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The UK’s largest accounting institute said it is not convinced both the US and international fair value proposals are compatible.

The US Financial Accounting Standards Board (FASB) this week released its package of accounting reforms for financial instruments, which is at odds with international rules. FASB’s proposals may force companies to carry more items at fair value, unlike the International Accounting Standards Board (IASB) model, used by most countries across the world, which uses a mixed-measurement model, with some assets carried at amortized cost.

The ICAEW said it is not convinced FASB’s model. Fair value refers to the accounting principle where items are valued and reported at their market price. It was criticized for increasing volatility in markets during the crisis as banks’ asset values plummeted in illiquid markets. Nigel Sleigh-Johnson, head of the ICAEW financial reporting faculty at the ICAEW, said it would take some time to understand all the “complex implications” of the proposals.

“We do have some immediate concerns on the FASB classification and measurement proposals, which introduce more fair value measurement into the balance sheet and increase the use of Other Comprehensive Income (OCI) in an attempt to provide both fair value and amortized cost information for financial instruments held for the receipt or payment of contractual cash flows”, - he said. - “Given the differences in classification and measurement between the FASB and IASB approaches and potential difficulties in maintaining both detailed fair value and amortized cost data, we are also not convinced that it will be straightforward to reconcile the differences between the two approaches, which seem more conceptual than presentational”.

FASB and the IASB have until June 2011 to converge their two accounting codes. The IASB is encouraging its constituents to respond to FASB’s proposal.