The leaders of the Group of 20 have tasked accounting standard setters to provide guidance on securities valuation, especially for complicated illiquid instruments that are languishing under market pressure, along with improved standards and disclosures around off-balance-sheet activity and complex financial instruments.

It was among a long list of recommendations offered by the G-20, which is made up of finance ministers and central bank governors from the 20 leading global economies, to address the root causes and prospective solutions for the global financial crisis. The G-20 also called for action to improve governance, transparency, and accountability at the International Accounting Standards Board, including action to assure “an appropriate relationship” between the independent standard setter and outside political forces.

Scores of players in capital markets worried the G-20 would recommend more direct political action, for example relaxing some fair-value requirements, as a means to minimize fallout from the lingering credit crisis and its effect on financial markets. The IASB has already caved to political pressure in the European Union to give bank-friendly guidance on the reclassification of troubled assets, a move some in the United States have seen as evidence that IASB is not independent enough to be relied on as a global standard setter.

The Financial Accounting Foundation and the International Accounting Standards Committee Foundation each sent letters to the G-20 through President George Bush pleading with national bodies to steer clear of influencing the standard-setting process and leave it to the independent due process at the Financial Accounting Standards Board and IASB. “We encourage the G-20 to support independent standard setting via a robust due process free from political interference,” wrote FAF chairman Robert Denham. “This support will do more to restore confidence in the capital markets than legislating accounting standards in a way that reduces the reliability and transparency of financial information presently available to investors.”

The G-20 said the current crisis can be attributed to a combination of factors around excessive risk taking, complex and opaque financial instruments, weak underwriting standards, and regulatory bodies failing to notice the rising tension. The group said regulatory bodies should develop recommendations to unravel the impact of declining security values from banks’ capital requirements, looking at valuation rules, leverage, bank capital, executive compensation, and other practices that “exacerbate cyclical trends.”