LONDON (Reuters) - Cooking the books to please banks won’t fool investors, a top accounting official said on Monday, rejecting European Union calls for a rapid easing of a rule some policymakers blame for making the credit crunch worse.
“You can’t expect to have an independent standard setter that you expect to jump every time someone has a good idea, to cook the books to make things easier,” said Tom Jones, a board member of the International Accounting Standards Board.
“To try to blame accounting is the old story, it’s blaming the thermometer for the high fever. Accounting just tells you what it’s about. If politics drives accounting standards, investors won’t have a clue what real life is about,” Jones said.
The IASB sets accounting rules used in the 27-nation EU as well as about 100 other countries across the world.
EU officials and finance ministers have asked it to loosen how its fair value rules are applied after such a move by the board’s U.S. equivalent, the Financial Accounting Standards Board. FASB eased its rules after heavy pressure from Congress.
Fair value measures assets on company balance sheets by their market worth and banks blame the rule for having to make huge writedowns on assets that have become untradeable.
The IASB and FASB had already eased their respective fair value rules last October after political pressure.
EU finance ministers have asked the IASB to moves its rules in line with the latest FASB easing immediately.
“There are many many people who are not calling for immediate action ... On mature reflection most people think it was a mistake to move so quickly and we obviously don’t want to make the same mistake again,” Jones said at the Reuters Global Financial Regulation Summit.
“It isn’t clear there is any need to do anything.”
Deutsche Bank (DBKGn.DE) was one of the banks that made use of October easing, which flattered its results and sent its stock price up, only to fall after “investors saw through the numbers,” Jones said.
Bank of France Governor, Christian Noyer, who is also a governing council member of the European Central Bank, said on Friday the EU could set its own accounting rules if the IASB does not respond quickly.
EU officials fear if the IASB makes no immediate changes, banks in the 27-country bloc would be at a disadvantage to their U.S. peers. The IASB said last week it was looking at the U.S. changes as part of a wider review of fair value that will take several months to complete.
Jones said Noyer’s threat was serious, however.
“It’s a real threat. If the French could achieve it I am sure they would. By far the majority of people are not in favor of cooking the books to hide the truth. How would you set standards if politicians are fighting each other over setting standards?” Jones said.
Another battle also looms over accounting rules.
The Group of Twenty (G20) industrialized and emerging market economies agreed earlier this month that banks should build up reserves in good times as a buffer when markets turn sour.
Some policymakers want this hard wired in accounting rules but Jones said this could be used to sweeten profits.
“Unless we are very careful, through-the-cycle losses and dynamic provisioning would simply be a cookie jar,” Jones said.
Accounting was about telling investors the “warts and all truth” and not about ensuring financial stability as supervisors already have powers to introduce provisioning in capital rules.
“The regulators have the absolute ability to require capital reserves for future writeoffs separate from Tier 1, which would achieve their regulatory requirements and not mess up the accounting,” Jones said.
(For summit blog: blogs.reuters.com/summits/)
Additional reporting by Emily Chasan in New York; Editing by Jon Loades-Carter