Excerpts from The mark to market fiasco
By Terence Corcoran
Including comments by a current and a form Governor of Bank of Canada
In a speech last week … Bank of Canada Governor Mark Carney raised the issue:
"The combination of the relative novelty of fair-value accounting and extremely volatile markets has made this interpretation [of financial institution information] more difficult. Some have questioned the utility of requiring mark-to-market valuations of all assets and liabilities on a corporate balance sheet. The point can be made that, in the current circumstances, existing accounting rules provide a degree of precision that is not warranted."
A similar red flag was waved over fair-value accounting by former governor David Dodge in a 2004 speech:
"Does compliance with some of our accounting rules lead to large swings in reported earnings that do not reflect the true economic state of a firm? If we are to use fair value accounting, how do we ensure that both assets and liabilities are correctly and equally marked to market? And we need to understand how particular elements of accounting rules can affect the risk-taking behaviour of financial institutions and investors."
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