Since early 2008 CEBS has been working to encourage standard setters, banks and supervisors to improve the valuation of complex and illiquid financial instruments with the aim to enhance the quality and the comparability of banks' financial statements.
CEBS has made a review of the progress made on the basis of the measures taken with respect to the issues raised in its June 2008 Report on issues relating to the valuation of complex and illiquid financial instruments
and concludes that there are still more improvements to be made.
The detailed assessment provides further insight into the measures taken by standard setters, in most cases the IASB, and by banks.
As concerns measures taken by the IASB, the report concludes that:
• as a priority, the IASB should aim to address wider valuation-related issues such as impairment measurement of available-for-sale assets, treatment of Day 1 profits and losses and the determination of the effect of own credit risk and related disclosures;
• it should further clarify particular aspects of fair value measurement guidance; and
• clarifications should also be provided regarding all aspects of the reclassification of instruments containing embedded derivatives.
As concerns measures taken by institutions, similar conclusions were drawn:
• further efforts should be encouraged with respect to banks' valuation methodologies and processes and regarding wider valuation-related aspects such as impairment measurement and the application of the fair value option; and
• progress and improvements have been observed in the classification of complex and illiquid financial instruments and, more generally, for issues relating to the process of making investment and business decisions as well as risk management.
CEBS continues to monitor the following areas:
• transparency and disclosure: a first report based on banks' 2008 preliminary year-end reports will be available at the end of March; and
• auditing fair values: where the work of the IAASB in developing further guidance is being closely monitored.
The report CEBS published today has been prepared in accordance with the follow-up process announced in the June 2008 report although it had to be speeded up to fit into CEBS's contribution to the EU's work carried out in response to the G20 declaration and action plan.