Accounting Standards

Presenting investments at mark-to-market (or their most recent measurable current value) is a useful tool for investors, creditors, and other decision makers in bondholding institutions. Most markets require mark-to-market reporting of bond investments in accordance with domestically-accepted accounting standards. Asian economies have adopted - or are moving towards the adoption - of international mark-to-market accounting standards.

International standard guidelines are provided by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). The FASB is the accounting standards board in the United States while the IASB is a London-based international accounting body that promotes convergence of global accounting standards.

The “Statement of Financial Accounting Standards No. 107 - Disclosures about Fair Value of Financial Instruments”, published by the FASB, requires all entities to disclose the fair value of financial instruments for both assets and liabilities when practicable. The “Statement of Financial Accounting Standards No. 115 - Accounting for Certain Investments in Debt and Equity Securities”, also published by the FASB, addresses accounting and reporting standards for investments in debt and equity securities. Bond investments can be classified under three categories:

• Securities held-for-trading are reported at fair value. These are securities bought and held for the purpose of selling them in the short run. Unrealized gains and losses are included in earnings.
• Held-to-maturity securities are reported at amortized cost. These are debt securities that a company has the positive intent and ability to hold to maturity.
• Available-for-sale securities are reported at fair value. These are securities not classified in either of the above. Unrealized gains or losses are excluded from earnings and are reported as a separate component of shareholders’ equity.

The IASB also publishes similar regulations – International Accounting Standards (IAS) No. 32 (Financial Instruments: Disclosure and Presentation) and IAS No. 39 (Financial Instruments: Recognition and Measurement). Refer to the links below for details.

Investment Funds

Most East Asian markets require investment funds (mutual funds or unit trusts) to publish and calculate net asset values (NAV) based on current or mark-to-market values of financial instruments in their portfolios. Regulations from securities commissions in the region generally require daily calculations. Refer to the summary table below.

Capital Adequacy Regulations

Banking regulations in most of East Asian countries are moving towards full implementation of the capital adequacy framework commonly known as Basel II. This framework requires positions in financial instruments held in an institution’s trading book be marked to market at least daily. The Basel II framework for prudent valuation practices is provided for under Pillar I – Minimum Capital Requirements.

Mark-to-market practices are already used to measure risk of financial institutions in relation to capital adequacy requirements. Refer to individual market pages for specific mark-to-market regulations.

The summary table below provides mark-to-market practices of selected ASEAN+3 markets.