IFRS impairment model is superior to USGAAP mark to market

Extracts from:

Jim Hamilton’s World of Securities Regulation

Commentary and musings on the complex, fascinating and peculiar world that is securities regulation

The FASB is to conduct an intensive review of fair value accounting. Read original article here.

While praising FASB’s initiative, the American Bankers Association is concerned that critical problems regarding the issue of other than temporary impairment are being overlooked. The ABA is disappointed that FASB has ignored the need to directly repair the problems regarding other than temporary impairment in the planned projects. The ABA noted that the recent SEC study recommended that FASB re-examine such impairment expeditiously.

In the ABA’s view, the international model for other than temporary impairment used by the IASB, which is based on credit impairment rather than fair value, represents a superior approach to US GAAP. As a result, U.S. companies are needlessly required to report higher paper losses than their international competitors. The trigger for determining such impairment in the U.S should be based on actual credit impairment, said the ABA, and the accompanying mark down should be made for the amount of that credit impairment as opposed to marking it to market. Recoveries of impairment should be reversed through earnings, as they are for international accounting.

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