Row over fair value accounting escalates
03 Oct 2008, AccountancyAge.com, AccountancyAge
http://www.accountancyage.com/aa/news/1765976/row-fair-value-accounting-escalates
Institutional investors and accountants alike are attacking calls for the suspension of fair-value accounting rules, considered as part of the revised $700bn financial rescue package on which the US congress is expected to today.
‘Suspending fair value accounting during these challenging economic times would deprive investors of critical financial information when it is needed most,’ said the Council of Institutional Investors, Center for Audit Quality and CFA Institute in a joint statement.
‘The proposed suspension is unnecessary and counterproductive. It would not help solve our economic difficulties. Fair value accounting is only a means of communicating information that is important to investors and other market stakeholders, it is not the underlying cause of the current economic crisis.’
Meanwhile, The Daily Telegraph reports that Dennis Nally, PricewaterhouseCoopers (PwC) chairman, has written a warning to every member of Congress this week that a suspension of the rules ‘will only obfuscate the current economic picture for investors and regulators and might even plant the seeds for the next crisis’.
Further reading:
© Incisive Media Investments Limited 2012, Published by Incisive Financial Publishing Limited, Haymarket House, 28-29 Haymarket, London SW1Y 4RX, are companies registered in England and Wales with company registration numbers 04252091 & 04252093
Visitor comments
Fair value Accounting
One of the principles of good corporate governance is that of Integrity which this whole palaver is all about. Communicating the true value of assets and therefore a company's net worth,re fair value model is very important in any company's financial statements. If these banks showed the true nature of its transactions, there would not have been this huge implosion of the US Financial markets . The IASB and US accounting oversight bodies should be in the forefront of the causes of this problem with a view to eliminating it.
Posted by: Egoagu Adoh , 03 Oct 2008 | 00:00
Fair value
One of the potential problems with recognising "Fair value" is that as has recently happened "fair value" gains may be transient and may be wiped out if the market changes direction. Once the gains are recognised they may deliver an overly favourable view of financial health which may drive share price growth. This may also give the Directors false confidence in distributing too much of their real profits and not retaining sufficient reserves.
Posted by: David , 06 Oct 2008 | 00:00
Sauce for the Goose is sauce for the Gander
Robert Maxwell, at Pergamon Press valued his substantial socks of unsold books at cover price and was eventually slated for it. I see no reason why financial institutions should not follow the same rules. Warren Buffet's point about seeing who was swimming naked when the tide goes out is fair. More 'exposure' of nudity earlier could well have made bankers more careful in their approach to risky lending and we could have been spared the current crisis .
Posted by: John Pope , 06 Oct 2008 | 00:00