Regulatory reform plan calls for substantial progress towards global accounting standards by year end

Calls for clarification in fair value accounting rules

President Barack Obama and U.S. Treasury Secretary Tim Geithner presented a comprehensive regulatory reform plan to reform the U.S. financial regulatory system and put the economy on track to a sustainable recovery. A recommendation that stands out in the plan calls for accounting standard setters to “make substantial progress by the end of 2009 toward development of a single set of high quality global accounting standards.”

The white paper, released in advance of the formal announcement of the plan, does not specifically recommend meeting the timeline suggested in the SEC’s proposed roadmap for adopting International Financial Reporting Standards (IFRS). The SEC roadmap proposal generated 200+ comment letters that are currently being reviewed by the SEC.

The white paper notes that FASB and the IASB “have engaged in extensive efforts to converge IFRS and U.S. Generally Accepted Accounting Principles (GAAP) to minimize or eliminate differences in the two sets of accounting standards.”

The reform plan also addresses fair value accounting standards, which have been at the center of the crisis debate. The plan directs accounting standard setters (FASB, the IASB and the SEC) to “clarify and make consistent the application of fair value accounting standards, including the impairment of financial instruments, by the end of 2009.”

Most recently, FASB issued three final Staff Positions (FSPs) intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. However, the American Bankers Association (ABA) has since requested additional relief from fair value rules.

President Obama described the plan as the most “sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.” The plan focuses on building a new foundation for financial regulation – a system that is “simpler and more effectively enforced, that protects consumers and investors, that rewards innovation and that is able to adapt and evolve with changes in the financial market.”

Key recommendations in the plan include:

• Creating a new Financial Services Oversight Council of financial regulators to identify emerging systemic risks and improve interagency cooperation
• Expanding the powers of the Federal Reserve and the Treasury Department
• Creating a new Consumer Financial Protection Agency to protect consumers across the financial sector from unfair, deceptive, and abusive practices
• Revising the Federal Reserve’s emergency lending authority to improve accountability

Related items

• Financial Regulatory Reform: A New Foundation
• White Paper: Financial Regulatory Reform
• Financial Regulatory Reform: A New Foundation from the U.S. Treasury
• Obama: 'A sweeping overhaul'
  President outlines proposals for reordering how financial sector is regulated - includes plan for new consumer protection agency.
• Fact Sheets
  • Requiring strong supervision and appropriate regulation of all financial firms
  • Strengthening regulation of core markets and market infrastructure
  • Strengthening consumer protection
  • Providing the government with tools to effectively manage failing institutions
  • Improving international regulatory standards and cooperation

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