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19 Aug 2010
The International Accounting Standards Board (IASB) chairman has been lambasted by a Bournemouth University professor who claims the “the taxpayer and the shareholders picked up the price of the IASB’s reckless accounting model”.
Professor Stella Fearnley has used a letter in the Financial Times to attack IASB chairman, Sir David Tweedie, and the accounting standards contributed to the crisis.
Fearnley, who was responding to a previous story, takes aim at the IASB’s new impairment proposals, which proposes an expected-loss model of loan provisioning.
“Sir David refers to moving from an incurred loss model for loan loss provisioning (providing only against cases that have already defaulted) to expected loss (prudently providing against the inherent risk in the loan portfolio), and suggests that expected loss provisioning is not the job of accounting but of regulators,” she said.
“This is extraordinary, as expected loss used to be normal prudent practice before the IASB did away with the principle of prudence.
She also criticises the IASB’s convergence project, which aims to harmonise significant US and International accounting rules by June 2011.
“I cannot understand why anyone would wish to converge with a US accounting model that has both spawned and exported two major financial crises in the space of eight years,” she said.
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Visitor comments Add your comment
Accounting 'standards'?
Hear hear. 'Accounting standards' may be a misnomer, unless the concept of 'standards' is to be taken as 'the lowest you can get away with'. Our so called standards have contributed to runaway profit reporting, together with, surprise surprise, runaway bonuses for 'top' people and bank traders. Tail would never be allowed to wag dog by any chance?
Posted by: Ted Goater, 20 Aug 2010 | 00:00
One-sided view on a multifaceted problem
The IASB sets accounting standards in the interest of investors and as evidence has shown a mixed measurement model, with some assets and liabilities measured at marked to market values, is what they want. If this measurement method results in perverse remuneration polices (as perceived by the previous commentator), it is the responsibility of remuneration committees to address any such imbalance.
Surely there are problems with mark to market values, but none of the measurements models we apply today is without its problems (and for that matter merits). To read in the FT such a one-sided attack by a professional is rather disappointing and also demonstrates a lack of understanding of the accounting rules in IAS 39. I am concerned for the future of accountancy if students are being taught such one-sided views at univeristy.
Posted by: Susan, 20 Aug 2010 | 00:00
uk regulatory bodies
stop wasting uk taxpayers/shareholders monies. simply just copy usa directives since whenever giant usa sneezes, uk/europe still catch the cold.
Posted by: farook, 23 Aug 2010 | 00:00
IASB Chairman
Coming at this as an investor, its clear that IFRS are pro-cyclical and did play a critical role in both exacerbating the credit bubble and the subsequent crisis. IFRS are not just presentational, they have real world effects: Pensions; Capital Management; Behaviour & Risk Taking; Options; Loss provisioning; Financial product development ?. I could go on. Prudence was thrown out with the bath water and the IASB has been and remains target fixated. The next chairman of the IASB needs to be chosen with care (no clones please). We need a clean set of eyes and a break from the past!
Posted by: An Investor, 05 Oct 2010 | 00:00