BoE in call for a united vision on accounting

Published on Tuesday 23 November 2004 12:16

STANDARD accounting rules are key to ensuring financial stability and there should be a renewed effort to ensure agreement on fundamental principles, the Bank of England deputy governor Sir Andrew Large has said.

In a speech prepared for delivery at a banking conference, Sir Andrew said: "Meaningful accounting standards and their effective implementation are highly relevant to any central bank’s responsibilities for financial stability.

"It is essential that accounting standards have a clear economic rationale, promote comparability and secure adequate disclosure."

He did not refer to the UK economy or the outlook for monetary policy.

Sir Andrew’s remarks followed the European Union’s decision last week to adopt a new book-keeping rule for banks to account for complex financial instruments such as derivatives by the concept of "fair value" rather than historical costs.

The EU’s new rule is the final procedural step in a set of international financial reporting standards, called IAS 39 and agreed in October by the International Accounting Standards Board (IASB). Around 7000 listed companies will begin adhering to them next year.

But the EU ditched from its version aspects it thought were unfit for banks, creating its own set of rules. Sir Andrew said that split suggested a need for more agreement on principles.

He added: "We now effectively have two versions of IAS 39, one proposed by the IASB, the other by the EC.

"In my view, the only way forward is to first take a few steps back, before work starts on re-engineering the standard."