Fair Value Accounting and the Banking Crisis in 2008: Shooting the Messenger

Abstract

The paper sets out to analyse the effects of the financial crisis on the international standard-setter in 2008 and the attempts made to shoot the messenger – to blame IAS 39 for creating the crisis for reporting unrealised losses, rather than the cause being bankers making bad investment decisions. It first provides a brief analysis of IAS 39 and fair value accounting for financial instruments. It then sets out the relationship with the Basel II banking regulatory regime. The main part of the paper is a chronological presentation of the events of 2008 as they impact upon the international standard-setting institution. In particular, we analyse the impact of the G20 requirements and the blunt intervention of the European Commission that led to amendments to IAS 39. The final part of the paper looks at the consequences as they are so far discernible and the damage done to the IASB by shooting the messenger.

Notes

‘AIG urges ´fair value ‘re-think’ 14 March 2008.

This was followed on 10 October by an FASB Staff Position (FSP 157-3) on Determining the Fair Value of a Financial Asset When the Market for that Asset Is Not Active.

Uncorrected transcript of the House of Commons Select Treasury Committee 11 November 2008, taken from www.parliamentlive.com.

Uncorrected transcript of the House of Commons Select Treasury Committee 11 November 2008, taken from www.parliamentlive.com.

Letter from the Director General of DGXV dated 27 October 2008, published on http://ec.europa.eu/internal_market.

Informal Meeting of Heads of State or Government on 7 November 2008 Agreed Language European Commission 7 November 2008.

For example Accountancy Age ‘Sarkozy leads the charge towards IASB stability remit’ 13 November 2008.

Press release 12 November 2008 ‘IOSCO open letter to G20 summit’ www.iosco.org.

Published by many of the participating standard-setters (not apparently by the Conseil national de la comptabilité) but see for example the German Accounting Standards Board 17 November 2008 http://www.standardsetter.de/drsc/news.

SEC release 2008–234 of 30 September 2008.

Speech 09/41: ‘The Credit Crisis – Looking Ahead’ 9 February 2009 downloaded from www.ec.europa.eu/internal_market.

Announcement 08–937 of CESR made on 7 January 2009.