Tweedie: IASB Yielded to Political Pressures

Was Sir David Tweedie, chair of the International Accounting Standards Board, yielding to political pressure in October when IASB allowed banks to move assets out of the fair value category retroactively to July 1, 2008, a move that Moody’s said allowed banks to cherry pick certain assets and avoid recognition of markdowns?

By Tweedie’s own admission: “Yes.”

Tweedie openly admitted that he was yielding to pressure from the likes of German Chancellor Angela Merkel and French President Nicolas Sarkozy during a conversation with Floyd Norris, chief financial correspondent for the New York Times on Dec. 10. View the webcast provided by the Lubin School of Business at Pace University here.

If he’d had his druthers, Tweedie would not have caved to political pressures, though he defended the rule allowing asset transfers as merely following in the footsteps of U.S. Generally Accepted Accounting Principles. European banks began complaining that their U.S. counterparts had an unfair advantage during the financial crisis, according to Tweedie.

“They wanted the same treatment as in the U.S. We resisted. The next thing we heard was that the law was going to be changed. We had about four days’ warning,” Tweedie said, referring to a threatened carve out under which European Commissioner Charles McCreevy would introduce legal changes to override the rule. IASB rules are adopted as legislation, and McCreevy had threatened to drop the existing rule from the books altogether.

If IASB had allowed the carve out to go through, Tweedie feared that “accounting in Europe would be so tarnished that in the United States you’d think twice about whether it’s even worth doing it.”
But did the international standards prove so bendable that the incident is making U.S. officials think twice anyway?

Though international standards may be blowing in the political wind now, IASB has a plan in place that it hopes will prevent such occurrences in the future. As part of a constitutional review, IASB plans to create a monitoring group composed of international regulators that can step in between lawmakers and IASB, much as the SEC does in the U.S., Tweedie said. IASB’s website says it plans to begin implementing changes resulting from the constitutional review this month.

“Our problem is we’re missing one bit, and that is we don’t have the SEC sitting on top of us,” Tweedie said. “It’s there as a shield. It can step in between Congress and the FASB [Financial Accounting Standards Board].” For IASB, there currently is no such protection, but Tweedie believes the monitoring group, once created, will fill that void.

Currently, the international standards setting board is overseen by its board of trustees, the International Accounting Standards Committee Foundation, which handles funding for the body. The monitoring group would approve trustee appointments.

Tweedie blamed part of the problem on the existence of two different standards internationally and in the U.S. “Having different standards between U.S. GAAP and IFRS in this sort of situation is almost untenable,” he said.