UK Parliament Committee defends 'mark-to-market'

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16 May 2009

A report from the United Kingdom House of Commons Treasury Committee has concluded that bad decisions at banks – not accounting rules – caused the global financial crisis.

The report, titled Banking Crisis: Reforming Corporate Governance and Pay in the City, makes the following points, among others:

Fair value accounting

Fair value accounting has led to banks publishing some very dispiriting financial results, but this is because the news itself has been bad, not the way in which it has been presented. The uncomfortable truth for banks is that market participants had overinflated asset prices which have subsequently corrected dramatically. Fair value accounting has actually exposed this correction, and done so more quickly than an alternative method would have done. Important features of accounting frameworks are that they encourage transparency and consistency across firms and asset classes. But it is a bridge too far to expect them to also lead to intelligent decision-making. We do not consider fair value accounting to be a suitable scapegoat for the hubris, poor risk controls and bad decisions of the banking sector.

EU modifications of IFRSs

We regret the power of the European Commission to pick and choose which international accounting standards should be implemented in the EU and call on the Treasury to consider the impact of the Commission's powers on the objective of establishing a single global set of accounting standards.

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