You are currently browsing the tag archive for the ‘fair value’ tag.

More than three years after I posted ‘Fair value accounting in retreat?’ on this blog, it seems appropriate to take stock of the results of reform initiatives undertaken after the financial crisis. Just as a brief reminder: In the course of the financial crisis, International Financial Reporting Standards were suspected to have exacerbated the collapse of financial markets. Particularly the use of “fair value accounting” for banks’ financial assets was scrutinized for its contribution to downwards spirals between devaluated market assets and banks’ rising capital requirements. Previously considered as a purely technical matter, accounting principles suddenly became a matter of international politics. The G20, the Financial Stability Board, IOSCO and the two leading standard setters, IASB and the US-American FASB, all got involved in what appeared a busy beehive of reform debates. Three-and-a-half years later, with the financial crisis followed and superseded by the European sovereign debt crisis, accounting principles seem to have returned to their status of “sleeping beauty”. Yet, this impression is misleading. Accounting principles continue to be a crucial link between the reporting of financial institutions and financial market regulation. All the more a reason for reviewing two recent publications which analyse international accounting standards reform and harmonisation.

Read the rest of this entry »

This post is provided by our first “guest blogger” Sebastian Botzem. He is research fellow at the department „Internationalization and Organization” at the Social Science Research Center (WZB) in Berlin.

Fair value accounting has been identified as one of the causes of the current global financial crisis (see, for example, on this blog “Fair Value Accounting in Retreat?“). While it would be unfair to bookkeepers, accountants, auditors and academics to make them solely responsible for the loss of wealth and jobs, the present twists and quirks with regard to accounting policy are remarkable and merit closer attention.

A good example to show that the logic of accounting is questioned is Germany’s “bad bank”  solution: In principle there seems to be agreement to clear balance sheets from heavily impaired assets in order to free up capital and cut the risk of further writedowns. How that should be done, however, remains a big question. One of the great unknowns is of course how to determine the price for the assets to be transferred. Also, it needs to be determined how and to which degree the German taxpayers are eventually being burdened with liabilities not just for years, but for decades. The legal construction is also interesting: Germany’s “bad banks” are supposed to be set up as Special Purpose Entities (SPE). Günther Merl, former speaker of Germany’s public banking rescue fund Soffin (Sonderfonds Finanzmarktstabilisierung, in English: Financial Market Stabilization Fund), has just argued in the German quality daily Süddeutsche Zeitung that the government should exempt the proposed “bad banks” from the usual regulation that applies to financial institutions. The intention of such a move is to allow for accounting provisions that treat “bad banks” not as banks. The creation of Special Purpose Entities – one cause of much of the turmoil at financial markets – to rescue financial institutions indicates the dire straits market advocates are in. Read the rest of this entry »

The financial crisis is turning many things upside down. Nevertheless, it is amazing to see how the positions of key market actors on financial reporting standards have changed since the crisis started. While investment banks, accounting firms, regulators and governments in the heyday of financial market capitalism stood firmly together in unanimous and unfettered support of fair value accounting, this front has been collapsing.

In April 2008, Neue Züricher Zeitung reported Claude Bébéar, president of the French Insurance Group Axa, as saying that mark-to-market rules which require firms to value assets according to (hypothetical) market prices had contributed to the financial crisis. Henri de Castries, CEO of the same group, was quoted as referring to a “conceptual mistake” which had forced companies and banks to write down billions of assets. In September 2008, Newt Gingrich commented on Forbes.com “Suspend Mark-to-Market Now!”, quoting Brian S. Webury, chief economist at First Trust Portfolios of Chicago:

“It is true that the root of this crisis is bad mortgage loan, but probably 70% of the real crisis that we face today is caused by mark-to-market accounting in an illiquid market.”

With the financial crisis lingering on and politicians, regulators and banks still searching for solutions, debates on the pros and cons of mark-to-market accounting have perked up again during the last weeks.

On March 11, 2009, investor Warren Buffet admitted in an CBNC interview that mark-to-market had been “gasoline on the fire” while remarkably equivocally maintaining that Read the rest of this entry »

The Book

Governance across borders: transnational fields and transversal themes. Leonhard Dobusch, Philip Mader and Sigrid Quack (eds.), 2013, epubli publishers.
August 2019
M T W T F S S
« Jun    
 1234
567891011
12131415161718
19202122232425
262728293031  

Twitter Updates

Copyright Information

Creative Commons License
All texts on governance across borders are licensed under a Creative Commons Attribution-Share Alike 3.0 Germany License.