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Policy paper argues 'mark-to-market' regime not to blame for banking crisis

09 Mar 2009

A call for fair value to remain a key element in global accounting standards has been put forward by ACCA in a new policy paper.

Entitled Fair Value, the paper considers the recent scrutiny and criticism directed at fair value accounting after banks and financial institutions placed some of the blame for the current economic crisis on the so-called 'mark-to-market' valuation methods.

However, ACCA maintains that the International Accounting Standards Board should use the financial turmoil to establish a definitive conceptual framework for financial reporting, with fair value remaining a significant feature.

'ACCA supports fair value and does not believe it was a contributor to the credit crisis,' said Richard Aitken-Davies, ACCA president. 'The fact that fair value is the only realistic method of accounting for derivatives and getting them on the balance sheet is evidence enough of its worth.

'The crisis has shown the urgent need for clarification of what accounts can and cannot do so that realistic expectations of different stakeholders can be met. But the IASB should never again be put in the position of having to abandon due process under political pressure.'

What is ACCA's position?

• Fair value accounting has significant advantages, but current illiquid markets have highlighted problems of attributing reliable values to financial instruments and derivatives
• Therefore IFRS should continue to employ a mixture of cost and current value measurement bases - overall ACCA see no case for the extension of the use of fair values in accounting standards at present, particularly in areas where markets are non-existent
• Historical cost could also be disclosed in the accounts if fair value is being used so that users can make up their own mind on the stated values of assets Accounts are intended to inform shareholders on the affairs of the company, not to provide a financial stability tool for regulators

Download the ACCA's policy paper, Fair Value