Investors: EC threatens transparency and comparability of accounts

Investors have warned that they want a single set of accounting rules and that a current European Commission review of fair value accounting threatens to undermine transparency and comparability.

The Commission is due to host a meeting in Brussels tomorrow to discuss accounting reform, including further relaxation to fair value

The Investment Management Association: ‘What is important to users is transparency, and comparability and consistency in financial reports. But in seeking to make changes by the end of October, as the Commission proposes, runs the risk that this will not be maintained and such changes could result in unhelpful reporting. Investors worldwide need one set of financial reporting requirements, not many variations.

‘Although the current credit crisis requires swift measures by governments and regulators, fundamental changes in accounting should be implemented only after due process and the involvement of all stakeholders.’

On Monday last week the International Accounting Standards Board agreed to rush through changes that allowed some valuations of some financial instruments – securities – to duck a fair value calculation by being reclassified from ‘held for sale’ to ‘held for investment.

The European Commission eventually endorsed this moved in mid week, but only after considering pushing through changes that would have allowed financial institutions to reclassify and much wide spectrum of financial assets, including derivatives.

A paper released by Dane Mott and Sarah deans of JP Morgan on the day of the Brussels decision voiced disappointment with what it views as an IASB compromise and restated the bank’s belief that: ‘Accounting standards must be set by independent standard setters, not by politicians.’

The paper poses the question whether the IASB will bow to pressure and relax the rules further. Mott and Deans thinks not, but they don’t rule out the Commission pushing ahead with change without the IASB.

‘Such changes, if made, would reduce consistency, comparability and transparency of financials statements, in our view. It seems obvious to us this would reduce investor confidence. We do not think it is exaggerating to say the credibility of European accounting is at stake.’

They add: ‘Any further political intervention in standard setting could undermine, perhaps fatally, the goal of a single set of high quality accounting standards used worldwide.’