IASB chairman Sir David Tweedie won’t budge.
This should come as no surprise to anyone, even the bankers who collaborated
in making calls for change in the capital markets of both New York and London.
Sir David is resolutely wedded to fair value and is not a man to back down.
In France he has been dubbed the ‘super ayatollah’ for his tough approach to
financial instruments in IAS 39 and in the US he has been threatened with the
wrecking of his organisation over accounting for share options. As neither
insults nor threats have so far shifted his opinion it is hard to see how a
concerted PR campaign on both sides of the Atlantic will succeed where others
The reason is this. Relaxing fair value is the same as questioning its very
foundations and no standard setter is prepared to accept that at this time.
Users of fair value mark to market were happy with the standard when things were
on the up, yet somehow its unacceptable now things are on a downward curve.
Alternatives have been proposed, but convincing arguments seem to be in short
supply, whether they be for ‘smoothing’ or ‘averaging’.
And though the tension between standards, or regulation, and successful
markets is clear, relaxation also smacks of hiding a problem. The Japanese
experience tells us a thing or two about what happens when you go down that
route. In truth institutions should view fair value as a route finder. The
question, will this investment succeed, should be: what happens under fair value
if this investment goes sour?
You can’t escape the fact that everyone caught up in the credit crunch forgot
to make that calculation.
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