Home Banking issues Accounting The FBF offers alternative proposals for more realistic accounting standards  


15 june 2010

The FBF offers alternative proposals for more realistic accounting standards

The FBF has noted the lack of progress in the global reform of accounting standards requested by the G20. The proposals made in recent weeks by the US and international standards boards fail to meet the objectives of financial stability and convergence set forth by the heads of State and government.


Instead of drawing on the lessons from the crisis, both standards bodies continue to favour market value for the recording of financial instruments, though the technical provisions of their projects may differ. And yet, the crisis proved that fair value* exacerbated the very impacts of the crisis in late 2008, forcing banks to value positions they could only just keep at a level close to a liquidation value.

Should the projects providing for the extension of fair value be applied in their current form, any new tensions would once again generate artificial earnings volatility, without reflecting economic reality. Consequently, neither of the two projects corrects the weaknesses of the current standards and neither reduces the negative impact on economic cycles.

The FBF proposes criteria to limit the scope of fair value

Like the vast majority of the international banking community, the FBF is opposed to extending the scope of the fair value valuation of financial instruments not involved in transactions on liquid markets. It is in fact crucial for the financial stability and proper information of investors that fair value be applied only where there is an active and liquid market, and depending on the business model of the entity.

In a letter to be submitted to the European Commission, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB),

the FBF underscores that only a mixed model for accounting financial instruments can reflect their economic reality. Such a model must be based first on the business model, then on the liquidity of the markets for the various instruments, and finally on the characteristics of the instruments and their methods of return. Only by taking these three criteria into account, in this order, can the scope of the amortised cost and fair value methods be defined.

* fair value consists in pricing assets at their market value.

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