Basel Committee review of international accounting standards
7 April 2000
The Basel Committee on Banking Supervision is today issuing a summary report on its review of standards developed by the International Accounting Standards Committee. This review was undertaken at the request of the G7 Finance Ministers and central bank Governors. William J McDonough, Chairman of the Basel Committee and President and Chief Executive Officer of the Federal Reserve Bank of New York, said: "The Committee strongly supports efforts to harmonise accounting practice internationally. The growing interdependence of international financial and banking markets necessitates transparent and comparable published financial statements. We support the standards developed by the IASCand plan to continue a close dialogue with the IASC and the banking industry to monitor future developments in this important area."
Two standards of particular interest
The Basel Committee on Banking Supervision reviewed the standards from the perspective of banking supervisors and limited its review to the 15 international accounting standards that have a significant effect on banks. The Committee furthermore welcomed the opportunity provided by the IASC to engage in substantive dialogue on two standards in particular.
First, the Committee focused on the special standard for bank disclosure, IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions. The Committee's review identified several opportunities where this standard could be updated to better reflect recent evolution in market practices. Dr Arnold Schilder, Member of the Basel Committee and Chairman of its Task Force on Accounting Issues and Executive Director of the Netherlands Bank, stated: "I am pleased that the IASC has considered our input and I am encouraged that they have initiated a project to consider the need to revise this standard."
Second, the Basel Committee devoted significant attention to IAS 39 Financial Instruments: Recognition and Measurement, a standard that covers the accounting for most of banks' assets and liabilities. The IASC invited Committee representatives to discuss the complex issues associated with IAS 39 with representatives of the IASC and the banking industry. The Committee believes that these discussions enhanced mutual understanding of the relevant concerns and provided a valuable supplement to the IASC process.
The Basel Committee dialogue with the IASC on IAS 39 resulted in positive steps in the areas of implementation guidance. Dr Schilder said: "We have stressed the need for timely implementation guidance on the standard and the IASC has now established a special IAS 39 Implementation Guidance Committee, in which the Basel Committee as well as the banking industry will be represented. I am pleased that the IASC is planning to issue a first tranche of guidance for public comment in June."
In the dialogue approaches have been suggested that would permit banks to use the IAS 39 hedge accounting framework in ways that are more consistent with banks' portfolio-based risk management practice. Dr Schilder stated: "Our discussions with IASC and banking organisations are very promising. Suggestions will be made to the IAS 39 Implementation Guidance Committee that will reduce the overall burden associated with the implementation of IAS 39".
Finally, the Basel Committee report discusses fair value accounting for financial instruments. The Committee does not believe that the time is right to prescribe full fair value accounting in the primary financial statements for all financial instruments. The disclosure of fair value information in respect of financial instruments may, however, be a useful addition to assist readers of financial statements.
Notes to editors
Background to the review
In their Declaration of 30 October 1998, the G7 Finance Ministers and central bank Governors requested the International Organization of Securities Commissions (IOSCO), the International Association of Insurance Supervisors (IAIS) and the Basel Committee to carry out a timely review of IASC's standards:
"[S]tandards of transparency are required in the private sector. We call upon ... the IASC to finalise by early 1999 a proposal for a full range of internationally agreed accounting standards. IOSCO, IAIS and the Basel Committee should complete a timely review of these standards." [Paragraph 7(ii) of the Declaration]
Basel Committee on Banking Supervision
The Basel Committee on Banking Supervision is a committee of banking supervisory authorities which was established by the central bank Governors of the Group of Ten countries in 1975. It consists of senior representatives of bank supervisory authorities and central banks of Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States. Its current chairman is William J McDonough, President and Chief Executive Officer of the Federal Reserve Bank of New York. The Committee usually meets at the Bank for International Settlements (BIS) in Basel, where its permanent Secretariat is located.
Task Force on Accounting Issues
The Basel Committee's Task Force on Accounting Issues has the lead responsibility in the Committee's consideration of accounting and auditing issues. It is chaired by Prof Dr Arnold Schilder, Executive Director of the Netherlands Bank, and comprises accounting experts from the different Basel Committee member institutions.
Where can I obtain the full report? The text of the reportpublished today can be obtained from the BIS website (www.bis.org) as from 09:00 CET on 7 April 2000. It is also available from the Basel Committee's Secretariat at the BIS.