April 30 (Bloomberg) -- Canada’s accounting regulator is pressing to adopt international standards on how impaired debt investments are treated under a proposal that moves away from recent U.S. accounting rule changes.

“The absolute driver in this was to move towards international standards,” Paul Cherry, chairman of Canada’s Accounting Standards Board, said today in an interview. “We want a system that has global recognition, global acceptance.”

The Canadian accounting group proposed rules that match a global standard rather than follow the U.S., which has allowed companies to use “significant” judgment in valuing assets to reduce writedowns.

The U.S. Financial Accounting Standards Board approved changes to fair-value, or mark-to-market accounting, on April 2, that eased rules to recognize fluctuations in the value of investments. Critics of the original accounting rule say it hurt banks by forcing them to book paper losses in the midst of a global economic crisis.

Canadian companies with impaired debt classified as “available for sale” would be required to write down the value of the asset, similar to International Financial Reporting Standards, if the plan is endorsed. Revised U.S. rules require companies to split debt writedowns into a credit loss charge on their income statement, and the rest as other comprehensive income on the balance sheet.

“In the U.S. a bank is going to have the same bottom line net income effect as in Canada,” Cherry said. “The issue really is, do you think it’s better to write the asset down to fair value but then split the writedown into those two parts or not?”

Matured Debt

The board also proposes changes on how it treats debt held to maturity to match global and U.S. standards. Impairment of assets classified as “held-to-maturity” or “loans and receivables” would be based on the credit loss incurred during the reporting period.

The Canadian Bankers Association, which represents 50 banks including Bank of Nova Scotia and Toronto-Dominion Bank, said it supports the proposed changes.

“This is good news for investors and financial analysts because, by aligning more closely with international accounting standards, it will make it easier for them to compare financial statements of Canadian companies with those of their international competitors.”

The Canadian plan, which has a 30-day comment period, may come into effect in the third quarter if it’s endorsed, Cherry told reporters.

Bank Earnings

Genuity Capital Markets analyst Mario Mendonca said the amendments probably won’t make much of a difference for Canada’s banks.

“The charges that our banks have taken have not been large enough to hurt their capital,” Mendonca said. “To the extent that banks do take charges they refer to them as unusual charges or items of note and investors and analysts tend to ignore them, which is almost unique to Canada.”

Banks may benefit from being able to reclassify debt securities that aren’t trading on active markets as a loan, which could delay charges under the changes, Mendonca said. Banks will also be able to reverse impairment charges on available-for-sale securities under the change.

“It helps,” Mendonca said. “But while our banks have been taking charges on available-for-sale securities, it hasn’t been nearly as large as they’ve been taking on trading.”

Canadian Imperial Bank of Commerce, Royal Bank of Canada and four other Canadian lenders have posted about C$19.6 billion ($16.1 billion) in pretax debt writedowns since the collapse of the U.S. subprime market in 2007, a fraction of the $983 billion in writedowns and credit losses recorded by the world’s banks and brokerage firms, according to Bloomberg data.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

Last Updated: April 30, 2009 16:14 EDT