In times of crisis, there is a temptation to turn to crisis measures. But not
everything should be done in a rush, even when governments appear to be driving
the value of action to the high levels we have seen. Major issues which need
serious debate include the purpose of accounts, should IAS 39 be changed and how
should accounting standards be set in future?
The ABI is well placed in this debate, as our members control some 15% of UK
equity. We are
clear accounts must be prepared for investors.
If their needs are not put first, the cost of capital will rise. Investors
want clear, consistent information that enables them to make valid comparisons
That does not mean financial reporting cannot meet some regulatory needs.
Indeed investors have the greatest interest in regulators having excellent
information. However, regulators can obtain more information directly. Further,
it is their responsibility, not that of accounting standard setters, to
determine what level of capital is required for companies to hold.
Do we need further change to IAS 39? It is complex and obscure in places. But
redrafting cannot be done quickly and will create confusion. The IASB’s guidance
in October on how to measure fair values in illiquid markets was necessary and
welcome. The more difficult but equally important task is to establish
principles for when to require assets to be measured and accounted for at fair
value. The regulatory framework also needs to resolve the issue of how to deal
with rising values, against which debt is incurred, without proper recognition
that the party may end some day.
Last but not least who do we want to set accounting standards? Not
politicians, that’s clear. But neither do we want experts vacuum-packed in a
world of their own. Not least because the seal on the pack will not hold.
Politicians abhor any institution they cannot influence.
We need the IASB to be so effective in reaching out to its stakeholders,
whether investors, regulators or companies, that the political world has no
choice but to hold it in respect. And we need to give it real standing in
international law so that it has true legitimacy and a sound basis for
championing the independence of accounting.
Stephen Haddrill is director general of the ABI and sole
UK member of the Financial Crisis Advisory Group
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