European central banker Gertrude
Tumpel-Gugerell has labelled fair value accounting an “amplifier”
of stress to the financial system and raised concerns about the
international convergence of accounting standards.
Speaking at an Academy of Sciences and
Technical Accounting and Finance conference in Paris this week,
Tumpel-Gugerell said that while fair value accounting served as an
amplifier of stress in the financial system, it was not a “root
cause”.
Tumpel-Gugerell, who is a member of the
executive board of the European Central Bank (ECB), said the ECB
thinks “fair value measurement should only be required if it is
consistent with the institution’s business model and the
characteristics of the particular underlying asset or
liability”.
Loan loss issues
Tumpel-Gugerell also said the current loan
loss provisioning practices added stress to the financial system
when the crisis unfolded.
She called the International Accounting
Standards Board (IASB) to work together with the Basel Committee on
Banking Supervision to develop a workable solution to a more
forward-looking provisioning approach.
The Basel Committee recently developed
proposals aimed at reducing the complexity of the IASB approach to
loan loss provisioning.
Convergence
A global set of accounting standards is
desirable from the perspective of both investors and regulators
Tumpel-Gugerell said, as it “improves the comparability and
transparency on a global basis”.
But she said the ECB is concerned by the lack
of consensus on key accounting concepts between the Financial
Accounting Standards Board (FASB) and the IASB, particularly
regarding classification and measurement of financial
instruments.
“Currently the IASB has confirmed a mixed
measurement model that measures financial instruments both at
amortised cost and fair value,” Tumpel-Gugerell said.
“In contrast, the US standard setter, the
FASB, is determined to move towards a full fair value model,
claiming that only fair value provides decision-useful information
to investors.”
The ECB said it strongly opposes a full fair
value approach and convergence should not come at the expense of
high-quality accounting standards.
“Putting in place a reconciliation mechanism
that simply discloses figures at amortised cost and fair value for
each item on the balance sheet would certainly not achieve the aim
of convergence,” Tumpel-Gugerell said.
Stability
The ECB also emphasised it would like to see
accounting standard setters take better account of financial
stability implications when revising existing or creating new
accounting standards.
It will continue close dialogue with the IASB
on the accounting projects in the future.
