Much of the debate around the Green Paper has been focused on the question whether it is fair value accounting that leads to short-termism in investor behaviour. FEE admits that the accounting basis, whether fair value or historical cost, has an impact on investment choices. However, it also stresses "that financial information at current valuation is always useful, including for long-term investors. Even long-term investors cannot afford to ignore short-term fluctuations," thus picking up a main point IASB Chairman Hans Hoogervorst made in his April 2013 speech entitled Accounting and long term investment – 'Buy and hold' should not mean 'buy and hope'.

FEE therefore concludes that current value information of long-term investments should be provided. FEE also reminds the European Commission that "the current use of fair value is already limited to instances where it provides more useful information than historical cost".

In connection with stability and long-term financing, FEE explicitly responds to some points raised in the Green Paper:

• On the Green Paper's claim that the introduction of fair value accounting causes a shift from equity to bonds by institutional investors, FEE "is not aware of any convincing empirical evidence supporting this statement".
• On the Green Paper's claim that fair value accounting encourages an increase in risk exposure by long-term investors, if the volatility is recognised outside their profit and loss accounts, FEE "is also not aware of any empirical research underlying this assumption".

FEE generally suggests being very careful on conclusions drawn on the possible influences of the use of fair value on stability and long-term financing and to have due regard for empirical evidence. Looking back on the financial crisis and the debate around fair value accounting in that connection, FEE reminds the European Commission that research has not identified a negative role played by fair value in the financial crisis, especially in connection with instability - the majority of academic research concluded fair value accounting was not a major cause of volatility, rather, it contributed to identifying and assessing the situation early.

FEE concludes that the use of fair value accounting should not be restricted any further as applying fair value accounting can make financial information more transparent and does reflect current market conditions.

Please click for:

• FEE comment letter (link to FEE website)
• Access to the Green Paper in all languages of the European Union (link to EC website)
• The Deloitte European Economic Area member firms' comment letter on the Green Paper

The European Financial Reporting Advisory Group (EFRAG) will hold a roundtable meeting on 8 July 2013 in Brussels to facilitate a discussion with European constituents regarding “the financial reporting aspects of long-term investing business models and financial reporting issues raised in the EC Green Paper on the long-term financing, more particularly on the use of fair value accounting for long-term investments.”