By Michael Starkie, chief accountant at BP for the past 14 years and for some years chairman of the UK's CBI Financial Reporting Panel and a member of the European Financial Reporting Advisory Group (EFRAG) Technical Expert Group
- [T]he future looks even bleaker. The International Accounting Standards Board continues to develop an accounting model about which users of financial information have grave misgivings. Probably the most disturbing example is the use of predominantly mark-to-model exit values in the balance sheet, which cannot be relevant for a market trying to assess the economic performance and position of companies that have the intention of continuing to operate as going concerns.
- Mr Starkie’s views also reflect a long-running concern among many accountants and investors about the focus of some IASB members on developing a coherent theoretical accounting framework without due regard for business practicalities. The danger, they fear, is that if accounting becomes less reflective of companies’ operations, investors could lose trust in published accounts, which would raise the cost of capital for companies and upset financial markets.
This has come to the fore in the ongoing fight over “fair value” accounting, where assets and liabilities are reported at their current market price. While most accept this for frequently-traded financial instruments, there are fears that some IASB members want to extend the concept to assets for which there are no markets, potentially forcing companies to produce hypothetical values.
“Ironically, that would introduce a degree of guesstimation into financial numbers that if it were companies who called for it, they’d get howled down with derision for wanting to fix the numbers,” said Mr Starkie in an interview with the FT. The IASB has said it has no intention of extending the practice.
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