The Big 'Six' accounting firms are sharing their approaches to the auditing of bank assets, in an extraordinary attempt to create calm over the highly-fraught area of valuations of sub-prime related derivatives.

The Financial Times, which has seen a paper outlining the approach, says it will be published next month, pulling together all the relevant parts of International Financial Reporting Standards, in the process of being adopted by more than 100 countries worldwide.

The valuation of bank assets has become more and more subjective as the market for the derivatives concerned has collapsed. But a collective approach could also invite criticism if the audit firms are collectively wrong in their approaches.

The FT said it was clear the audit firms intended to take a ‘tough line’ like demanding persuasive justification if a bank were to turn to model-based calculations where market prices, however unfavourable, existed. The paper is also designed to allay fears the continued market turmoil would lead banks and their auditors to different conclusions about how they valued holdings and what was a fair price, the FT said.

The draft has been sent to regulators and other leading bodies, including the International Accounting Standards Board, the Basle Committee on banking supervision and the Financial Stability Forum, an international grouping of central banks and financial regulators which in September issued calls for a common valuation guidelines.

'Given the importance to the market of consistency in times like these, it's good that the large firms are coming together to make sure we have that,' said Jan Babiak, managing partner for regulatory and public policy at Ernst & Young.

PricewaterhouseCoopers parter Pauline Wallace is coordinating the project, the FT said. She said: 'We don't see ourselves as the right people to provide guidance, but we can provide the context, that's our role.'

Further reading:

Like it or lump it, the IASB is unstoppable

IASB appoints XBRL council

Read the full story in Financial Times