So far the development of international standards seems to have been dominated by the US and Europe with each complaining from time to time that the other is seeking undue influence.  Yes the IASB itself has members from all over the globe but when pressure is applied to the Board it invariably seems to come from either the European Union or the US authorities via convergence discussions with FASB.  Now it seems that there will be a third leg to the stool:  Asia-Oceania.

November 4 / 5 saw the first meeting of the Asian-Oceanian Standard-Setters Group (AOSSG) in Kuala Lumpur, Malaysia.  The Malaysian Accounting Standards Board hosted the meeting and its Committee Chairman Datuk Zainal Abidin Putih believes that AOSSG will provide a "platform for concerns and issues raised by countries in the region to be conveyed to the IASB in a more formal and holistic way. At the same time, it offers an avenue for resolving common issues".

Besides Malaysia, representatives from 23 other regional standard-setters including Australia, China, India, Japan, Hong Kong, South Korea, New Zealand, Saudi Arabia and Singapore attended the meeting.

A strong Asian input into this process will add a very different dynamic to the international accounting standard setting environment which can only be a positive development.

One of the first consultations that this new group will have the opportunity to consider is the IASB's proposals on the Impairment of Financial Instruments.  This consultation is the second stage of the IASB's three-part review of IAS 39 the controversial financial instrument standard.

Currently both IFRSs and US GAAP use an incurred loss model for the impairment of financial assets. An incurred loss model assumes that all loans will be repaid until evidence to the contrary (known as a loss or trigger event) is identified. Only at that point is the impaired loan (or portfolio of loans) written down to a lower value.

The global financial crisis has led to criticism of the incurred loss model for presenting an initial, over-optimistic assessment of no credit losses, only to be followed by a large adjustment once a trigger event occurs.

Under the proposals expected losses are recognised throughout the life of the loan (or other financial asset measured at amortised cost), and not just after a loss event has been identified. This would avoid the front-loading of interest revenue that occurs today before a loss event is identified, and would, according to the IASB, better reflect the lending decision. Therefore, under the proposals, a provision against credit losses would be built up over the life of the financial asset. Extensive disclosure requirements would provide investors with an understanding of the loss estimates that an entity judges necessary.

Smoothing of results is a dangerous practice to encourage as it might lead to earnings management, or should I say, earnings manipulation.  However, the IASB has been backed into a difficult corner by the politicians who have roundly criticised IAS 39.  I don't look forward to banks financial statements becoming even more voluminous and I'm sure my friendly postman won't either but greater disclosure may be the price we have to pay to deter those that might seek to game these new proposals.  Wouldn't it be good if we could find some disclosure requirements that we could delete to compensate?

The IASB consultation paper can be downloaded from their website.  I would be interested to hear your views on either the new Asian standard-setter organisation and the IASB's impairment proposals.