Action by the International Accounting Standards Board to soften the blow of fair-value accounting for banks crippled by the credit crisis has produced a serious hit to real-time comparability, according to an analysis by Moody’s.

Under pressure to act during the peak of the credit crisis, the IASB amended International Accounting Standard 39, Financial Instruments: Recognition and Measurement, to allow banks to reclassify assets from a category designated as “available for sale” to another category called “hold to maturity.” The European community reasoned that the ability to reclassify assets was already available to banks reporting under U.S. Generally Accepted Accounting Principles, so IASB saw the move as necessary to assure comparability among global banks.

Banks all over the world are clamoring to define troubled assets as longer-term holdings to avoid taking deep hits in value as a result of recent market events. The extent to which U.S. banks can reclassify assets under GAAP—and therefore whether it’s now comparable to banks reporting under IFRS—has been a subject of debate since IASB published its amendments. GAAP experts generally say the ability to reclassify is more restricted than IFRS now allows under the recent amendments.

Most problematic in Moody’s view, however, is the allowance for those reporting under IFRS to use retroactive valuation. The amendments to IAS 39 allow entities reclassifying assets to value them based on July 1, 2008, data, well before the freefall that occurred in late September and early October. Moody’s describes how the look-back feature may affect reporting in its report, which the firm makes available only to subscribers.

“Giving companies the ability to look back to July gives firms the opportunity to cherry pick which instruments to reclassify on the balance sheet,” said Mark LaMonte, vice president for Moody’s. “It enables them to avoid losses that would have occurred from the first of July to the end of September.”

Moody’s says investment and credit professionals need to look closely at how entities are applying the “look-back” feature of the IAS 39 amendments to assure they can see where managements may be avoiding recognition of writedowns to assets where market prices have plunged or disappeared in recent months. The firm says users can at least take heart in knowing IASB required disclosure regarding where entities are reclassifying, allowing users to “understand the impact of the reclassification on current and future financial statements.”