European banks set to net accounting standards deal

By Anna McLauchlin

Date: 07/04/05

The International Accounting Standards Board (IASB) is to adopt one of the key changes demanded by European banks to a controversial banking standard - IAS39 - on 20 April.

IASB chairman Sir David Tweedie said that the board would likely vote to include a different fair value option in IAS39 that will allow European banks to take into account offset positions taken to minimise risk, which will reduce the volatility of the accounts.

"We think we've come up with something that is fair to both sides, taking account of the concerns of the regulators, industry is happy with it, so we have done our round tables and there's good support for it," he said in Brussels.

"Of course we've still got to vote on it, but if that goes through then I'd be surprised if that doesn't do away with one of the carve-outs."

If the IASB does approve the change, the European Commission's Accounting Regulatory Committee still has to vote before the EU executive can formally rubber-stamp it for European companies' use.

This usually takes 8-9 months but it is expected to be fast-tracked and could become official by the end of the year.

Wilfred Wilms from the European Banking Federation said he would welcome the move. "Banks and corporates will be able to reduce volatility in their profit and loss accounts which is more in line with economic reality," he said. "The change will also remove a lot of the administrative difficulties with using the fair value option."

IAS39 is the only International Accounting Standard that has not been fully taken up by the EU, after some countries, notably France, asked for an exemption or 'carve-out' for banks.

They argued that the fair value option - where companies have to include the market price of financial instruments on their balance sheets - would lead to volatile stock markets.

The modified standard will restrict the requirements of this option. The second carve-out, which concerns hedge accounting, still has to be ironed out and Tweedie said talks were still ongoing, but it would take longer to reach an agreement.

The IASB chairman also said that the IASB is stepping up its attempts to converge EU accounting standards with those of the US. On 21 April the board will meet its US counterpart, the FASB, to present a paper identifying the main areas for improvement.

Tweedie said it was vital to try to narrow the field in order to make swift progress.

"If people can agree that we just go for the big [issues], it will obviously go much faster, if we have to deal with all of them it's years and years away because there are just too many," he said.

Article reports that the International Accounting Standards Board (IASB) was set to adopt on 20 April 2005 one of the key changes demanded by European banks to the controversial banking standard IAS39.