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
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.’
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