Accounting rules not 'public policy tool': Boyle

Financial Reporting Council chief executive Paul Boyle has delivered a stinging attack on attempts to manipulate accounting to promote financial stability in the wake of the global financial crisis.

Boyle used his annual meeting address to warn that accounting standards should not become a `public policy tool' to dampen peaks and troughs in turbulent markets, but should instead stick to their intended role of providing information for investors.

`It is not surprising that banks report substantial profits when the economy is doing well and reduced profits, or even losses, when the economy is doing badly,' he said.

`This is accounting reflecting the economic cycle, which is a good characteristic of a financial measurement system.'

The comments follow agitation from European finance ministers over the International Accounting Standards Board's revision of fair value accounting rule, IAS 39.

The controversial rule force companies to value assets at their present day value which sent asset values plummeting in depressed markets which followed the financial crisis.

Boyle said any revision of accounting rules should take place with a proper understanding of their purpose

`The merits of proposed improvements need to be assessed against a clear understanding of the purposes of accounting,' he said.

`It may well be appropriate to attempt to reduce the volatility of economic cycles, but there are more appropriate tools than accounting to achieve this.'