IASB Proposes Changes to Liability Rule

In an effort to prevent banks from booking a profit and confusing investors after a ratings downgrade, the International Accounting Standards Board has proposed changing the way banks measure liabilities.  Currently, a ratings downgrade pushes down the value of a liability priced at the going rate and the amount of the fall in value can be recorded as profit.

After extensive consultation, the IASB drafted a proposal to change the way this is done. The proposal is part of their overall revamping of fair value or mark to market rule which they hope to finalize and put into effect by the end of the year.

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