Investors: EC threatens transparency and comparability of accounts

Investors have warned that they want a single set of accounting rules and
that a current European Commission review of fair value accounting threatens to
undermine transparency and comparability.

The Commission is due to host a meeting in Brussels tomorrow to discuss
accounting reform, including further relaxation to fair value

The Investment Management Association: ‘What is important to users is
transparency, and comparability and consistency in financial reports. But in
seeking to make changes by the end of October, as the Commission proposes, runs
the risk that this will not be maintained and such changes could result in
unhelpful reporting. Investors worldwide need one set of financial reporting
requirements, not many variations.

‘Although the current credit crisis requires swift measures by governments
and regulators, fundamental changes in accounting should be implemented only
after due process and the involvement of all stakeholders.’

On Monday last week the International Accounting Standards Board agreed to
rush through changes that allowed some valuations of some financial instruments
– securities – to duck a fair value calculation by being reclassified from ‘held
for sale’ to ‘held for investment.

The European Commission eventually endorsed this moved in mid week, but only
after considering pushing through changes that would have allowed financial
institutions to reclassify and much wide spectrum of financial assets, including

A paper released by Dane Mott and Sarah deans of JP Morgan on the day of the
Brussels decision voiced disappointment with what it views as an IASB compromise
and restated the bank’s belief that: ‘Accounting standards must be set by
independent standard setters, not by politicians.’

The paper poses the question whether the IASB will bow to pressure and relax
the rules further. Mott and Deans thinks not, but they don’t rule out the
Commission pushing ahead with change without the IASB.

‘Such changes, if made, would reduce consistency, comparability and
transparency of financials statements, in our view. It seems obvious to us this
would reduce investor confidence. We do not think it is exaggerating to say the
credibility of European accounting is at stake.’

They add: ‘Any further political intervention in standard setting could
undermine, perhaps fatally, the goal of a single set of high quality accounting
standards used worldwide.’

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