Monday 17 November 2008
Financial Stability
To understand what is going on in standard setting at the moment seems to require an advanced knowledge of the politics of both accounting and the EU. According to Accountancy Age (see title link) the world's top 20 nations discussed the internal politics of accounting at their recent summit. It is not surprising that they fudged the issue. The French, in their rational, Gallic way, were pressing that the IASB should set accounting standards taking into account financial stability. The Americans and Brits and the IASB, it seems, wanted to avoid that and there was the usual talk about 'transparency', as if it wasn't possible to both disclose the values of assets at the same time as incorporating a value in the financial statements that would promote stability - ie a prudent one. The conclusion was that the IASB would promote stability via a review of its governance. How changing the governance will change the standards set is a bit of a mystery.
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2 comments:
This is the same logic that underpins the role of independent non-executive directors in corporate governance. In the same way that board independence is supposed to promote better quality corporate financial reporting, the independence of the IASB is deemed to be vital to the quality of the standards it produces.
The evidence that independent directors do anything to improve returns to shareholders is pretty thin. More independent boards seem, if anything to be associated with low corporate values, but that may be because boards predicting tough times decide to cover their backsides by appointing independents.
I haven't looked at the evidence on independent directors and quality of reporting recently. IIRC companies with more independent boards do produce 'higher quality' financial reports, but there may be imperfectly-controlled-for confounding factors that are causing both effects.
Surely the point about IASB is that it seems to have run off the rails as an independent, private body, doing just what the group at the centre seem to think is a good idea. It would be better if it were more influenced by legitimate authorities, like governments.
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