BOE governor urges fresh look at IAS 39

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24 Nov 2004

In remarks delivered at the 13th Central Banking Conference in London on 22 November 2004, Sir Andrew Large, Deputy Governor of the Bank of England, said that "the recent furore over IAS 39 - the international accounting standard for financial instruments - has resulted in a situation which all agree is unsatisfactory".

He called for a "re-examination of the basics aimed at securing agreement on fundamental principles" of financial instrument accounting. He raised questions about:
  • "The ability to obtain robust fair values for instruments which are not priced, even indirectly, in reasonably deep and liquid markets."
  • "The economic relevance of unrealised gains and losses - particularly if they are not immediately realisable."
  • "Further concerns about wider use of fair value accounting relate to the possible implications for volatility in financial markets and in the economy more widely. In my view, there is an important distinction to be drawn between accounting rules which capture accurately the volatility inevitably present in the real world, and 'spurious' volatility introduced by the accounting rules themselves."
He suggested that "despite intensive work to improve accounting standards for financial instruments in recent years, fundamental issues with financial stability implications remain to be resolved." Click to download the (PDF 121k) and a (PDF 89k).

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