BBA rejects fair value proposals
The British Bankers' Association has said the proposed 'fair value measurement system' does not represent a more relevant means of calculating the value of banks' financial instruments than the current method.
In a written statement submitted to the International Accounting Standards Board, the BBA attacked the proposal put forward by the Joint Working Group of Standard Setters.
In the absence of what it called ‘deep and liquid markets’ and ‘open and transparent market data’, the BBA said fair value measurements created a ‘highly subjective’ base for calculating financial instruments in which ‘small changes in the underlying assumptions can have a substantial effect’.
Instead it said the JWG proposal should be ‘set aside’ and called on the IASB to concentrate on developing the accounting and disclosure principles to be implemented in Europe by 2005 under the EU’s new financial reporting strategy. In addition it called for reviews of IAS 30, 32 and 39, all relating to the disclosure of financial instruments.
Ian Mullen, chief executive of the BBA said insufficient thought had been give to the potential systematic consequences of the proposals.
‘Short term market movements could have a dramatic impact on the reported profits or losses of a bank and would introduce volatility unrelated to the underlying expected future cash flows,’ he said.
Mullen warned this could have a ‘detrimental impact on financial stability’ of the banking sector and could result in short term considerations influencing lending decisions.
The proposal could also disadvantage corporates because of the planned treatment of hedges of anticipated future transactions, and could result in further complications when calculating a company’s debt.
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