Financial reporting guru: boost accounting standard setter's independence

The head of a financial reporting advisory group to international accounting
standard bodies has warned that political pressure on accounting standard
setters to change fair-value rules is a ‘very dangerous development’.

In a letter to the Financial Times, Hans Hoogervorst — co-chair of
a group advising the International Accounting Standards Board and the Financial
Accounting Standards Board on financial reporting issues arising from the global
economic crisis – stressed the need for accounting setters to remain
independent.

He defended fair value accounting, which requires banks to value their assets
by current market prices and has been accused of worsening losses in the banking
industry.

‘The majority of assets of most banks consist of their loan portfolio,’ wrote
Hoogervorst, who is also chair of the Netherlands Authority for the Financial
Markets. ‘This is still valued at amortised cost and is not subject to fair
value accounting. Consequently, there can be no undershooting of the value of
these assets as a result of mark-to-market accounting.’

He added that one lesson from the financial crisis should be that regulators
and standard setters should, ‘subject to due process’ become ‘more instead of
less independent’.

Further reading:

FSA
chief opens debate on accounting for banks