

Better Fair value accounting is useful when it is not manipulated. The transparency needs to be improved further to understand the risks that remain in companies.

Worse Fair value for illiquid assets and liabilities - such as originated and held loans or deposits - does not make sense. This information is fine for disclosures, but not for the face of the financial statements.

Better

Fair value information is the most decision-useful because we ultimately have to translate accounting information into fair values when we are making buy/sell decisions. Those who make the argument that the fair value is not relevant to the company if it intends to hold to maturity miss the point that fair value is very relevant to the investor deciding the appropriate price to get in or out of a stock. The FASB is still respecting those who find amortized cost information relevant with their approach. The IASB is not showing the same level of respect to users who rely on fair value information with their approach.

Better fair value is a moving variable that relative to benchmark or market that is volatile by natrue. Therefore, fair value will not be a good long term investment criteria after purchased of the instrument. However, permenent impairment to investment cost should be recognised.

Not sure fair value is always better but procyclical regulatory responses to changes in value must be fixed first.

Better Fair value on all assets, bring all VIEs on to the balance sheet, if banks are getting govt bailout money the least they can do is show their true financial condition.

Worse Fair value provides massive opportunity for fraud through 'judgment' as well as for unfair write downs because of market liquidity issues. The IASB definitely has it right to say that amortizing assets not being held primarily for their fair value changes should be held at amortized cost.

Worse Fair value should be disclosed in the footnotes but for a company that is holding assets to maturity, it's not helpful have changes in market value flow through the Income Stmt.

Worse Fair value treatment of loans is absurd and highly pro-cyclical, perhaps disastrously so. In difficult times, what bank is going to make a loan (such as a middle market commercial loan) if it runs the risk of an immediate markdown to perhaps 80 cnts on the dollar. The IAS 39

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approach is a far better match to the economics of the banking business.

Better Far more FI will be reported at FV under the FASB's approach than under the IASB's model, which will likely increase the amount of HC measurement while deferring equity instrument gains and losses permanently outside of NI.

Worse fin results will be more volatile

Not sure

For debt instruments, I'm not sure b/c it seems the info the FASB would put on the face of the statements would be disclosed under IASB model (I'm presuming this but have not studied it). For equity instruments, I presume this is not the equity of the reporting entity (but would be equity-indexed instruments that get pulled into liability accounting). For equity instruments, it seems appropriate to use income (not OCI).

Worse for general public, they don't distinguish the income via P/L and OCI, so partially go to OCI for investment is not appropriate.

Worse

For the vast majority of banks, it is not their intention to sell the loans that they have originated, so how does FV going through the IS reflect business performance. Credit losses can be accounted for as impairments to reflect the decline in value of a loan. Also, net interest margin information may be more difficult to 'check' - this would depend on the disclosures required though. Re equity instruments, only certain of these will be accounted for through OCI under IFRS9, not all.

Better FV vs amort cost will allow us to see the return so far...putting the gain in OCI is much better than going through Inc Stmt...Nothing should go through Inc Stmt until it is realized.

Worse Hard to be certain about fair value and therefore introduces volatile values into the Balance Sheet. Value changes only matter if accurate information is available (selling price)

Worse Have not heard an approach for tackling assets traded in illiquid markets.

Better Having fair value data is always better than not having it, and having it recognized somewhere (even if it is in OCI) is better than not having it recognized.

Better Here complexity is shifted from investors to reporting entities, which should benefit capital markets transparency.

Worse

Here is the twisted logic: 1. Investors value company's mainly by earnings, not book value 2. Accounting is meant to be a tool for investors. 3. Accounting Standard setters decided to focus on getting the balance sheet "right" at the cost of making income exceedingly volatile and useless to investors. It all makes sense right?

Not sure Higher earnings volatility from the alternative approach could be the most significant negative.

Better higher visibility

Better How do you put a fair value on amortized assets?

Worse How should this work? "the balance sheet would provide both fair value and amortised cost values" The balance sheet can only reflect one value, differences between fair value and balance sheet value can be provided in the notes

Worse

I am content for instruments with basic loan features, as defined in IFRS 9, to be measured at amortised cost. It does not worry me that this is a hybrid model. Often both FV and cost measurements provide useful information. I do not want to lose sight of the redemption value of loans.

Better I believe all instruments should be measured at fair value.

Better I believe fair value is a more accurate measurement. All assets should be measured at fair value, which would provide a more accurate method of measurement.

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Better I believe it would be helpful to have both fair value and amortized cost available for analytical purposes.

Worse I believe that equity instruments deserve special treatment that does not send their value changes through ordinary income.

Worse

I cannot find any reason for dual accounting in instance described in the body of question. Such mix can only make relevant disclosures unclear. The more of less accurate insight into FV of EIR measured instruments is or should be already available in the Fair Value disclosures under IFRS 7 and any smart analyst can take advantage of it.

Better I disagree with OCI treatment for market gains/losses. This clouds information flow to financial statement users. I would like to see full fair market value reporting flowing through IS.

Not sure I do like what I have read here, but there are a few gray areas I would like more information on before I could decide on better or worse.

Better I do not like mixed measurement models. The FASB approach would basically be amortized cost income statement and a fair value balance sheet.

Not sure I do not support fair mkt value reporting for loans, but would support FASB moving all equity investments < 20% holdings to mark-to-market reported in income.

Not sure I do not think that the proposed changes and their potential impacts were explained well.

Worse

I generally dislike FASB for various reasons but I dislike the creation that is other comprehensive income more. As a preparer of FS I find it most people do not understand OCI. I would consider any move to eliminate OCI to be a positive change. On the flip side I believe that companies must be given more latitude in presenting their income statements in meaniful ways, ie showing reoccuring smoother operating income seperate from the more volatile gains and losses from investments. This would help investors in predicting the timing of future cash flows.

Not sure I guess I becomming more of a fundamentalist on the fair value issue. I am suspicious of shunting fair value out of the bottom line. To be comfortable with this proposal, I would need more detail, particularly on which instruments could be amortized for income purposes.

Better I like the fact that for certain instrument, the balance sheet will provide both fait value and amortized cost values

Better


Better I think all changes in fair value should be recorded through net income and OCI should simply be eliminated.

Not sure I think this will be better for companies that manage financial assets and liabilities on a long-term book basis. It will be worse for companies that manage on a market or trading basis.

Worse I would like to see fewer valuation chagnes going through OCI.

No difference

If the fair value of an asset has increased then an amortisation charge to earnings is not reflective of the economic reality of the asset. It would be better that the fair value approach is used to present an accurate balance sheet and that no change to earnings is made, with the change in fair value booked to equity reserves.

Worse In my understanding, FASB approach includes recycling, which causes complexity and makes it difficult to understand OCI figures. Net income does not have any economic siginificance.

Better

In my view, any financial instrument on the books of an entity is either deployment of excess cash (wealth for non-financial institutions) or part of the business (Financial Institutions). If it is wealth, any change in those values should be treated as such and not as income. Income, in my view, is earned through "regular" operations. It may so happen that changes in wealth are bigger than income - so, be it. The changes in wealth should be captured in the book value (net worth).

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If it is part of business, changes in values should be captured in the income statement being part of "regular" income - may be through OCI. We need simplicity in accounting; not complexity. One size fits all accounting rule will not serve the purpose.

Worse In this case there will be OCI will contain income/loss from a larger number of the types of instruments which will complicate decision-making.

Worse Inadequate for institutions that hold and issue financial instruments to earn a spread. Recording losses unlikely to be realized into capital distorts financial position.

Not sure It depends potentially on the industry and the type of instruments being held which could certainly make it worse using simply FV measurements.

Worse It does not simplify the accounting, it makes it less understandable, and it does not provide useful information to readers. Having the same financial instrument valued on two different bases would confuse readers of financial statements.

Worse It is going to complicate disclosures to investor public

Worse It magnifies problems in times of highly volatile asset prices and especially markets do not function properly. Results would depend even more on the point of time the numbers are produced.

Not sure It makes more sense for the change in FV to flow through OCI. I believe this should also be the same for equities (why differentiate?).

Not sure It makes no sense to call something "income" but at the same time it isn't (the OCI aspects). This sounds like more gamesmanship by greedy CEOs to pad their pay than it does an honest solution

No difference

It may be good for financial industry, such as bank & investment company, which gives a clear value of what net asset is. But it is not good for insurance company which focus on long term management. Fluctuation of FV may not necessary reflect a change in the degree of asset and liability matching because considerable amount of judgement is required to measrure liability FV. Also, for non-financial company, debt will become fluctuate year over year even though cashflow pattern remain stable. Harder to interpret accounting figures.

Better It provides investors with the neccessary information for valuation purposes without producing huge volitility in earnings - however any trading business need to have full I/S fair value as that is the nature of the business.

Worse It sounds more complex.

Worse It will reduce comparability. It will result in a lot of unrealiable fair values of little usefuleness.

Worse It would be ideal if FASB and IASB had the same approach because that would make statements more comparable. Also, it appears that the IASB's approach is more simplified.

Worse It would further complicate the balance sheet.

Not sure Just don't support what the banking industry wants!

Better less susceptible to manipulation

Worse Loans should remain valued at amortized costs, any other measure will result in unnecessary volatility in balance sheets and reduce the effectiveness of banks as financial intermediaries.

Better looks more reasonable, more informations for the analyst

Better Making economic value more transparent is a good thing.

Worse

Marking to market is a tough issue. If the lender was planning to hold the paper for life, then a present value approach seems appropriate. If the lender typically sells the paper, mark to market makes more sense. When a market loses liquidity, holders should have the option to carry the security on an

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amortized basis.

No difference Might as well keep two sets of books.

Worse

Mixed measurement model is the best way for reporting of financial instruments. Financial instruments are managed on different bases within different business models and measuremnt models have to reflect this. For debt financial instruments which are managed on contractual yield basis amortised cost is the most suitable measurment method. For such instruments disclosures of fair values in the notes (without showing hypothetical gains/losses from remeasurment to fair value) is sufficient. Moreover for equity instrument which are held for long term period (strategic investments) fair value through P&L (as proposed by FASB)is not suitable measurement method.

Worse More complex; less B/S-P&L agreement

Better

More decision-useful information about investments in equity instruments (and derivatives on those equity instruments) results if all such investments are measured at fair value. It is now received wisdom that the recent global meltdown of the financial markets could have been avoided if the pricing of complex derivative instruments had been more transparent ab initio. This thinking is reflected in the recent US government proposal to require derivatives like credit-default swaps to trade on regulated exchanges or electronic venues. I endorse fair value pricing of all financial instruments in general and equities and derivatives in particular.

Better more disclosure

Worse More disclosure--in footnotes, not financial statements--is ALWAYS better.

Better More fair value is better. All should be fair value and go through income statement as differences in fair value.

Better More information = More clarity. My question based upon this description is what exactly constitutes these "certain instruments", and who decides which have to be reported on both bases? The manager? or FASB rules?

Worse More information and complexity are mostly worth the effort when in financial crisis. In normal times, most of the bonds-like are held-to-maturity, so the volatility in earnings is overstated from FVO.

Worse

MTM accounting has come in for some criticism over the last 18-24 months and its alleged role in exacerbating the financial condition of some entities due to large write downs applied to some securities, mainly securitised positions. This seems unfair and unjustified to me. The disparity between the treatment under US GAAP versus IFRS appears to be contrary to the convergence process for the two GAAPs.

Better much better

Better Much preferred over the IASB approach, as it allows investors to see the relevant numbers on the face of the income statement.

Worse Multiple methods adds confusion.

Worse

My responses will always be along the same line. It used to be that fair market value was implemented in order to get a "fair" valuation for an asset. Now, there seems to be a switch to a maturity valuation in order to get a "fair" valuation. Tomato/Tomato ideally we should all understand the true nature of the assets we are buying one accounting method or the other. There will never be an accounting methodology that will make financial assets truely transparent and accurately valued while placating humanity's innate laziness.

Not sure Need more info to comment. However, mark to market and other current standards MUST GO!!

No difference neither 1 nor 2 is perfect - examples in either case could be made suggesting that distortions will occur...but consistency is key - no matter which choice is made...

Not sure OCI has been misused to hide risk during the fin crisis. Other extra options makes everything too complex. Also, giving all this accounting options only helps transparency if it is implemented consistently. Otherwise it reduces the comparability.

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No difference Perhaps we should spend more time looking into what "Fair Value" really means. Two persons looking at the same financial instrument would come up with very different "fair" values.

Better Prefer FASB approach to removing reporting firm's "judgment" as to whether assumptions underlying amortized cost have changed materially. Wondering, though, about standardization of valuation techniques.

Worse

principles of accounting will be damaged when balance sheet fluctuations occur more frequently than users are accustomed to. equity & OCI are the more appropriate way to account for unrealized gains, because modifying asset values will pose a greater harm to the lending community than anyone, which will negatively affect credit & collateral requirements

Worse Private equity investments should be recorded at cost until an event occurs triggering revaluation such as a new investment round, an IPO or a required impairment. Public equities should be marked at cost on the balance sheet with fair value disclosed in a footnote.

Not sure

Pros: Increases transparency and allows investors to see the volatility/risk that these derivative hedges impose. Cons: It will (sometimes significantly) increase earnings volatility, which, if the hedges are actually effective/held to maturity, will probably give the appearance that the earnings are more volatile than they actually are. In general I favor increased transparancy/disclosure.

No difference Provide both methods in FS notes.

Better Provided user with more information and more information is better than less if disclosure are clear and unambigous.

Better Providing less leeway to categorize as amortizable would be preferable, in light of the fact that investors need to value the companies' present values.

Worse raises questions of fair market valuation.

Better reduce categories from 4 to 2, based on business intention

Worse reporting fair value and amortised cost on the balance sheet for certain instruments will be confusing

Not sure Separation of earnings is a good idea, but separation will make balance sheet more difficult to understand and accounting for the positions through banking applications more complex.

Worse Some equity instruments are basically not available for sale, therefore accounting for them through OCI makes a lot more sense than to record them through the p/l.

Worse

Some financial assets and liabilities are held permanently or until maturity. Further, it may not be easy to establish fair value for many of them and attempts to do so would depend heavily on management judgment and discretion. Amortised cost is more appropriate. Requiring all unrealized gains/losses to be reported in income would enhance earnings volatility and make analysis of actual performance of companies more complicated for many users of accounts.

Worse Such split make it even more difficult to follow, and measurement is not aligned with intent.

Worse The above standard seems more confusing than the IASB approach and would required significantly more adjustments on a comparative basis throughout each company's financial statements.

Better the alternative approach gives less discretion on how to account for financials instruments, thus less abuse.

Worse The concept of Fair Value just doesn't apply to some products and results in too wide a variance of potential valuations. Ultimately by forcing Fair Value you create a lot of needless admin trying to support the value chosen.

No difference

The continued move towards "fair value" accounting will cause greater confusion, not clarity. This is due to the complexity of financial instruments and the existence of illiquid markets. The assumptions used by different institutions will be greatly different, which results in financial statements that can not be compared easily.

Not sure The determination of the fair value of the various complex financial instruments is quite

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difficult. This results in a lot of potential subjectivity in the determination of the fair values.

Worse The fair value approach is conceptually the correct approach. Using amortised cost will give room for manipulation of accounting results.

Better The FASB approach induces less volatility in the accounts, and less short-term strategies, which is particularly important to avoid worsening the cyclical crisis.

Worse

The FASB approach seeks to fair value vanilla loans in OCI. This is not decision useful as a) loans made by a bank to their cusomers are not held from a fair value perspective but to realise income by holding the asset for collecting its contractual cash flows. Fair valuing loans skews accounting information as it does not represent the way an entity manages its business and risks. b) it creates unnecessary equity volatility which is confusing

Not sure

The held to maturity account is useful because financial statement users know that the company will probably not liquidate these securities. Knowing the amortized cost and gains/losses on Available for sale securities will give analysts a better gauge of the economic flexibility of companies.

Worse The IAS approach appears to be more useful and efficient.

Better The less discretion the better - fair value should be the default choice unless there is an exceptional exception. Complexity of understanding for users should also be reduced.

Worse The need to track amortized cost vs fair value for certain instruments adds a layer of unnecessary complexity and bookkeeping.

No difference The only thing that matters is cash. Who cares about the income statement? Not management. Not enlightened investors. Only pedantic and irrelevant FABS-centric academics. Cash is king.

Better The option to account for equity investments through the OCI has aided many companies to hide accumulated losses on their equity holdings. I believe the above alternative approach would better help investors realize a company's all-inclusive profit/loss

Worse The proposed approached is more simple and the effects and risks of holding such instruments can be more easily understood and interpreted by financial statement users. The alternative approach falls more on the complexity side

Worse The proposed IASB model will eliminate the bifurcation requirements when accounting for embedded derivatives - Reduce complexity but not effective way to improve financial instrument accounting.

Not sure There must be checks to make sure that loans only qualify for amortized cost treatment if loan value is fully covered by current value of securing asset as determined by what that asset would fetch in the current market.

No difference there should be ONE P&L statement through which gains and losses pass.

Worse These extra slices and dices are just more complexity on top of a complex system. It would just further obfuscates the economic performance of the overall business.

Better

This alternative seems to make more sense because it allows the user to decide which value is of more relevance. Attempts to get the balance sheet right are futile as many important assets are never reflected on balance sheet. I believe the income statement should be the priority for reporting purposes whilst providing sufficient information for the user/investor to construct a balance sheet based on his own view of value. Value is a subjective construct and this is why markets exist. If value was a cut and dried concept markets would not exist. Accountants must realise this if any progress is to be made. They need to provide sufficient information for investors to be able to make this value judgement

Better This approach could be further improved by running all changes in fair value through the income statement.

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Worse This approach seems to complex.

Worse This approach would put further opacity on the financial reporting.

Better This could work but depends on how bank/insurance regulator would then view the capital base. If based on pure fair value then banks/insurance could still be pushed in a default situation. This is not necedsarily very useful.

Better This is especially better for loan assets; as one should expect all the allowanes to vbring the boook value of loans in line with their fair value.

Worse This is more complex, and introduces volatility in both the P&L and the balance sheet. Also an issue for covenants, which could be more easily broken, triggering other problems.

Worse This may be relevant for US markets however a standard is for global implementation and the rest of the world is not yet clear on concepts of measurement and reporting of fair values.

Better This method removes the interpretation of basic loan features needed for the proposed IAS 39 method. Also a more consistent method to account for all financial instruments.

Not sure This method will still lead to complex disclosure.

Better This will address the view that fair value measurement provides a more transparent financial reporting and at the same time reflect the MTM ultimately in equity.

Better This would allow users to see the impact of FV on the balance sheet, while stablizing earnings on the St. of Operations. Forcing FV through earnings creates an artifical, self-feeding force that drives markets down , or up, in financial crisis.

Better this would eliminate some income statement volatility that could be very confusing and would likely cause companies to continue issuing "adjusted" earnings announcements

No difference This would increase balance sheet volatility (not appreciated), while increasing transparency (appreciated).

Worse Too complicated

Worse Too much room for skulduggery

Better Unrealized gains and losses should never be part of earnings anyway. By booking equity market value fluctuation as earnings is to artificially increasing P&L.

Not sure Until FASB issues an actual exposure draft, it will be difficult to analyze their proposal.

Better users and analysts of this data should be reminded via footnote that data is as of a certain point or set of time, with data that may be subject to change in the future.

Worse using amortized cost valuation for loan-like financial instruments seems to make more sense.

Worse Using market value approach will result in high fluctuation in the balance sheet footing which in many cases may not reflect true economic reality

Worse valuing a loan at FMV is arbitrary too. This proposal does not seem to enhance simplicity or clarity.

Better

Valuing investments in this day and age at amortized cost is ridiculous and only serves to allow financial services companies to manage the income they report. This proposal at least allows us to see what they are not reporting as income and leaves it for the investor to judge whether the unrealized gain/loss that runs through OCI is meaningful.

Not sure We would see two different values for financial instuments that would give us a range, but there are clearly some assets that I feel should be at amortized cost and others at fair value.

Worse We wouldn't be able to aggregate the information in both income and OCI to a particular balance sheet item. Makes reading the financial statements extremely confusing. Users will be confused and the numbers will be meaningless.

Not sure What happens with thinly traded equity securities that have no observable market price? I don't think many analysts pay attention to OCI. Pushing gains/losses their is a waste, especially if no timing indication is given for when the gain/loss will impact net income.

Worse What would be the rationale to make such a difference for equity instruments? Ok for the rest.

No difference What you are trying to do here is reflect the best value on the company's books. That is good when things are normal, but when matters go crazy no method would provide any leverage.

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Better While better, the time spent maintaining books and records would be significant

Better While both models offer improvements over current practice, objective should be to have fair value measures for all financial instruments for consistency. Cost basis should be disclosed.

Better while perhaps more complex, it will provide greater transparency. with the data investors can use OCI disclosure to modify their forecasts if need be.

Better Why not hold assets and liabilities at a fair value?

Worse

Would complicate the presentation of B/Sheet and Income Statement. Financial Instruments need to be classified as either held at fair value or amortised cost in order to separately account for instruments held to maturity or held for trading purposes or for sale. This is much easier concept to apply when understanding the nature of the financial instruments.

Not sure Would like to see several scenarios in practice to better understand the implications.

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What measurement approach do you consider most

appropriate for financial instrument accounting?

Comments on Response

Amortised cost for all instruments that can be

measured on that basis as well as fair value for all financial instruments, and separate

reporting of these measurements in both the income statement and the

balance sheet

Amortised cost information should always be available. Then where the fair value difference goes should depend on management intent: OCI for instruments not held to be actively transacted and income statement for other instruments. One exception could be loan assets not held for active trade which can still be shown with fair value delta on the income statement; providing that entities that hold these assets face these losses any time anyway.




balance sheet

Application of fair value depends on reliable valuation sources.




balance sheet

Both full fair values disclosure and amortised cost disclosure should be reported.




balance sheet

Do liabilities get valued on a mark to market basis?




balance sheet

fair value of many assets may be difficult to accurately quantify

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balance sheet

greatest disclosure is preferable.




balance sheet

I think it's important to provide the fair value for all instruments so that investors can see the risks involved--even if those derivatives are used prudently to hedge assets/liabilities. So long as the risks are disclosed (and I think disclosure of full fair-value would be effective), I also support the reduction in volatility in earnings. Otherwise we face a situation where the quality of the reporting is compromised if earnings are getting "drowned out" by "noise" from hedging activity. However, even that itself would provide useful information--perhaps it would encourage issuers to reduce their derivatives activities or find yet another route to take these off balance-sheet.




balance sheet

I think that this is the most ideal measurement approach. The challenge has been related to the valuation of instruments such as hybrid securities and instruments with undelying options or derivative instruments. The need for separate reporting of these in the balance sheet and inceome statement with necessary note disclosure is necessary.




balance sheet

I would still want loans originated and held and deposits, fair valued only in disclosures.




balance sheet

it would definitely be helpful to see both amortized and fair value disclosure

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balance sheet

looks more reasonable, more informations for the analyst




balance sheet

More information is better




balance sheet

My second choice to is use a mixed measurement. The intent is to try to make the accounting most closely reflect how the instrument is being used in real life.




balance sheet

Providing both sets of information in the financials is the most nuetral approach. It is clear that some rely on fair value, some rely on amortize cost, and some use both. Boards should respect that reality and provide both sets of information in the primary financials.




balance sheet

See comments under section 2

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balance sheet

Separate reporting of these measurements would be most appropriate since from the point of a third party (analysts or investors), we can look at the company strictly on its operating business and not investment activities.




balance sheet

The change in FV, however, should flow through equity. Disclosure of FV is extremely useful, but not necessarily an indication of earnings. If FV changes will ultimately be recovered, then it's better to not obscure the income statement with changes in FV. In addition, the notion that one should mark the issuer's bonds (i.e., their debt) to FV is asinine for a going concern. Bondholders want to get paid back at par and do not assume a company is going to be liquidated!




balance sheet

The key will be either a decent standardization for fair valuation methods, or requirement of comprehensive disclosure about valuation methods and assumptions.




balance sheet

The only issue that I have with this is the trade off that could occur with the complexity of such an accounting system in terms of cost and timeliness.




balance sheet

This level of detail will enhance market efficiency. This will provide full and fair disclosure of all instruments in a comprehensive and analytic manner.

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balance sheet

This option means one can't hide valuation adjustments, and allows the risk to be reflective of the holding period (Hold to maturity) intention. However, it needs to be specified what is meant to be held till maturity within that disclosure.




balance sheet

This provides the most information to the investor. The only problem is that many aspects of accounting are incomprehensible to the public.




balance sheet

This would enhance balance sheet stability while still providing transparency.

Full fair value for all financial instruments under an improved

and disaggregated financial statement presentation with

amortised cost provided through the notes

As much transparence as possible is desirable for the fair understanding and analysis of financial performance and standing. However, some special provisions should apply for fixed income instruments owned by banks. Equity and derrivatives should be the same for everyone.




Although I believe the mixed measurement approach is theoretically the best, I also fear it is subject to "gaming". Full fair value with amortised cost provided through notes appears to provide many of the advantages of mixed measurement with less potential for distortion.




As above full fair value is preferable as it is more transparent

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Balance sheet accuracy is the primary importance, because it tells investors what they have bought. Recording balance sheet items at fair value is more appropriate.




banks have shown that this is necessary to avoid too much risk taking.




Comparability amoung different companies will be better if all companies used full fair value in their financial statements.




Disaggregation is essential. Disclosure is essential, and disclosing in the notes is the way to go. It will be much harder for jive artists to game the system with disaggregation.




Fair value is the only relevant measure. Use the MD&A to explain your results but preserve volatility.




Fair value method needs guidance on a "mark-down" process for impaired and/or illiquid securities. If market turmoil causes extremely low bids, then they should hit income, even though there would be extreme earnings volatility. Financial institutions exposed to these instruments are thus puting their reserve capital at risk under this approach, creating a system the discourages excess risk taking. Not sure why accounting standards are so concerned with masking impacts from financial volatility--a reserve banking system should not play in this arena. Might be a cause for reinstatement of the G/S act.




FI are designed solely to be bought and sold. Their purpose is to reshape and redistribute cash flows. The cash flows are acutely sensitive to shifts in the underlying processes that generate the cash flows. Hence, those who buy and sell FI must of necessity have the most complete and up-to-date information regarding the cash flows and changes in expectations associated with the cash flow streams. FV is the ONLY measurement method that meets the essential criteria for complete and up-to-date information.




Financial Statements must reflect fair value as closely as possible.

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Full fair value approach would provide a direct picture of the value of those instruments. Add to comparability, remove complexity from current practice. Finally would provide a more clear idea of the value the entity




Full fair value is the most useful attribute from investor perspective




give investors full disclosure on these instruments and let the investors decide how to work those into their earnings forecasts








I think all financial instruments should be presented at FMV for any entity in the same manner that a mutual fund would present its financials.




investors need full dislosure concerning both * fair value * cash flow (which is deductible from historic cost, amortization and disposal gains @amortized cost basis)




It is extremely important to have a timely determination of FV or impairment to provide transparent financial reporting.




It is human nature to want to put our best foot forward and when we combine complex systems with human nature markets will be prone to inflated prices. If confidence is detroyed through persistent overstatements by various companies in multiple industries, accounting standards and regulatory agencies will lose the little credibility they maintain after last year's fiasco. We must move towards common sense, transparency and honesty if we are to retain the public's confidence in the financial markets.

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Keep the presentation for the statements at fair value. The detail of an amortised method can be left in the notes for those looking for that detail. This keeps the financial statements as useable as possible for sophisticated investors/users.




Main concern is that different firms will account for the same financial instruments in differenct ways. This is not desirable.




market prices should be used across the board. While these prices have *known* failings, those failings are well known and understood. Constantly changing accounting rules applied unevenly both within and between countries just creates chaos. A known and understood evil is much better than falsely labeling uneven "management discretion" as a standard




MArket value is market value. If there is no bid, the bid is zero. Sad fact, but there it is -- worthless means without worth. If investors don't want their portfolios to end that way, they should invest with more talent. The new standards as well as the proposed impreovements are designed simply to obfuscate criminally bad asset and balance sheet management, and penalize careful and insightful investors.




More representative and understandable for readers of financial statements.




Provided, however, that changes in the FMV of HTM securities (or their equivalent) are allowed to flow through OCI (don't affect earnings/NI)




See my comment above. Fair value on the asset side, nominal value on the liability side. Any amortised cost measurement should be with some type of crdit risk criterion.




Seems best to give both valuations though could be very volatile on fin statement.

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The arguments against fair value are all based on financial services companies' desire to manage earnings. Any reasonable person "on the outside" of the financial statements would naturally prefer to see mark to market.




the doubts on the usefulness of fair value accounting are primarily raised by the reporting companies, but certaintly not by investors whose assessment of a company will essentially always be focused on fair value - if any adjustments might be warranted in this process, then investors are likely to do them themselves on the basis of a sufficient degree of details to be provided by the companies




The most critical thing is that all financial instruments are accounted for the same way and only one way (not including loans). Equities should be treated no differently. Need to get away from treating some at fair-value through P&L, some at fair-value via equity, some as held-to-maturity, some held for trading. The same portfolio should be accounted for identically between companies, with no discretion on classification and hence volatility in P&L or equity. Personally, I think all should be at fair-value on the balance sheet with changes in fair-value and yield/income going through the P&L, but with excellent disclosure of the P&L impacts and which balance sheet items they correspond to. This will create large volatility in the P&L, but will actually be easier to understand what is going on. Analysts will be able to easily make any adjustments considered appropriate. There should be disclosure on how all the financial instruments would appear at amortised cost and the associated write-downs. This will enable analysts to assess temporary vs. permanent changes in value (and potentially add back temporary changes to equity, whilst still being aware of the risk). It will also enable regulators in the banking and insurance sectors to adjust capital ratios for temporary changes in value (possible due to changes in interest rates) versus permanent impairments. This will avoid pro-cyclicality in capital ratios, whilst preserving the far greater informational content of fair-values. Loans should remain at amortised cost. There is no issue with accounting here, except that some financial instruments have been reclassified as loans and these should be reversed. Own debt should not be fair-valued.




The move should be to full fair value




This approach would provide consistency in financial reporting while retaining amortized cost basis. Companies should have an option to provide supplemental financial statements using amortized cost.

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This is the most conservative measure and provides greatest transparency. An exception may be appropriate for regulatory capital adequacy ratios if independent auditors determine the loan is fully covered by asset value (where value is defined as what the asset would fetch in the current market).




This would be a consistent approach which would increase the analytical review of the F/S due to the increased consistency.




Whatever can be measured at fair value, should be, adding notes to disclose the measurement methodology.




without full fair value, the REAL volatility of banks' assets are under-stated, leading to very low regulatory capital bases, leading to vulnerability.




Would also like complementary amortised cost info useful for select instruments, with related EPS impacts disclosed fully

Mixed measurement attribute approach requiring either

amortised cost or fair value for different financial instruments

A mixed measurement attribute model is essential to provide the reader of the financial statements with insight into how the business is being managed.



Adding voluminous information to the footnotes does not eliminate the problems related to what is recognized in the financial statements, especially net income.



Amortised cost should be allowed for a restricted range of instrument, as suggested by the IASB.



Amortised cost should be allowed for some financial instruments to reduce costs of financial reporting. The key is identifying which financial instruments should be allowed.

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as long as it will not be possible to reclassify, the mixed measurement gives best insight over the years.



Assets & liabilities (including financial instruments) that are held for long-term purposes should be valued at book value; assets & liabilities likely to be liquidated within a year should be valued at fair value.



best to use fair value where appropriate and amortised cost where aprpopriate, not one or the other



But differences between amortised cost and fair market value should be provided in notes



Despite my above comment, there are some instruments that should be measured at fair value due to nature and intent. Eg, a trading portfolio.



Differing levels of liquidity require different approaches for asset measurment.



Everyone is not a trader.



Fair value accounting is procyclical in that when asset prices increase, it enables firms to increase leverage. We do not want the banking system to have that ability



Fair Value is too procyclical



Fair value only relevant ni as far as there are relevant and reliable market prices available. In crisis fair value causes unnecessary swings in income and wrongly displays values



Fin instr vary widely and only one measurement approach is not always appropriate.



For certain financial instruments which are expected to be held to maturity - it is better to disclose them at amortized cost. The fair value of these instruments do not provide any real additional value and add a lot of additional burden on the companies reporting these fair value amounts.

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I am a creature of habit and maybe that is why I chose the original one. I clearly don't favor the second one.



I like the current proposal in the current IFRS exposure draft except for the retention of the oci concept. I believe that oci is a concept which hinders the usefulness of financial statements.



I like the idea of full fair value. I absolutely do not think routine accounts receivable and payable should be at fair value. It would be incredibly cumbersome. So right there you're into a mixed model. Another area I struggle with is... I work with a lot of VC-backed start ups and a lot of times "equity" they issue can end up derivative liability classified and that poses really silly valuation questions. I'm not big on those at FV either. Same with the Company's own debts--hard to be comfortable with those at fair value. So I think mixed is the only acceptable model.



I remain distressed at the influence academic accountants have over the FASB. These folks are the same people who created the current hedge accounting mess, gain-on-sale treatment for credit card and other securitizations, and the biggest abomination of all - fair valuing one's own debt and running it through the income statement. Arguably, had Lehman survived to 9/30/08, it would have been massively profitable because of this treatment. These seemed like good ideas at the time too.



I think a mixed approach may be best. I think those instruments which management intends to hold to maturity should not be subject to FV fluctations in the financials over the life of the instrument. While intent is subjective, I leave it to the auditors of the financial statements to implement procedures to get comfortable with those management assertions. Other short term, trading, or hedging instruments should be marked to market. Again, management intent being the driver.



I think amortised cost is appropriate when the intention is to hold the asset to maturity. Fair value accounting makes sense for all others. The proposed amendments to IAS 39 will also eliminate accounting mismatches??



I'm ok with the acc'tg as is.



Investment banks and capital markets banks have short funded assets and absolutely should be marked to market. Other commercial banks have short funding but a FDIC guarantee and a function of transforming long term assets into notionally liquid liabilities; this should be protected by putting the fair value in a footnote.



It is inherently not possible to move to a full FV model without sacrifising reliability and comparability. Hence under these circumstances a mixed approach is currently the best option.



Many entities (not financial institutions) have smaller investments in equity instruments for which reliable fair value may not be available. These were previously carried at cost. Unless credible fair value is made available requiring such investments to be measured at fair value will not improve financial reporting.

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Mixed measurement is not an issue with disclosures and liquidity considerations. Lets stop the feet dragging. Users just need the information and transparancy and do not care where they get it generally.



Mixed measurement may be more complex but it does reflect the way the business is managed by a bank. Except for certain investment banks , most universal banks have a mixed business model and the accounting must reflect the economics of the business fairly. Additional fair value information can be disclosed in the notes to accounts wherever it is deemed necessary- as is currently being done under IFRS.



Mixed measurement model acknowledges that peculiarities of specific assets and liabilities with fair value established more easily and objectively for some than others. Management intentions for the instruments can also differ. Mixed measurement model supplemented by impairment suffices.



Need to look at secondary market activity in the instrument (1) Highly liquid = fair price, if no liquidity, then price might not be fair, hence a bertter measure could be amortised cost?



only reservation for mixed measurement is potential for management 'management' of the resulting outputs



Options 2 and 3 are black and white, when the reality is shed of grey - hence my preference for Option 1.



Please, see also the comment to the question 2. Moreover we do not think that double accounting for the financial instruments (both at fair value and amortised cost) is a good solution. It would be very burdensome for preparers. The aim should be to have a sigle measurement of a financial instrument which best represents its substance. We should not have artificial measurement attributes. Calculation of P&L effect arising from FV measurment would be very burdensome for financial instruments which are accounted for at amortised cost. Accounting systems are not prepared for it. The changes would be very costly compared to the benefits (if any) provided by such information.



Revalueing items such as loans each period does not add value so a mix of the 2 is required.



See comments above. I believe it depends on the underlying business model of the entity. Keep in mind that even under amortized cost an entity must test for impairment each quarter or earlier as triggering events occur.



Simpler and should give enough information with proper footnotes

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The FV model is rather superior but due to reluctance of some business, i would accept a mixed model but with equal level of disclosure between FV and amortised cost items.



The liquidity of the asset class is a key. If the procduct has a plenty of the liquidy, then it is worth to mark to market. Otherwise not.



There should a clear, externally determined mechanism for establishing which instruments are amortized cost and which are fair value.



Things that are loan-like (loans, bonds, notes, etc.) with p&i, should be valued at amortized cost unless and until they might need to be impaired.



This appears to be the more transparent method because it has a basis for classification.



This is a simpler approach and easier to follow once the rules are known.



This just seems more logical as the financial instruments are purchased and held for different motivations and should be valued as such in the financial statements.



Use a logical valuation method for each instrument, and be done with it.



Would complicate the presentation of B/Sheet and Income Statement. Financial Instruments need to be classified as either held at fair value or amortised cost in order to separately account for instruments held to maturity or held for trading purposes or for sale. This is much easier concept to apply when understanding the nature of the financial instruments.

Not sure I do not think that the proposed changes and their potential impacts were explained well.

Not sure We need more focus on accounting that will deliver some emansure of sustainable or normalized earnings power of a corporation

Other Amortized coast, Market value and unrealized can all be made available on the balance sheet. Volitility would go through OCI as now. Purchase and sale decisions should be based on economic reality of cash flows and not accounting treatment or market panic.

Other

Analysts and the public seem to put a lot of emphasis on fair value and not enough emphasis on how this fair value is derived. Forcing people to record instruments at fair value does not mean better information - it just means more guessing, assumptions and models that never work. Let's get real and use fair value when fair value is available. Let's stop inventing.

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Other either fair value reflected in notes alone or start by fair valuing common equity (at readily observable market price - would be Level 1) with fair of assets, liabilities and senior capital instruments reconciled as much as possible to the fair value of the residual common equity.

Other Fair value estimates should be disclosed in footnotes only.

Other I don't believe that there is one size fits all for financial instrument accounting. Derivatives should be at FV through income, while other instruments should be at FV through OCI if the model is not to turn them over.

Other

I would prefer two full sets of financial statements: one on a full fair value basis and one on an amortized cost basis. This would provide analysts with information that would permit the analyst to decide what is most meaningful in a given situation. Second best would be full fair value statements w/ACB in Notes.

Other Mark to market (i.e. fair value) was manipulated by smart money during the meltdown, so while I support mtm in a perfect world, companies should not be held hostage to mtm. The best option is always transparency...therefore, give us both methods.

Other Please note that I am voting for a modified option 3.

Other Please see comment above

Other Unrealized earnings from fair value impacting financial statements creates too much incentive to take risks and short term thinking. Also how to value complex instruments allows creative assumptions that may overstate their values.

Other

Valuation for financial statement purposes should be tied to the reason the investment exists on the balance sheet. For example, if an institution holds a bond that is 'matched' against a given liability, then you should either mark both asset and liability to market or, if not possible in the case of the liability, keep both at book value. Of course, if the institution either has the intent or does indeed typically trade the asset, then full FMV - both sides of the balance sheet - should be required. The onus of proof should be on the institution. In every event, full FMV should be in the form of a detailed footnote, noting specific assets and liabilities and the valuation utilized.

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The use of OCI, as an alternative to net income, for the purposes of recording the fair value gains

or losses related to financial instruments can be allowed for

equity investments.

Comments

Appropriate

Actually, I am neutral on that point. As long as the company's financial result does not heavily rely on the equity instrument and this is non-recurring, it is approprriate to record the gain/losses in OCI. If the gain/losess on equity instrument is recurring and persistent, it is not apporpriate to record the gain/loss in OCI..

Appropriate All unrealized G/Ls should flow through OCI, not the I/S.

Appropriate As long as OCI can not be ported in NI.

Appropriate As long as the asset is not held a trading or intent to sell

Appropriate Better than nothing but not as good as NI only.

Appropriate Deversification requires equity being held at any point of (normal) time.

Appropriate Disclosures are necessary

Appropriate Equity investment is long-term investment for some investors. The market fluctuation should go to the OCI.

Appropriate Reclassifications should be disallowed.

Appropriate Reduces earnings distortions from unrealized gains/losses.

Appropriate That way we can get both the Balance Sheet book value AND the net income before OCI to be useful figures.

Appropriate The equity instruments are most likely to be held as part of employee compensation schemes, so this is reasonable. Taking gain/losses on your own shares only excentuates good/poor performance in the IS.

Appropriate the gains and losses should be included in OCI until they are recognized - then they should be included in income

Appropriate think should be allowed for everything

Appropriate this allows for an easier more straight forward adjustment to the financial statements.

Appropriate This feature partly reduces the volatility of net income (by only recognizing actual gains/losses) allowing better forecasting and valuation

Appropriate This is better than requiring that the entries flow through the income statement.

Appropriate you should have all instruments in OCI or out, not selective

Inappropriate allows old FV accounting problems to carry on

Inappropriate Both impact equity. Why not book to P/L.

Inappropriate equity doesn't have a par maturity value.

Inappropriate Equity instruments shouldnt impact net income based on fair values in order to remove unnecessary volatility in P&L

Inappropriate Equity value is directly affected by this change

Inappropriate Fair value gains or losses should be reflected in the notes instead

Inappropriate Generally, I favor limited transactions flowing through OCI.

Inappropriate Higher volatility is typical for equity instruments, so institutions investing in those instruments should fully reflect this volatility in their income statement.

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Inappropriate I believe, for investment funds, the change in fair value gains/losses should flow through the income statement/net income

Inappropriate I support full Fair Value accounting for financial instruments, with gains and losses included in earnings.

Inappropriate I think mark-to-market should only be used for equity investments of less than 20% holding, per FASB

Inappropriate I think that allowing the OCI option would result in more risky behavior in terms of use of corporate cash

Inappropriate

If this statement implies the prevention of recycling from the reserves to net income then this would be inappropriate. However, if the current standards hold i.e. accounting for available for sale FV gains/losses in an AFS reserve, then would still be appropriate as prevents fluctuations in the income statement until disposal of the instrument.

Inappropriate Include it in NI and then disclose it in the notes to the financial statements.

Inappropriate Inconsistent

Inappropriate It defeats the purpose of FV if not all FVs are recorded in the same place

Inappropriate Makes no sense for equities

Inappropriate My concern is that oftentimes equity-linked financial instruments are used for investment/speculation and not hedging... I would be concerned about losses in such core activities being "shielded" from hitting regular earnings...

Inappropriate need consistent methods across capital structures

Inappropriate No plausible justification for this change has been put forward in the proposal. Rather, it appears to be a compromise treatment for the benefit of some countries with traditions that favor lack of timeliness and transparency in reporting.

Inappropriate Scrap the OCI concept and just keep two sets of books...one that is wholly based on amortized cost and the other that is wholly based on fair value.

Inappropriate The holding period for most companies is relatively short and should be reflected in current earnings.

Inappropriate the prior standards, regarding OCI should be used, otherwise "games" will be played with the F.S.

Inappropriate There should be no exceptions to recording through income

Inappropriate These should flow through net income.

Inappropriate This category will be abused. Companies will just disaggregate realized and unrealized gains and losses and tell analyst to adjust pro forma earnings. This category should not exist.

Inappropriate This is a stark-raving loony-bin idea.

Inappropriate unrealized gains and losses should go throught the income statement because it gives an accurate measuresment of the economic gains and losses

Not sure Appropriate for some, but not for all.

Not sure Depends on the change in value in %. So maybe losses should be taken in stages. So if they decline is 40% you take a 20% loss. If the loss remains at 40% during the nxt 6 months you take the other 20%. This to make sure that temporary declines do not have an enormous impact.

Not sure Depends on the context of the business.

Not sure more concerned about real cash flows

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Not sure

Need to be careful here. If the information is important, we don't want it to be ignored because people focus on "net income". Fair value gains and losses can be reported clearly as non-op items or extraordinaries. People are capable then of making their own decision about whether those items should be removed or not.

Not sure No one looks at OCI

Not sure only if all covenants rewritten to exclude fair value component of OCI from common equity

Not sure The devil is in the details.

Not sure This is difficult. I understand that the use of OCI will assist to reduce volatility in the income statement, but if this were reported below the line and analysts used say EBITDAR where the "R" stood for revaluations that could work.

Not sure Why treat them differently? Reporting entity can still add pro-forma numbers to clarify volatility.

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Embedded derivatives will no longer be bifurcated.

Comments

Appropriate About time.

Appropriate Actually, bifurcation is still possible in some instances. It is now simpler however.

Appropriate all related items should be treated the same to minimize the opportunity to manipulate earnings

Appropriate As long as the embedded is not the primary driver of value.

Appropriate Bifurcation does not add information in the financial statement as long as the detialed infromation of the embedded derivatives are disclosed as notes.

Appropriate Consistent with fair value model

Appropriate Depends on what you do with them, appropriate so long as they are fair valued.

Appropriate Easier to account for withouth birfurcation as most embedded derivatives are closely related to the host contract.

Appropriate Given the whole instrument is at fair value, fine.

Appropriate I assume now the host and the embedded will be required to be FV (FVO).

Appropriate I believe in proper matching.

Appropriate

I feel like most embedded derivatives are more consistent with contingencies under SFAS 5 and should only be accounted for as such when it is more than probable that a financial implication / payment would result due to the embedded derivative. Eliminating mandatory bifurcation would greatly reduce the complexity of derivative accounting.

Appropriate If an instrument includes an embedded it should be at fair value...

Appropriate If instruments with embedded derivatives are at fair value.

Appropriate If not penalized for volitility no need to separate

Appropriate If the instrument has embedded derivatives, it should be carried at FV through earnings.

Appropriate IF, derivative instruments are reported at FV through NI, then no reason exists to bifurcate. However, it is far from clear how this will play out in the IASB proposals that permit both debt and equity instrument changes to circumvent earnings.

Appropriate Less complexity.

Appropriate Reduces the complexity and costs of accounting/reporting without information going lost. Embedded derivatives are as a matter of fact part of a financial instrument , nothwithstanding the fact that they economically could be valued separately.

Appropriate Simplifies unnecessarily complex accounting

Appropriate The standards were too zealous here. The standard actually went out of its way to bifurcate contracts and arrangements.

Appropriate This will provide clarification as bifarcation is quite confusing and adds little information value.

Inappropriate A lot of companies used to hide stuff using embedded derivatives. Let's not go back to those days.

Inappropriate bifurcation, while not ideal, would be better than all at cost so at least the derivatve fair value gets reflected.

Inappropriate I believe this is at time appropriate, when the embedded option can be stripped out and bought/sold at a later date.

Inappropriate In some cases impacts are really large although notoriously difficult to calculate in advance without proper systems...

Inappropriate Investors need to see embedded derivatives to see how they impact financials.

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Inappropriate Less transparency (does not deal with these instruments appropriately)

Inappropriate necessary if retain amortized cost model, but adds complexity

Inappropriate On covertible bonds, you might strip the embeeded drivative out to be traded? What do you do then?

Inappropriate Separation of embedded derivatives is vital for faithful presentation of debt financial instruments managed on contractual yield basis.

Inappropriate The derivatives are the risky product. The implact of the derivatives should be carefully observed.

Inappropriate The value of the embedded derivative should be measured differently.

Inappropriate Unless they are clearly and closely related, it would be inappropriate to no longer account for ED.

Inappropriate Will introduce complexity in otherwise straight forward situations

Inappropriate you can value building and land separately, why not embedded derivatives?

Not sure bi for who????

Not sure Don't understand.

Not sure Emb der accounting was too complex, but eliminating it completely does not solve the problem as some derivatives still need to be bifurcated.

Not sure I support full Fair Value accounting for financial instruments, in which case the embedded derivatives as well as the host should be measured at Fair Value, and bifurcation would not produce a different result than using Fair Value for the hybrid instrument (host and derivative).

Not sure If it is easy to unbundle the derivative, why not continue to do so?

Not sure Operationally more simple to apply fair value accounting to the entire instrument - but does not reflect the manner in which some entities manage the risk inherent in financial instruments with embedded derivatives.

Not sure report fair values of all derivatives, whether embedded or not

Not sure The idea of separation was separate measurement of the derivative. Now if the combined instruments is measured at cost - not sure how this will improve reporting

Not sure This seems more complex. Need to watch for "gaming"

Not sure Unclear as to what the question refers to.

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Recycling from OCI to income statement will be prohibited.

Comments

Not sure depends on equity investments

Appropriate don't like recycling

Appropriate Equity already impacted when booked to OCI.

Inappropriate Gains should be recognized in income when they are realized. This is a major flaw with the proposed approach.

Inappropriate

Having permitted the income statement to be avoided, the avoidance is made permanent. Moreover the proposal does not require that a comprehensive statement of NI and OCI will be required to be presented. The quality of earnings (NI) under these provisions will be abysmal. However, the IASB's objective in proposing these changes does not appear to be focused on improving transparency for users of the financial statements, those who bear risk as a result of decisions made using the information.

Inappropriate I support full Fair Value accounting for financial instruments, with gains and losses included in earnings.

Appropriate If stuck with OCI reporting, this makes sense. But I think OCI reporting is suboptimal.

Inappropriate Inappropriate as users need to see the realised gain/loss on the instrument flowing through the income statement and not taken directly to reserves.

Not sure It depends on how investors view OCI - as income or as changes in equity.

Inappropriate Management should get credit for increasing ROE, just not until the return actually happens

Appropriate Need to be careful about preventing "gaming" of the system. FreddieMac was caught using derivatives and intermediaries to harvest gains/losses without effective true sales.

Inappropriate Not relevant of all changes in FV are recorded in P&L

Inappropriate Not sure if I understand the context but if an entity relassifies from an instrument flowing through OCI to one that flows through income (via changes in FV) then OCI recycling makes sense.

Not sure OCI should be eliminated

Inappropriate Only at disposal. Any reclassification should be done prospectively.

Inappropriate Only exceptional though.

Inappropriate Realised cash flow from the sales should be recognised in P&L. Otherwise message brought by P&L is distorted.

Inappropriate recycling question should be allowed under very strict rules (preclearance again?)

Appropriate Recycling should be entirely abolished.

Inappropriate The current model allows recycling and is reasonable.

Inappropriate The principle should be that ultimately all income and expense should flow through the P&L.

Not sure the prior standards, regarding OCI should be used, otherwise "games" will be played with the F.S.

Appropriate There should consistency across FSAB and IASB

Appropriate this is generally adjusted out anyways when looking at companies on a comparative basis.

Not sure This option will not make sense as long as the IASB keeps the 2 statement option. This makes sense in a single statement approach.

Appropriate This will improve the validity of income measurement

Appropriate This will make comprehensive income more meaningful.

Not sure This would appear to be a good thing sometimes and a bad option at other times.

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Not sure Where will this leave cash flow hedge accounting?

Not sure Would like to better understand.

Inappropriate Would not present performance completely and usefully to users of the accounts, many of whom focus on the Income Statement and Balance Sheet.

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Reclassification will be allowed if business model changes.

Comments

Appropriate A change in the environment may force companies to change their strategies, making reclassfication appropriate. However, the said reclassfications must be tranparent in the notes.

Appropriate At the point of change (i.e., prospective only)

Appropriate Business model of the company or of the instrument?

Appropriate but likely subject to abuse

Appropriate But must have a high threshold to do it.

Appropriate but the change must be strictly defined

Appropriate but under strict review and preclearance by auditors and or regulators

Appropriate But with a high hurdle

Appropriate Changes in assumptions must be disclosed

Appropriate Comparative statement should be made for readers being able to fully understand the nature of the canges.

Appropriate Concern that this reclassification may be abused

Appropriate Current environment great example as to why companies might need to change classification.

Appropriate Fair comment

Appropriate However, this may be subject to cherry picking by shifting from cost to fair value measurement and vice versa as entities may "shift" their business model depending on the financial market environment, e.g., use fair value in good times and amortized cost in bad times.

Appropriate I had thought that his had been adjusted to state that reclassification will be required if the business model changes.

Appropriate I would insist on pre-clearance from auditors, supervisors, and regulators with disclosure

Appropriate Must be strong support for an entity to do this.

Appropriate Need to guard against abuse though

Appropriate Not clear cut, could be abused?

Appropriate Provided that this is strictly monitored and controlled to prevent abuse

Appropriate Reclassfication is required if business model changes and I agree with this approach.

Appropriate Reclassification should be allowed on the basis of reasonable and measurable grounds

Appropriate Reluctantly, I agree. Will probably still be used by some to cover up operational deficiencies.

Appropriate Should be allowed to reclassify, but the rules on subseqent IS impact sound fine conceptually, but in reality not sure if they can be taken advantage of.

Appropriate That needs to be defined clearly so companies cannot jump back and forth all the time

Appropriate There should be strict requirements to allow for reclassifications.

Appropriate this seems logical

Appropriate With motivation and evidence as to the change in business model.

Inappropriate companies may say change business model, but not change in reality

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Inappropriate I oppose an accounting measurement attribute for financial instruments that is based on the business model. Fair Value for financial instruments (except liabilities) is the most relevant measurement in all circumstances, regardless of the business model. A mixed attribute model hides losses, and therefore is not useful for accurate investment decision making.

Inappropriate Inconsistent - creates another set of unnecessary variability for the end user

Inappropriate Its inappropriate as will lead to differences in practice. More included as a way out than for better reporting.

Inappropriate makes hist comparability difficult, another mgmt tool for EPS manipulation

Inappropriate Only if a very strict set of principles guides what is involved with a "business model change". Too much flexibility will give managers too much flexibility to manipulate reporting.

Inappropriate or make sure that there is adequate disclosure so that investors can determine what the amounts would have been if reclassification had been allowed.

Inappropriate Really need to watch for gaming in order to harvest gains/losses... perhaps better to not allow reclassification. Hedges are, after all, dynamic and once the business model changes, so too should the hedge.

Inappropriate Reclass hides information

Inappropriate Should be consistent

Inappropriate System of rules should be established where no reclassifications will ever be necessary.

Inappropriate This should be agreed to between auditors and management, and it should not be done frequently so as to impair transparency and comparison in the financial statements

Inappropriate This will allow room for manipulation as and when requires.

Inappropriate This will be abused unless there is very strict criteria defining a business-model change very narrowly.

Inappropriate Too much room for manipulation

Inappropriate

Unfortunately, IASB proposal does not define "business model," nor does it make clear what will constitute a "change" in the business model. In short, this judgement is left as an exercise for the reader or preparer. The ultimate problem, of course, lies in the proposal's provisions for alternative measurement and reporting for identical instruments. Alternative reporting treatments for similar or identical transactions and events have in the past invariably led to cherry picking of most favorable-at-the-moment treatments and income smoothing.

Inappropriate Unless significant disclosure of impact in detail - must have 2 years of data

Inappropriate What changes first, the model or the fair value of instruments? This is a very bad idea.

Inappropriate what do you mean "if" the model changes? when does it not change?

Not sure But think you will also be required to classify your accounting policies clearly upfront, so companies do not change their business model for the sake of showing better profits!?

Not sure depends on magnitude and nature of change

Not sure Earning manipulation concerns

Not sure I can see this getting stretched. Rules would need to be strict otherwise people will structure around this.

Not sure Who determines the impact of business model change?

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The fair value option will be allowed.

Comments

Appropriate As long as fair values are readily obtainable. Otherwise, it's mark-to-make believe.

Appropriate But needs to be consistent

Appropriate Criteria for applying the option should be declared by institutions making use of it, criteria should apply to entire categories and not single instruments.

Appropriate Depending on source of value

Appropriate Entities should be permitted to fair value financial instruments where those instruments are managed on a fair value basis. This should be required.

Appropriate Fair comment

Appropriate Fair value information should be required

Appropriate Fair value is encouraged as long as it makes reference with market transaction. For those fair value calculated by experts, I don't agree to use this figure. Because, there may be no one willing to buy the financial instrument at the so-called fair value.

Appropriate For certain businesses this is the most relevent measure - certainly not all though

Appropriate for securities, not loans

Appropriate FVO is necessary under the mixed measurement.

Appropriate if amortized cost also provided

Appropriate in specific cases (accounting mismatch...)

Appropriate Increased transparency is always preferred--even at the risk of increased confusion.

Appropriate It can't be a situation of opt-in, opt-out. Either it will be used or not, across the board.

Appropriate Only if can be measured reliably.

Appropriate Option should be justifiably allowed

Appropriate Should be mandatory.

Appropriate should be required

Appropriate Should be required for tradeable instruments whose fair value can be objectively established

Appropriate Some FV better than less

Appropriate Under certain circumstances we may want to require fair value reporting; at the very least it should be provided in the notes.

Inappropriate Allows for differences in practice which lessens comparability

Inappropriate Fair value estimates should flow through footnotes only.

Inappropriate Has been misused by preparers

Inappropriate I don't think it is necessary if the model is correct.

Inappropriate It should be the same for all entities for comparative purposes.

Inappropriate No option should be given

Inappropriate Not in favor of allowing an option

Inappropriate Opens door for fraud through 'judgment'

Inappropriate Remove discretion as much as possible

Inappropriate see opinion/explanation for Question 3

Inappropriate Should be required

Inappropriate Should be required.

Inappropriate Why shouldn't companies be guided on the appropriate valuation method to be used?

Inappropriate Will probably double fraudsters ability to unfairly reflect the true value of an asset.

Not sure Don't like optional treatments

Not sure Fair value reporting should not be an option.

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Not sure On one hand this could hurt comparability, but on the other hand, fair value information is more decision-useful.

Not sure see above

Not sure See some of my comments above

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Appropriateness - Demand deposits

Comments

Appropriate Anything in a "well-functioning" market should utilize exit price

Appropriate appropriate need to have separate measure of core deposit intangible

Appropriate As above

Appropriate But only if amort BV was not used.

Appropriate Fair value needs to reflect the actual losses for impairment amounts.

Appropriate

In stock picking, everything will ultimately need to be translated into fair value to decide is a stock is currently cheap or expensive. It's good to have the company's best estimate based off of better information than I can get without the insider information available to managements.

Appropriate Short-term assets/liabilities it's a good strategy.

Appropriate Value as DCF similar to CoreDepIntang on purch acctg.

Inappropriate Aren't these cash equivalents?

Inappropriate Both stated value and exit price

Inappropriate Cost to apply fair value measurement on demand deposits may exceed its benefits.

Inappropriate Demand Deposits in any case will not have much of differnece in maturity value. A more appropriate thing could be to discount the FV of DD to measure the present worth

Inappropriate Determining the exit price is not realistic. Each entity would be using different assumptions, leading to vastly different values.

Inappropriate except for currency translation

Inappropriate Face value would seem most appropriate although if the market is signalling that the institution cannot meet its obligations, that is obviously interesting inforamtion.

Inappropriate Likely not too far from book value to begin with. (Hopefully).

Inappropriate Market participants are NON-homogeneous.

Inappropriate spot collected balances can change at any moment in time during standard business hours by DDA.

Inappropriate Valued on cash

Not sure dispensation of core deposit intangible???

Not sure Exit price refers to a market with willing buyers, which existence is difficult to assess in this case.

Not sure Not read enough on this ED to make informed comment

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Appropriateness - Loans Comments


Appropriate


Appropriate Loans as assets probably should be presented an a fair-value/exit value. Loans as liabilities probably should not; see other comments.

Appropriate Only if fully secured

Appropriate par amount as well as fair value

Inappropriate Banks largely dont trade in these assets and would love for these amounts to be rolled over at higher fees and interests. Also restructuring is common. Far value


Inappropriate I want to know that actual liability, not the current market value in order to plan for cash flow requirements.

Inappropriate If the loans, or similar loans, are traded it is useful to see a current price but I don't want to lose sight of the redemption cost.

Inappropriate Liquidity assumptions are dangerous, and inappropriate for a firm operating under a going concern presumption.

Inappropriate Liquidity is an issue here.


Inappropriate Not normally an extremely liquid market, so "exit price" would be very difficult to determine.

Inappropriate Not tradeable assets/liabilities by nature

Inappropriate Securities not in a "well functioning" market will penalize the continued holders should others utilize exit pricing.

Inappropriate What if the loan goes through one or more restructurings, trades, workouts, refis, etc.? Is exit price necessarily the same as transaction closing price?

Not sure cost/benefit of moving from reserve model

Not sure Dependent upon the business purpose of issuing the loan. See responses above.

Not sure Depending on timeframe. Would agree if we are talking about 15+ years to maturity

Not sure Depends on loan characteristics

Not sure don't know what exit price means



Not sure The outstanding principal balance and accrued interest should be disclosed if exit price fair value is adopted.

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Appropriateness - Financial liabilities

Comments

reductio ad absurdum - fv'ing of fin'l liabilities would encourage issuers to default so they could book the gains as income




Appropriate difficult to measure

Appropriate In stock picking, everything will ultimately need to be translated into fair value to decide is a stock is currently cheap or expensive. Also, if assets are at fair value, matching liabilities should be too.

Inappropriate As above

Inappropriate depends on how exit price is measured.

Inappropriate Depends on whether they can actually be transferred.


Inappropriate Financial liabilities are typically not traded, thus illiquid, thus rendering "exit price" of dubious value.

Inappropriate generally financial liabilities are not held for trading therefore exit price is not the best notion for them

Inappropriate if and when realised, otherwise at face value. Otherwise it is a contingent gain.

Inappropriate liquidity and no exit price situations and wrong incentives with respect to own debt concerns me as not being prudent disclosure is key



Inappropriate See other comments.

Inappropriate they have be paid back at face value

Inappropriate Unless there is a liquid market for these liabilities, I believe no discount or premium should be recorded.

Not sure Commercial banks institutions should be exempt, since this is part of their "core" operations.

Not sure DCF using appropriate discount and or recovery rates is preferable to "exit price"

Not sure depends on circumstances: auditor should apply clear rules to determine appropriateness

Not sure It depends whether it is a loan or a traded instrument.


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Appropriateness - Own credit risk component of liabilities

Comments


Appropriate assuming refinance is available and economic


Appropriate Depends on issuer

Appropriate Essential to valuing off BS liabilities

Appropriate

In stock picking, everything will ultimately need to be translated into fair value to decide is a stock is currently cheap or expensive. There is important informational content to a gain from a credit downgrade...it tells investors that the condition of the company may be deteriorating and they should investigate further.

Appropriate This treatment would be consistent with the valuation of firms' guarantee obligations with exit pricing.

Appropriate Where such liabilities are managed on a fair value basis - i.e. there is some chance that the entity will exit the liability through re-purchasing in the market.

Inappropriate A going concern should recognize its liabilities without a probability on non-payment.

Inappropriate Applying own credit spread to financial liabilities could be counter-intuitive. There is no term structure for own credit spread (i.e., inputs) is not available.

Inappropriate Being able to record 'income' because one's credit condition deteriorates is absurd.


Inappropriate I do not think it makes sense to record a gain when the performance of my entity is deteriorating

Inappropriate

I don't think we're ready for this yet. I have concerns about an issuers' informational advantage. Difficult to measure. Creates an odd situation where the company's deteriorating credit rating actually reduces the value of its own liabilities? While true, I'm not sure that we're ready for that one yet.

Inappropriate I it can be monetized then okay, if not it is not useful information.


Inappropriate Leads to the bizarre situation where a deteriation of ones own credit quality can reduce liablilities and improve the perception of the performance of a company?1?

Inappropriate Liabilitles should be marked at full value, not marked to market.



Inappropriate Not sure financial statements should reflect own credit risk.

Inappropriate Potential for distortions caused by implicit "endorsement" of CDS market

Inappropriate Potential for manipulations??

Inappropriate

Recognizing a gain for a decrease in its own credit rating (higher risk) is only appropriate if and at the time that the company actually repurchases/settles its own debt at less than par. Recognizing such gain before the company repurchases/settles its debt for less than par is similar in concept to recognizing a contingent gain (not allowed by FAS 5), because the realization of the gain is contingent on the company having the liquidity and ability to extinguish the debt at terms more favorable than contractual.

Inappropriate The market value may distort what the actual liability is.

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Inappropriate Unless default likely

Inappropriate Weaker company lower liabilities (therefore stronger balance sheet).

Not sure Commercial banks institutions should be exempt, since this is part of their "core" operations.

Not sure depends on how exit price is measured upon exiting the credit risk completely (or partially?)


Not sure I am not familiar with the exit price concept. It sounds excessively fair value.

Not sure

It is counter-intuitive for gains arising from deteriorating creditworthiness to go through the P&L. If the company buys in the liabilities at below redemption value, then that gain is a real one. Usually it cannot. However, the market value of the debt is useful information. I would rather the reporting reflected the going concern basis of the company and that FV changes are disclosed in notes. But I realise there is an inconsistency with my general preference for debt securities to be at FV and it is easy enough to adjust for these paper gains.


Not sure Observability of credit is an issue

Not sure own credit risk of liabilities should be taken into consideration only if the entity can demonstrate practical ability to settle at a price which includes such component

Not sure own credit risk should be excluded from P&L impact

Not sure See comments to question 3

Not sure to be discussed

Not sure What chu mean?

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Appropriateness - All derivatives and traded

instruments Comments




Appropriate Depend on liquidity / depth of market

Appropriate Disagree with applying transfer notion in measuring the fair value of derivative liability which often assume settlement with counterparty instead of transferring the derivative liability to third party market participants.

Appropriate except price discovery is a myth

Appropriate In stock picking, everything will ultimately need to be translated into fair value to decide is a stock is currently cheap or expensive.

Appropriate To the extent that there is a liquid market, this would be okay.

Appropriate Would properly reflect the sometimes substantial transaction costs (wide bid/ask spreads) and commissions. Exit cost may, however be difficult (or impossible) to estimate in some cases.

Inappropriate exchange-traded prices are more observable, and be careful with 'exit price' for bilaterally negotiated and OTC instruments.

Inappropriate Exit price is an opinion for the day, hour, minute, second. Value depends on who you ask. Informatipon can be stale.

Inappropriate highly uncertain outcomes - record at current market

Inappropriate Many of the all other financial instruments are valued by independent valuation firms with no experience trading and or investing in such securities. They don't understand the securities much less know what information is relevant to the valuation of such securities


Inappropriate The exit value for these may fluctuate dramatically affecting the transparence of the balance sheet

Inappropriate who/what determines "exit price"?

Not sure Again, liquidity assumptions are dangerous, and appropriateness of exit price method relies upon market structure.

Not sure Calm market conditions assumed?

Not sure During periods of extreme illiquidity, there can be times in which the true value of the vehicle can be too greatly distorted to be considered "fairly valued"


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Appropriateness - Equity securities

Comments

Appropriate again sperating out gains and losses (realised and unrealised) on the income statement is essential, gains are not revenue and losses are not expenses, especially when they are non cash

Appropriate All equity instruments should be measured at fair value with changes recorded in profit and loss.



Appropriate But option to be retained to measure at cost less impairment where reliable information is not available.


Appropriate Depends on liquidity

Appropriate exchange-traded

Appropriate Fair enough.

Appropriate Fair value can typically be readily established

Appropriate


Appropriate Liquid generally

Appropriate public only

Appropriate Will be easier to approximate.


Inappropriate exit = entry => spread is trxn cost

Inappropriate For all categories, this sounds a lot like trying to avoid mark-to-market at any cost.

Inappropriate highly uncertain outcomes - record at current market


Not sure appropriate only for equities held for active trading, not for strategic investments


Not sure probably not restricted stock

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Appropriateness - Debt securities

Comments

Appropriate Appropriate when a good indicator of future cash flows, not as good in disjointed markets.




Appropriate face and fair value

Appropriate In stock picking, everything will ultimately need to be translated into fair value to decide is a stock is currently cheap or expensive.

Appropriate only if there is a market

Appropriate See comments on Loans.

Inappropriate asset coverage is highly uncertain

Inappropriate depends on how exit price is measured.


Inappropriate Liquidity certainly can be an issue here.

Inappropriate Long-term holdings, I wouldn't use the strategy.



Not sure but need to get away from marginal pricing (as opposed to average pricing)

Not sure Commercial banks institutions should be exempt, since this is part of their "core" operations (owning a bond, to a bank, should be equivalent to issuing a loan)

Not sure DCF using appropriate discount and or recovery rates is preferable to "exit price"

Not sure Depending on timeframe. Would agree if we are talking about 15+ years to maturity

Not sure depends on whether debt securities are managed on fair value basis

Not sure I have marked all these items as 'not sure' given that it is difficult to ascertain what exit price could mean and at what date etc. Does this then lead to subsequent disclosure if there is a material movement between balance date and lodgement of accounts?

Not sure it could at times if values are determinable

Not sure Need seperate different debt securites according to trading volume and frequence


Not sure potentially the same issue as with derivatives for the less liquid vehicles

Not sure seems that fair value should be based on readily observable mkt prices

If held as an investment or tradable security, not held-to-maturity

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Appropriateness - Non-financial assets

Comments



Appropriate

Companies, and divisions within them, are routinely bought and sold. Sales and purchases, whether of units or whole companies are purchased and sold in arms-length exchanges at FV, including the valuation of all assets and liabilities of the company. Market place participants should have complete and up-to-date information regarding the values of the assets and liabilities. Also, it is not uncommon for an acquirer to purchase a company with the intention of retaining only a subset of the assets acquired, sometimes a relatively small subset. In the absence of FV measurement it is impossible for those providing capital to the acquirers to fully understand the economics of the transactions and the implications for the risks and returns of their investments in the acquirers.

Appropriate cost must be available since fv is very difficult and costly

Appropriate


Appropriate Real estate would be a clear "appropriate"; also appropriate would be assets that are typically acquired in acquisitions for instance

Appropriate See comments on Loans.

Appropriate The use of exit pricing to value non-financial assets could be cumbersome to implement, but it would provide useful additional information for investors if it is feasible to implement.

Appropriate where non-financial assets are measured at fair value - this feels appropriate for the purposes of consistency unless the in-use value to the entity is higher.

Inappropriate Amortize the cost basis and disclose difference with fair value in the footnotes.

Inappropriate assume no intent to sell/LT impairment

Inappropriate brings in too much conjecture to do exit value


Inappropriate Exit price = distress sale

Inappropriate

I do not agree to use so-called fair value for non-financial assets unless there is arm's length transaction for the exactly the same assets, but they are difficult to find and not reliable. If there is similar assets with recent transaction, I prefer the financial statement to disclose it in the notes.



Inappropriate Price probably difficult to determine objectively, giving room to manipulate.


Inappropriate See non-financial liabilities. The value of these assets can be peculiar to the company eg specialist manufacturing facilities.can be

Inappropriate valuation may be very subjective

Not sure appropriate if able to measure

Not sure Depending on nature

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Not sure Depends - makes sense for intangibles but for PPE and others historical cost is more relevant

Not sure Depends on nature of asset. If asset is one that is to be sold then highest and best use makes sense.

Not sure depends on the asset type.

Not sure Difficult to assess


Not sure for some assets it makes sense, but a fixed asset has a value at a point in time despite having an exit value of 0

Not sure not 100% sure what is meant by exit price notion


Not sure Unless there is a liquid market for these liabilities, I believe no discount or premium should be recorded.

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Appropriateness - Non-financial liabilities

Comments



Appropriate



Inappropriate exit value seems purely conjecture

Inappropriate I think investors want to see the full-freight of the liability.... not the "fair value".


Inappropriate If there is no active market, the exercise of modelling an exit price can become very hypothetical. Why not just call it current value?

Inappropriate Illiquid market possible so difficult to value




Inappropriate The market value may distort was the actual liability is.

Inappropriate These are not usually the types of liabilities that can be sold.

Inappropriate valuation may be very subjective

Inappropriate What market to exit?

Not sure appropriate if able to measure

Not sure depends on what the liability is.

Not sure Difficult to assess


Not sure illiquidity instruments tends to have high transaction cost, but the company may intend to hold for long term. In this case, the company is being penalisd for holding illiquid assets.

Not sure It depends on the nature of the liability eg. employee post employment liabilities.


Not sure not sure of composition of all non-financial liabilities

Not sure Please provide definition of exit price

Not sure s/b realizable value

Not sure too general a liability class

Not sure Unless there is a liquid market for these liabilities, I believe no discount or premium should be recorded.

Not sure Will depend on nature of the liability

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Which of these objectives do you feel is most important as a focus of the changes in financial

instrument accounting?


The goal should be transparency in the numbers and footnotes. The methods used under particular circumstances should be made clear and reasonableness the constant goal

All three reasons are equally most important

All 3 are linked, as convergence will reduce complexity (one set of rules) and will improve usefulness. Reducing complexity will also improve usefulness. Overall, usefulness is the most important part, but it would be best achieved through the other 2.


All laudible objectives. Both IASB and FASB continue to confuse the basic accounting statements with improving disclosure. Many of the new/enhanced disclosures only muddy the waters when blended in with the basic statements.


All three reasons are very important. However, moving to fair value accounting will make financial statements less usefull and more complex due to the vastly different assumptions that will be used by different entities.


Almost most important is to get this right on the first go. The flailing about in standards setting over the past few years has costs of its own with little real benefit to preparers or users. Measure twice, cut once.


another key objective is to mitigate "death spiral accounting" which is the perverse end result of fv accounting


Any change will only increase complexity. So reducing complexity is extremely tough, but very important.

All three reasons are equally most important Both IASB and FASB are loosing touch with the reality of business.


Convergence is generally always important to promote further cross-border capital flows between countries. Improving decision usefulness is the cornerstone of having accounting standards. Having clear and accurate information that can be uniformly compared across borders will lead to better well-functioning capital markets which should in theory manifest itself in asset prices reflecting their true value more then they currently do now, and should also reduce the chances of surprises (like 07-08).


In my opinion, the new proposals do not help meet the above reasons and do not go far enough.


They're all important objectives. The use you made of financial statements should determine which one is the most important to your situation

Improving decision usefulness and convergence are equally

most important Complexity should be assumed, expected and accepted.


most important Complexity will always be there. Better to make reporting more beneficial to user as well as consistent between IFRS and GAAP.


most important Converged standards are needed for the global investment community and the ability to make the best decision based on the appropriate information is a must.


most important

Decision usefulness is key for these rules to have an impact on the investment decision making. Similarly a common set of principles would enhance comparability and analysis when evaluating investment choices.


most important I think convergence is a monumentally stupid idea.

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most important I think convergence with FASB and IASB is a worthy and important goal. But not if it means we end up with a terrible accounting system that doesn't meet anybody's needs.


most important Improving decision usefulness of information and convergence should be the key focus. Complexity should not be a focus as over time, familiarity will reduce complexity.

Improving decision usefulness and reducing complexity are

equally most important Convergence is important too however reducing complexity and improving decesion making should be the prime objective.


equally most important Convergence is impossible in the short term.


equally most important Convergence is only important if usefulness and reduced complexity are met. Last thing we want is a converged model that lacks usefulness and is highly complex.


equally most important For information to be useful to users, it should be easy to understand and not complex.


equally most important I believe decision usefulness increases as a function of reduced complexity and better standardization of assumptions and methods underlying valuations.


equally most important Moving to a single accounting standard is very important, but not at the expense of reduced decision usefulness or increased complexity.


equally most important Same thing - complexity reduces usefulness


equally most important

Simpler and more useful is most important - research on information content of "special" vs. "other/extraordinary" losses on income statement for long-term cash flows suggests that simpler and more visible will translate into improved decision usefulness.


equally most important The aim should be the best solution. Some experimentation with different approaches may be helpful.



The current system is awful. The income statement for some financial firms is literally almost useless. The IASB and FASB got carried away with the notion that FV was a panacea, and in the process reduced the information value of financial statements. FV is important, but, again, for a firm that is considered to be a going concern, I am much more concerned about earnings. FV is relevant, of course, to the extent unrealized losses could become realized, but that can be accomplished without obscuring the I/S.



The FASB viewpoint on this topic is inconsistent with the guidance of the G20 in increasing the amount of instruments which will be carried at fair value and as such is unlikely to gain traction throughout the world.



The focus must be on high-quality standards that give you decision-useful infomation and reduce complexity. If you are converging to low-quality standards, the more important priorities are getting compromised. IFRS 9 is too much of a political compromise to keep the EU and other political bodies happy, and it does not focus on providing the information investors need and want (fair value information). Disclosure of fair value information in the footnotes is not a replacement for putting the information in the financials. If it is in the financials, we will get it at earnings release time.

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equally most important The overall 'bar' for transparency and full-disclosure of public companies needs to be raised, particularly within the banking sector


equally most important To me, convergence is the least important of the three. Convergence will eventually come, but before IASB and FASB need to come up with their proposed recommendations.



While improving the reliability and usefulness of financial information is probably at the top of my list, it is important to balance that with the burden of those improvements on the institution.

Improving decision usefulness of information

Professionals should be used to some complexity and, if the IASB regulations prove superior, the FASB will most likely converge towards them on pressure from the markets.


Accounting bneeds to useful in calculating the value of a corporation. That is NOT usually book value. taht is usually some multiple of normalized earnings. Therfore accounting MUST focus on delivering a view of normalized earnings.


Accounting standards should serve the needs of the investor first and foremost, and help drive investments decisions made on accurate information (be useful for decision-making). Theoretically, less complex or converged standards do not help if they are not useful for decision making.


Allow regulators to focus on solvency. The main reason I'm interested in economic values is when the equity is in jeopardy of going to zero, and maintaining the amortized cost fiction hinders my ability to figure out economic value of equity in periods of distress.

Improving decision usefulness of information Back to the basic concept underlying financial reporting: decision useful information.


Complex structures may need complex reporting standards, but it would be very useful to have audited, detailed desclosures of financial assets, especially for financial companies.


convergence is good if it leads to more interpretable accounting for inverstors Convergence for corvergence' sake is bad if resulting accounting clouds changes in fair values and cash flow impacts related to financial instruments

Improving decision usefulness of information Decision usefulness and accuracy should "trump" complexity and convergence

Improving decision usefulness of information financial accounting must not be easy, it should be useful


Financial information should primarily be useful.Given that some necesary financial instruments are not straightforward, complexity is the price to pay for making business.


Financials should exist to allow stakeholders to FULLY understand the business. Anything else as a purpose for external financials is quite a bit less important.


I consider decision usefulness to be more important. Sometimes, providing comprehensive information will make financial reporting more complex. However, the complexity may be compensated by greater usefulness.


I rank usefulness first, clarity a close second and convergence third. These are complicated, difficult issues. These are dynamic issues. No matter what rule or principle that is developed, the market will respond to create instruments that provide for alternative accounting, tax and regulatory treatments. In some respects, having a discontinuity between FASB and IASB approaches is actually beneficial in that it will cover a wider swath of financial products, and allows for more experimentation by the regulators to see how the new requirements play out in practice. I think this is especially important in complex and dynamic fields such as with derivatives.

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I'm not in favor of convergence for convergence's sake -- one monopolist regulator for financial statements isn't any better an idea than monopolies in other areas.


In the end, financial statements are used to arrive at an investment decision, that trumps all other concerns.

Improving decision usefulness of information Significant reduction of complexity not really feasible.


The intent of all changes is to ensure that financial statements help users in making informed decisions.

Improving decision usefulness of information The most important aim must be improving decision usefulness of information.


The primary focus should always be the decision usefullness. Other goals are important but secondary to the first one. When other criteria are taken as primary it results in standards which do not portray the business of an entity faithfully. For example the new IFRS 9 brings oversimplification in some cases (due to giving priority to reduction of complexity) which is true especially for financial institutions. The contractual cash flow classification criterion is defined very narrowly and the result is that some part of the bankÂ´s normal loan business would have to be measured at fair value. For debt instruments which are managed on contractual yield basis emededded derivatives concept is vital. To show such instruments faithfully only the volatile part of the cash flows coming form embedded derivative should be reported at fair value through P&L and the remaining underlying host contract at amortised cost. However under the new IFRS 9 even small modifiaction of the cash flows coming from the embedded derivative results in fair valuation of the entire hybrid instruments which is not correct.


The whole point of accounting is to try to communicate what is actually happening in a company, not trying to fit everything in the same box. It's complex, deal with it.

Improving decision usefulness of information Transparency...give us both methods...let us decide.


Unfortunately, the proposed standard accomplishes none of these. Saying so does not make it so.


Usefulness should really be the dominant criterion. High quality staff and systems can cope with complexity and convergence can be achieved through dedicated effort by the respective accounting boards.

Reducing complexity and convergence are equally most

important Current IAS 39 is to complex. IFRS needs to be adopted worldwide.

Reducing complexity and convergence are equally most

important globalization and usefulness of statements for analysis

Reducing complexity of current financial reporting

Decision usefulness of information is difficult/impossible to attain as financial statements are used for many different objectives (investment, valuation, risk assessment, credit worthiness, systemic risk, bonus calculations, etc). Can't please them all!


Reduced complexity can facilitate understanding which would, I would expect, improve decision usefulness. Please keep in mind that there are many medium and small businesses and even large ones (that are not banks) that get swept into complex guidance and it is very burdensome.


Reduction of complexity is itself an improvement of decision usefulness, which is what the IASB descovered anew after years of producing FASB-like regulation.

Reducing complexity of current financial reporting Too many rules means too many loop holes and a divergence from common sense.

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Seeking a converged standard between FASB and IASB Accounting needs to be standardized world wide and should be principal based

Seeking a converged standard between FASB and IASB

Dealing with multiple sets of accounting standards creates unnecessary cost and complexity for global firms and for globally focused-investors.


Due to the complexity of financial instruments and structured transactions, and the various uses for which it is used by different entities, the most important factor in reducing complexity would actually be convergence in GAAP

Seeking a converged standard between FASB and IASB if it is the same all over perhaps the public's comprehension will improve.


If we know only American are going to use FASB, why do the rest of the world need to worry converging with them? FASB will eventually cease to exist if it is really that important to have a single set of worldwide accounting standards.


It is clear that users want convergence and the rules simultanaeously. Auditors will drag their feet and want different objectives. Supervisors and Regulators will also have differing objectives. The key is to link them finally and close the gap. The views of different groups should be made visible ie. from all over. UK and US have been too overbearing. It is not sure they will reach an agreement with EURO-in groups unless they start truly working together with academics in EU countries.


It is clearly the 3rd point that is less likely and should get maximum devotion, the usefulness and complexity should evolve positively with time...

Seeking a converged standard between FASB and IASB Very important to be consistent with IASB's standards

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On the assumption that convergence will remain a key

objective, which of the following would you consider to

be the most appropriate process?


The IASB and FASB should only jointly present a single solution

with synchronized timelines. A single proposal would avoid potential problems in later stage harmonization.


with synchronized timelines. At this point, they should be working together on this.


with synchronized timelines. By synchronizing releases, people might actually take the prospect of convergence more seriously.


with synchronized timelines. Divergent approaches only create additional cost and complexity for multi-national institutions (and for investors looking into different markets).


with synchronized timelines. Don't makes the world so complex. They should do it together at the same time.


with synchronized timelines. FASB lost credibility when it yielded to the US congress last year. Political organizations have no business "tweaking" accounting practices


with synchronized timelines.

Given EU has decided to temporarily defer the endorsement of IFRS 9 to 2010, the FASB and IASB should use this window to work together towards a converged standard instead of developing separate standards and seek for convergence thereafter. The latter approach could mean that companies may have to adopt new statements but have to deal with amendments later.


with synchronized timelines. Given that convergence is a priority every improvement should be made jointly. I don't get the point of doing things separately and than try to converge


with synchronized timelines. I strongkly think that the IASB and FASB should converge, therefore I think it would be appropriate if they presented a common solution.


with synchronized timelines. ideally together but recognise political pressures on IASB to move quickly


with synchronized timelines. If separate solutions are presented, there is a risk of further drift upon implementation.


with synchronized timelines. If we want convergence, we should start the synchronized timelines now, the best of our ability.


with synchronized timelines. It's a global world...standardize.

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with synchronized timelines. More efficient


with synchronized timelines. need to get them in lock step ASAP



Once you take different paths, it wil more more difficult to synchronize later. Like it or not, accounting and financial regulations have real impacts on how companies operate their businesses. Taking different paths could have unintended consequences on how companies operate in different jurisdictions that we disadvantage someone or another when the effort is made to converge. Debate is good, but if synchronization is a good goal, it's better done up front.



Otherwise, the objective of harmonization of financial reporting is imperative. If there is a diverge in the opinions between the entities, this could compromise the harmonization objective.


with synchronized timelines. Ownership of the concept could be a problem if the solution is arrived at separately and perhaps no convergence would take place which wouldn't be good.


with synchronized timelines. Same timeline increases the likelihood of converged standard


with synchronized timelines. separate timelines and approaches with a subtext of convergence provides opportunity for standard setting "arbitrage" and potential race to lowest common denominator.


with synchronized timelines. The IASB should not have succumbed to the pressure from the EU. This should have been a joint project using generally the same timeline.


with synchronized timelines. The time has come


with synchronized timelines. This is already messy. One set of rules need to be agreed, and politics must be put aside.


with synchronized timelines. To at least set a path. Little common ground still.


with synchronized timelines. Under the assumption given, an ideal outcome would be to have a unique proposal and transition timeline



We have spent years waiting for convergence of existing standards to a single, high quality set of global accounting standards. How can we possibly be spending significant resources creating new standards that are miles apart?


with synchronized timelines. We have waited this long- we can wait until there is agreement.


with synchronized timelines. We need to reduce complexities and therefore, a better approach would be to avoid working on sidelines and then working again to reconcile the differences.

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with synchronized timelines. Why hurry, why be selfish. Do it more right (and converged) the first time.


with synchronized timelines. Working towards a single solution now is the most efficient & effective to speed up convergence.


with synchronized timelines. Would boost convergence

The IASB and FASB should each initially and primarily develop what they consider to be the

best solution and timeline. Only thereafter should they explore how and whether to converge

their standards.

Accounting is the language of business. If US and Europe represent different business worlds (legal framework, economic structure etc) then a different language can not be avoided till the worlds converge.



their standards.

Assume one of the two standards will be superior, as opposed to potential for compromise, and watering down under a joint approach. Better potential for "convergence" with the "better" standard later.



their standards.

competition for best solution is good ** cheating companies will lobby poorest standard anyway ** investors should press for(and reward co's using) more transparent standards



their standards. Developing their own ideas and then converging will allow room for creativity as well as aim for convergence subsequently.



their standards. Discussion over the areas of divergence will raise awareness and help adopt a solution that has been widely dicussed and agreed upon.

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their standards.

Don't wait for FASB. Better to have a good-working solution that waiting for the perfect solution (that may not exist).



their standards. How does convergence benefit the USA?



their standards.

I can't see the two bodies agreeing easily here, in particular as there are still differences in philosophy between them. So better have two finalised approaches fairly soon, rather than nothing for ages, or a bad compromise.



their standards. I think the second approach puts FASB in a better position to negotiate during convergence.



their standards. IASB's is better.



their standards. Ideally a joint solution is optimal but that may just take too long! Convergence objective is for 2011.



their standards.

If one board does not believe that the other board is prepared to do enough to provide decision-useful information, the board should be prepared to take the courageous step of verging away from the other board to get to a better answer. I applaude the FASB for its actions.

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their standards. Implementation of the standards should be synchronised if possible. There seems to have been too little discussion between the 2 on this important subject.



their standards. It's better to converge the standards without compromising on the timeline. Improvement in financial instrument accounting is critical in terms of timing and usefulness.



their standards. Perhaps these august bodies will still come to a more reasonable solution than that which they have so far...



their standards. See above



their standards.

See detailed response to question 8. IASB and FASB should not harmonize at the expense of developing superior solutions... and sometimes the best way to identify what works is to try multiple approaches, examine the results and choose the most successful (in effect, run an empirical examination).



their standards. The 2 accounting bodies need to start working more together and come up with 1 set of guidelines that are agreed by both parties.



their standards.

The best solution would be to present joint solution. However due to the fact that the full fair value measurement model which FASB is likely to propose is in our opinion inappropriate for financial instruments we prefer current situation that IASB goes its own way and discusses the issues with FASB.

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their standards. The competition of the two systems will probably put the necessary pressure on the slowest party.



their standards.

The IASB and FASB proposals derive from different views on the objectives of financial reporting and the importance of users decision-making based upon the reporting. Thus, it is not surprising that they have reached such different and irreconcilable positions. Convergence is an important objective, but not at the cost of high quality reporting. Therefore, I believe that they should each go their own way and allow the best standard, which will lead to the lowest cost of capital for those companies reporting under the standard, to triumph. It is worth noting that the U.S. is still the world's largest equity market, the primary market for public financial reporting, and the FASB, which has the highest quality early-stage proposal serves that market.



their standards.

This productive duplication solution is only appropriate if the timelines are relatively close otherwise it provides confusion in the market and resources wasted on reconciling between two disparate methods.



their standards.

We have the advantage of being the biggest capital market in the world, and our capital and accounting independence would be compromised / removed if IASB was our standard-setting body. Therefore, while it would be ok if the standards of FASB and separately those of IASB were very similar or the same, I oppose the replacement of FASB with IASB as the authoritative body.

Not sure IASB and FASB should in parallel confirm their differences and analyse what should be the champion solution so that they present a final solution in 2010 with subsequent full guidance in application.

Not sure Prefer convergence but don't trust IASB.

Not sure Synchronization is a dream. It would make the process very long and inefficient.

Not sure The first option is too severe. I do think that working to a single solution is a good idea. They are unlikely to get there though.

Not sure The two bodies can't go too far down the road separately or the will become irrenoncilible.

Equally comfortable with either of the two above approaches.

the best solution will emerge in the long term: side effects are unpredictable (think of the Fair Value being blamed for part of the recent Stock-Exchange crisis for instance...)

Equally comfortable with either of the two above approaches. As long as we get to the same standard in a reasonable amount of time.


Decision here is somewhat dependent on what the SEC says regarding the proposed convergence timeline. Until then, IASB and FASB will continue to have differing viewpoints.


Each should do what they think is right and then, the superior version should prevail but, for comparability's sake, a joint approach would be very desirable.

Equally comfortable with either of the two above approaches. FASB is US, does not affect me

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I fear waiting for convergence means waiting longer. Political intervention risk rises the longer the standard setting process takes.

IASB and FASB convergence is political more than material

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To what extent do you agree or disagree that IASB and FASB

convergence should remain one of the objectives of financial

reporting reform?


Strongly agree A single accounting standards system would dramatically improve transparency in capital markets, while reducing cost for companies.

Strongly agree Actually, I am in favor of outright adoption of IFRS and a principles-based approach. Conversion tends to generate more of a rules-based approach. Financial information needs to be useful, and I am not sure a rules-based approach is always useful.

Strongly agree all the more important since the recent politcial interference into attempts to provide more useful and comprehenable accounting information.

Strongly agree Being able to compare financial statements on a like-for-like basis across the globe can only improve transparency and international trade

Strongly agree But is should ACTUALLY be a true convergence - which this is not.

Strongly agree Comparability across borders is key to users to understand and be interested in other markets.

Strongly agree Comparison is the key...all financial statements should be based on the exact same standards

Strongly agree Convergence is necessary to restore confidence in the stock exchange information and analysis.

Strongly agree Convergence means both partners discussing, and not one forcing the other to adopt his ideas

Strongly agree FASB should move/change to IFRS standards - not the other way around!

Strongly agree

Flexibility in accounting is a necessity to some degree such that reporting can be meaningful for different businesses in different environments. But in an increasingly globalized environment, comparability is becoming critical, which means a common rule book is increasingly important.

Strongly agree For better or worse, the prospect of convergence has improved our ability to understand financials from outside the US - that is really progress. However, now that we are much closer, it seems crazy not to finish the job.

Strongly agree For comparability's sake a joint approach would be very desirable.

Strongly agree Get the unification, it has great international benefits. Afterward, work on refinements.

Strongly agree Given the high level of interaction between international markets and investors, the need of a uniform base of rules for financial reporting is key to provide same-basis information for investment decision making

Strongly agree Global convergence of accounting standards will remove obstacles to cross-border capital flows and will improve information dissemination and digestion over time which will lead to asset prices reflecting their true values better than they currently do.

Strongly agree Globalisation of the capital markets require this to enhance the efficiency of the capital market.

Strongly agree Globalization of the financial markets should be dictating this process.

Strongly agree IASB will pick up the upper hand in the years to come. Thus it is of the utmost importance that both standards are aligned to the highest quality standard...

Strongly agree It's increasingly one world.

Strongly agree Look how EU standards has improved convergence.

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Strongly agree Marketplace is now international. There is no justification for a lack of convergence in this regard.

Strongly agree necessary to promote better understanding of all financial statements world wide

Strongly agree Need to come up with one set of accounting guidelines globally to allow for global comparison of companies AFSs.

Strongly agree One global *independent* (not politically determined) accounting standard, even with known flaws, is superior to dozens of different systems with conflicting quirks

Strongly agree Overdue!

Strongly agree See above.

Strongly agree This is becoming an increasingly global economy. The reporting standards should reflect that.

Strongly agree Will make Accounting comparable across all jurisdictions

Strongly agree Would make global investing easier, lower regulatory compliance costs for companies with securities in multiple jurisdictions, etc.

Strongly agree

You should have user groups commenting. Ivan Lathouders, CFA (sell-side analyst) Svetlana Boysen, CFA (policy setter EMEA) Marc Labat, CFA (auditor) and Kris Mertens, CFA (regulator) are a balanced group with myself Susan Weed, CFA who could contribute and have contributed here from Belgium.

Agree A converged set of accounting standards will improve cross border usefulness of accounts.

Agree

Agree, but convergence should be done over time as new standards are developed. It should not be mandated for U.S. filers. There are still many weaknesses in IFRS, including the fact that the IFRS standard setters are subject to political pressures in Europe whose interests are not necessarily in sync with users of financial statements.

Agree But as mentioned before, convergence should not be the ultimate goal. In fact, if anything, IASB is becoming the dominant approach as adopted by most countries around the world, so convergence will happen de facto.

Agree Convergence improves the comparibility of financial statements under the different accounting regimes. Despite the achievments already made, there is still potential for future convergence

Agree Convergence should not be pursued at the expense of meaningful disclosure/reporting. If convergence can promote reporting that is more relevant for investors, by all means.

Agree Convergence would help comparability - provided the subjects are comparable.

Agree Differences are considered a problem now that FVs have fallen. Wasn't this issue of same importance when FVs were continuously rising during the previous years?

Agree globalization of businesses and investment opportunities make it desirable to have one common standard.

Agree Having these multiple standards is part of the core problem. If professioanl analysts have trouble dissecting the financial reports, imagine what a casual investor is up against.

Agree I agree only to the extent that IFRS does not become a set of rules like FASB.

Agree I general agree that convergence is necessary, although my fear is that the final convergence will be bias toward IASB and away from FASB which could prove problematic for the US.

Agree In the way of convergenge, the IASB sacrificed much of the original "principle based"-ruling once typical of the IFRS. They seem to be on that path again and should stay there.

Agree It is important as different accounting standards could give a competitive advantage to some.

Agree It should be for the sake of comparability, especially in a context of globalization.

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Agree It would be helpful, but, as long as BOTH groups establish simple, clear rules, analysts can deal with two accounting regimes (gee, how'd we get along for all these years?!).

Agree Let's face it, a global world needs a global standard. Else, accounting arbitrage will likely occur.

Agree Questionable is the speed of the convergence project.

Agree

See my comments in question 7. Convergence should remain AN objective, but not the only or even the most important objective. Until the differing philosophies of the two regarding the objectives of financial reporting can be better aligned, convergence should not drive the standards development process.

Agree Should remain an objective as long as the objective is not detrimental to high quality standards in the U.S.

Agree

Should remain an objective but unlikely to give meaningful results in the short term. I think that the better approach would be for both the IASB and FASB to take a "break" - i.e., not issue significant accounting standards for a few years, while some of the most significant differences are being fixed.

Neutral

Convergence is still a great concept. Maintaining an independent standards-setting body doesn't appear to be possible anywhere. Both IASB and FASB have bowed to political pressure and compromised their independence within the last 2 years. If neither are independent, we might as well have just one set of rules.

Neutral Convergence of accounting standards as such is vital. However we cannot support convergence in the area of financial instruments if the result would be full fair value model as proposed by FASB. We cannot coverge at any cost. And the cost of full fair value accounting would be irrelvenat information for users and accounting system costs for preparers.

Neutral

Conversion from German HGB to IASB accounting led to less transparency in terms of cashflow impact. The gains in more transparent segmental accounting and from fair value principle are crowded out from many fuzzy fair value standars (suppressing historic cost and other cashflow related information...) financial instruments reporting. => so further convergence probably will come at the expense of some clear accounting rules

Neutral I cover companies that follow IAS and rarely compare them to companies that follow US GAAP. Thus, convergence is not a major issue to me.

Neutral

The FASB/IASB should attempt to converge standards where appropriate. There will be differences between different countries due to legal, regulatory and cultural differences. I am not in favor of the US adopting IFRS at this time due to issues with governance and I believe that IFRS is not complete set of standards.

Neutral When convergence results in standard that does not meet investor needs, then decision usefulness should prevail

Disagree Competition between regulators and standards-makers will help reduce complacency on risk, getting co-opted by big firms, and keep both organizations working to improve reporting.

Disagree Convergence is secondary. Getting to an appropriate set of standards that will be adopted globally is imperative. If one board cannot get there, then it should not drag down the other board.

Disagree Convergence should NOT be a high priority. Accuracy of reporting should be a high priority.

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Disagree Convergence will never happen because each country's legislative branch will want to control its own destiny. Our US government is a prime example of this in action. I don't see a day in the future where every developed country agrees on how to fix, or prevent, a financial crisis.

Disagree

I realize that convergance is all the rage... and that it's confusing and expensive to have different standards--especially as issuers themselves become more global. I also realize there is a risk of "regulatory arbitrage" whereby an issuer will seek out the jurisdiction of most favorable treatment and issue statements there. That being said, I also think that it is extraordinarly valuable to have regulatory competition--to have FASB, IASB and other authorities, independently examining and thinking about accounting issues and policies. One of the costs of convergence will undoubtedly be a loss of regulatory experimentalism whereby issues can percolate up through separate authorities, who deal with them thoughtfully but in different manners. Perhaps it's best (espcially when dealing with new issues) to harmonize on the accounting principles but leave local authorities flexibility in terms of implementation, application and interpretation. In this manner there is both convergence as well as thoughtful "experimentation" which can provide valuable information as to how policies are working, can be adopted, or made mandatory. Such a framework is already common in law: Europe does so through EC Directives to the Member States and the US Federal Gov't does so by imposing a goal upon the states without dictating how the states accomplish that goal (e.g., the no child left behind legislation).

Disagree International Accounting Standards have long provided for more manipulation than U.S. standards.

Disagree There has yet to be convergence as there are differences in all converged standards. If the standards are not the same, having convergence makes no sense

Strongly disagree As noted above, I don't want a single monopoly financial accounting standard provider worldwide. Competing providers makes it harder for accounting to be captured by one interest group.

Strongly disagree Based on the IASB decisions to date, and significant political pressure placed upon the IASB, I would not want US financial reporting to be held hostage to such political pressure.

Strongly disagree Convergence is a secondary concern. The primary concerns are to provide decision-useful information in less complex formats than are available under our current accounting models.

Strongly disagree Convergence of FASB and IASB is yet another example of selling out America's future to foreign interests

Strongly disagree I believe that the SEC should strive to make financial reporting as transparent as possible without regard to other countries or entities. We should not subject ourselves to the possibility of politics being injected into the process from outside.

Strongly disagree I don't believe that one set of rules is better. By having 2 major accounting systems we can learn more, get more done, react quicker to changing circumstances. Don't forget that the US may have different objectives or more domestic needs than the countries that IASB relate to.

Strongly disagree Most important to have high quality accounting standards. If convergence happens, then ideally the highest quality accounting standards would prevail.

Strongly disagree

Moving the U.S. from GAAP to IFRS is a terrible idea any way you try to camouflage it. The only people who favor it are (a) the Four Whores, (b) one-worlders, (c) people who don't have a clue, and (d) those who want to trash the standard of living in the United States. The U.S. needs to remain on GAAP. If the rest of the world wants to get with GAAP, fine. But if they don't, that's just fine, too. This whole idea reminds me of one-size-fits-all Obamacare. That is deranged, and so is convergence/conversion.

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Strongly disagree

We have the advantage of being the biggest capital market in the world, and our capital and accounting independence would be compromised / removed if IASB was our standard-setting body. Therefore, while it would be ok if the standards of FASB and separately those of IASB were very similar or the same, I oppose the replacement of FASB with IASB as the authoritative body.

international financial reporting standards (ifrs) …...agree but still not as good as all fair...

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