IASB confirms new reclassification rules

The International Accounting Standards Board has confirmed a change to its rules allowing some assets to be reclassified and avoid be subject to a fair value calculation.

The announcement came last night after the standard setter was allowed to abandon its usual due process and rush through a change that would match US rules. A change was needed to create a level competitive playing field between companies in countries that use IFRS, especially Europe, and the US.

However, the reclassification will only apply to securities. Derivatives and the now notorious credit default swaps cannot be reclassified.

The changes allow some assets to be moved from ‘held for sale’ or trade, which means using a fair value calculation, to ‘held for investment’ which does not.

However, moving something to held for investment still requires an impairment test to be applied which could still reveal some losses.

In the US, it is understood, that reclassification is rarely used because of strict supervision by the financial watchdog the SEC. The IASB has committed itself to drawing up an anti abuse measure.

Sir David Tweedie, chairman of the IASB, said: ‘In addressing the rare circumstances of the credit crisis, the IASB is committed to taking urgent action to ensure that transparency and confidence are restored to financial markets. The IASB has acted quickly to address the concerns raised by EU leaders and ither regarding the issue of reclassification.

‘Our response is consistent with the request made by European leaders and finance ministers. It is important that these amendments are permitted for use rapidly and without modification.’

It is not clear at this stage what kind of value can be placed on the assets that could be reclassified, or what contribution they will make to balance sheets.

Yesterday the American Bankers Association stepped up its attack on fair value and the US standard setters clarification of the rules.