EBA欧洲银行-2009-04-02-28CEBS-input-to-FCAG29_14页_161kb

CEBS Comments on FCAG's Questions

Core Content

The Committee of European Banking Supervisors (CEBS) has provided detailed comments on the questions posed by the Financial Crisis Advisory Group (FCAG), focusing on the role of general purpose financial reporting in identifying issues during the financial crisis, the appropriate reflection of "through-the-cycle" loan provisions in financial statements, and the importance of improving accounting for off-balance sheet items such as securitisations and structured entities.

Main Points and Key Information

1. Role of General Purpose Financial Reporting

• Helped Identify Issues: General purpose financial reporting provided a timely, albeit incomplete, picture of problems during the crisis, particularly in areas where fair valuation was applied.
• Did Not Address All Risks: The financial information reported by institutions was not sufficiently focused on assessing potential risks, especially in relation to structured instruments and entities.
• Fair Value Accounting Issues: While fair value accounting was useful, it also raised concerns, such as the need for more detailed disclosures and the potential for misinterpretation of fair value measurements.

2. "Through-the-Cycle" Loan Provisions

• Importance of Transparency: CEBS emphasizes that transparency is essential for investors and depositors, and that through-the-cycle provisions should be clearly reflected in financial statements.
• Recognition Options: CEBS suggests that these provisions should be recognized in profit or loss (P&L) if losses are likely to occur, or in other comprehensive income if uncertainty is high.
• Equity Appropriation: It is recommended that provisions be treated as non-distributable reserves within equity, with clear footnote disclosure.
• Consistency with IASB Standards: CEBS argues that "through-the-cycle" provisions should be evaluated against the IASB framework and user needs, not just against current IAS 39 requirements.

3. Accounting for Off-Balance Sheet Items

• Significance in the Crisis: CEBS acknowledges that issues surrounding the accounting for off-balance sheet items, such as securitisations and structured entities, may have contributed more to the crisis than fair value accounting.
• Need for Enhanced Disclosures: There is a strong call for more detailed disclosures regarding the involvement of reporting entities in structured entities and the associated risks.
• Consolidation Concerns: CEBS is concerned that the proposed ED 10 may not address all issues, especially due to ambiguity in the control model, which could lead to some entities not being consolidated despite economic exposure.
• Convergence with US GAAP: CEBS urges convergence between IFRS and US GAAP, particularly regarding the treatment of special purpose entities (SPEs), and highlights the lack of corresponding FASB EDs.

Recommendations

• Clarify Valuation Adjustments: The IASB should provide explicit guidance on valuation adjustments and their assessment methods.
• Improve IFRS 7: CEBS recommends revising IFRS 7 to include quantitative disclosures on fair value hierarchy levels and stress scenarios.
• Enhance Educational Guidance: There is a need for clearer educational guidance to ensure consistent application of fair value measurement standards.
• Field Testing and Due Process: The IASB should conduct substantial field testing and follow due process when revising consolidation rules and other standards.
• Focus on Key Issues: Immediate attention should be given to the consolidation of SPEs and related disclosures, with broader conceptual reviews deferred.
• Promote Transparency: Financial statements should distinguish between realised and unrealised gains and losses, and provide sufficient information to allow users to assess the financial health of entities.

Conclusion

CEBS believes that while general purpose financial reporting has played a role in identifying issues during the crisis, it has also revealed significant gaps in risk assessment and disclosure. The group advocates for improvements in valuation practices, more consistent application of impairment rules, and enhanced disclosures for off-balance sheet items. It also emphasizes the importance of global convergence between IFRS and US GAAP to ensure transparency and market discipline.