Accounting standards need scrutiny to make sure banks behave

08-May-2013 @ 18:0

Syed Kamall Syed Kamall

Anthea McIntyre Anthea McIntyre

Anthea McIntyre Anthea McIntyre

Conservatives MEPs today called for the regime for global accounting standards to be held up to thorough international scrutiny in light of the central role it played in causing the financial crisis.
The MEPs a series of key questions at a hearing in the European Parliament on the future of International Financial Reporting Standards.
With the European Commission set to commit to another six years of funding for both the International Accounting Standards Board and the European Financial Reporting Advisory Group - the bodies which respectively write the standards and grant them the EU's legal endorsement - the hearing flagged up several major areas requiring attention on in depth.
Host Syed Kamall MEP, Conservative MEP for London, said: "It cannot just be business as usual. We need to be sure we get to a regime which is clear and simple but also thorough and a powerful tool for better governance. Time is passing and this needs addressing now."
International Financial Reporting Standards (IFRS) are globally-recognised accounting standards that have been used in the EU for the accounts of banking groups and other listed companies for more than 20 years. Some investors believe that their complexity allows banks to misrepresent the reality of their balance sheets, making it hard to know what may be wrong with their finances.
Some of the standards are said to have contributed to the crisis, in particular those relating to how derivatives and losses on loans are recognised on balance sheets.
Dr Kamall, Conservative MEP for London, believes that fresh call for European banks to be stress-tested once more, to identify possible capital shortfalls, means transparency in banks' balance sheets should be top priority for the Commission.
He has been fighting hard to raise awareness of the issue at a European level.
At today's event, organised by the Association of Certified Chartered Accountants, he said: "The European accounting model has developed over several centuries and is about far more than simply providing information to the capital markets"
"Accounts in this context are drivers of better governance, not just about information for investors."
"It is important to discuss the extent to which IFRS, which run up to several thousand pages of rules, can achieve these aims. Often the more rules there are, the easier they are to get around."
"The G20 commitment is to strengthen the global financial system. We have to ask ourselves whether converging around complex, wordy accounting standards is something that will stave off future crises."
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