PracticeConsultingEurope breaks down barriers on fair value

Europe breaks down barriers on fair value

The European Commission has moved to scrap legal barriers that prevent the use of fair value accounting systems for derivatives and other financial instruments across the European Union.

It has proposed amendments to the EU’s accounting directives, that would require member states to make this use of fair value accounting either compulsory or legitimate. UK business law currently ensures that only historic cost accounting is used.

Pressure for change has come from the International Accounting Standards Committee, whose interim IS39 standard on the valuation of derivatives – such as futures, options, and swaps – promotes the use of current market values and conflicts with EU law on financial instruments.

So that EU accountancy practices are able to comply with this standard – which is supposed to be implemented next year – the commission has proposed the change, which will require approval from the European Parliament and the EU Council of Ministers.

US Federal Reserve Board chairman Alan Greenspan, who celebrated his 74th birthday this week (above), has said that he expects markets to increase their reliance on derivatives.

Paul Ebling, project director of Britain’s Accounting Standards Board, said: ‘There’s a widely held view throughout the world that improvements could be made in the way that people account for derivatives and other financial instruments.’

EU Internal Market Commissioner Frits Bolkestein, said: ‘Aligning the provisions of the accounting directives with existing international standards on fair value accounting will help European companies compete in international capital markets on equal terms with their non-European competitors.’

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