Fair Value and Accounting Politics

The title link is to an article in the FT about the European reaction to the IASB's proposals on fair value accounting. The IASB proposes to reform the unsatisfactory IAS39, which classifies financial instruments into somewhat arbitrary categories. There will be the option to value items with predictable cash flows on an amortised cost basis (like a tangible fixed asset) rather than marking to market (fair value). However the EU is worried this will disadvantage European banks in comparison with US ones that account under different rules.

The moral of this situation: financial reporting is strongly influenced by politics and competition whatever the theoretical arguments may be.