Quick Accounting Shift Draws Fire

Sydney Morning Herald

Friday October 24, 2008

Jacob Saulwick

BANKS and finance companies stand to benefit after Australian accountancy standards were swung into line with US practices yesterday.

But the chairman of Australia's Accounting Standards Board criticised his international body after standards were shifted quickly, and with little consultation.

When the International Accounting Standards Board switched its accounting rules closer to those in the US, Australia had no choice but to follow.

The changed rules mainly apply to the valuation of financial securities such as debentures or loans. They give companies more flexibility in how they value these securities, allowing them to decide whether to value them on a mark-to-market basis or on a hold-to-maturity basis.

There have been calls to suspend mark-to-market accounting, because it forces companies to value assets according to what they could be expected to receive for them. Markets for many assets - particularly derivatives - have almost vanished, forcing huge write-downs as banks revalue their assets.

But derivatives - such as collateralised debt obligations (CDOs) - are excluded from the switch, meaning that financial institutions won't be able to revalue toxic mortgage derivatives easily.

David Boymal, the chairman of Australia's overseer of accounting rules, said the volume of securities affected by the reforms were "potentially very significant" in Australia.

The changes will mainly affect banks and other lending and borrowing companies.

But Professor Boymal said there were likely to be criticisms of the switch. "There are a number of things and we shouldn't bury them under the carpet. One is, did the IASB just capitulate under pressure?"

Professor Boymal also said it was unusual that banks could apply the amendments retrospectively from July 1, 2008.

And he criticised the pace of the switch and its lack of consultation.

"That's very very unusual," the chairman of the AASB said.

Professor Boymal said that it was not that he disliked the changes, but without testing them it would be difficult to foresee problems.

The Minister for Superannuation and Corporate Law, Nick Sherry, welcomed the decision by the AASB to shift standards into line with the international body's.

© 2008 Sydney Morning Herald

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