Europe avoids suspension of fair value

Sir David Tweedie, IASB chairman

European heads of state called on Saturday for modification of international
accounting standards allowing some assets to be reclassified and avoid being
subject to fair value rules.

However, the meeting, hosted by French president Nicholas Sarkozy and
attended by Gordon Brown, failed to call for a complete suspension of fair value
despite suggestions earlier in the week that it was the favoured option of the

The International Accounting Standards Board announced on Friday, before the
summit, that it was willing to look at reclassification and would do so at a
meeting next week. It may well have been the move that headed off a full frontal
attack on what has become a highly controversial accounting principle.

Reclassification is not being viewed as a surrender by the IASB because the
board’s own statement anticipates that it will happen only on rare occasions.
The board has also committed itself to looking at anti abuse measures, another
indication that reclassification would be strictly controlled.

Before the summit there was a round of intense last minute lobbying on Friday
including a direct call from the Association of British Insurers to leave fair
value alone.

Saturday’s statement, written jointly between Britain, France, Germany and
Italy, said: ‘We will ensure that European financial institutions are not
disadvantaged vis a vis their international competitors in terms of accounting
rules and of their interpretation. In this regard, European financial
institutions should be given the same rules to reclassify financial instruments
from the trading book to the banking book including those already held or

‘We urge the IASB and FASB to work quickly together on this issue in
accordance with their recent announcement.’

This morning Tory leader David Cameron has reiterated his dislike for fair
value writing in the Financial Times: ‘In the current crisis mark to market
accounting is exacerbating a self fulfilling cycle of falling asset values and
restricted lending. Regulators should work with their European counterparts to
address this difficult issue.’

Related reading