more-arw search

IASB and Fair-Value Accounting

IASB sought to change some accounting rules following the 2008 financial crisi

The financial crisis created a lot of changes for how major companies report their earnings, risks, investments and other activities. One of the big adjustments to come out of the 2008 crisis was new and updated rules from the International Accounting Standards Board. The changes enabled companies to recategorize assets and move away from fair-value accounting requirements, as BusinessWeek explains.

The source says that fair value accounting rules were highlighted as one of the main causes for the meltdown, as critics said the regulations compelled companies to price their assets at "irrational" low levels.

According to BusinessWeek, these two asset classifications exempt companies from reporting fair value and so "in practice, these categories often let companies postpone losses until long after an asset's market value has plunged, especially when it comes to bonds." While some financial asset classifications make it so assets' shifting values either don't affect profits or do so every quarter, the "loans and receivables" and "held to maturity" assets are different.

That delay just meant that the problems have started popping up now and damaging investor confidence, the source reports. However, a report from Deloitte shows that mutual funds have been able to sustain more recent global events. The company said their survey indicated that fair value accounting practices were still helpful for fund groups and their boards.