In banking matters it is wrong to target

In a point of view published Tuesday, June 2, the chairs of the boards of three major international groups (1) offer some improvements in accounting standards themselves and to their development process. It seems interesting to return to the main elements of this point of view because some confusion exists between different kinds of standards.

The use of market in the accounts introduced a focus on the short term. According to the authors, the markets have a tendency to focus on short-term at the expense of a medium- or long-term vision. This is a classic and very old debate on the myopia of the markets. This debate has, as such, nothing to do with accounting standards, but it raises the question of the efficiency of markets. These they integrate all the available information or promote they overstate the events of short term because the average behaviour of investors The answer to this question refers to issues of standardization of the markets: should we, for example, introduce and friction markets (for example, the introduction of an international Tobin tax) to reduce volatility Or should we regulate differently intermediaries and financial analysts to sanctioning average behaviour

The reference to the market, when it exists, and is active, is like democracy probably the worst system except all the others. However, the real issues are the conditions for application of the market prices. Unlike what is often stated, accounting standards advocate not the blind application of market prices. The fair value refers to the market price in the presence of an active market. According to IAS 39 ( AG71), "a financial instrument is regarded as rated on an active market if courses are readily and regularly available from an award, a broker, a negotiator, a sector of activity, of an assessment of the price or regulatory agency service and these awards represent transactions actual and speaking regularly on the market under conditions of normal competition".

In the case of the financial crisis, the thoughtful application of accounting standards could lead to consider that the market prices were not valid for securitized real estate assets. The standard IAS 36 ( 6), which does not apply to financial instruments but which relates to the impairment of assets, requires three conditions for an active market: (a) traded on the market are homogeneous; (b) can normally be found at any time of the buyers and willing sellers; and (c) prices are made available to the public. These three conditions does were imperfectly observed in the case of securitization of real estate assets and they could drive the financial institutions not to retain the market prices for valuing these instruments (see, inter alia: "international accounting standards and corporate governance: the meaning of IFRS", éditions EMS). But, as a result, this would have also affected enhancement of investment funds that these same financial institutions proposed in turn arm to boost the performance of the cash to their customers.

In the absence of active market, the international accounting standards refer to de facto consensus of stakeholders, i.e. an implicit standards of the major players. Current regulations already allows the undertakings concerned away market prices when markets have disabilities.

Should modify the accounting rules to take account of the effects of pro-cyclicality. In banking matters, it is wrong to target. Pro-cyclicality is not the fact of accounting standards, but that of banking standards. The best example is that of the Spain, which applies the same accounting standards as the rest of Europe but which, under the auspices of the Bank of Spain, has imposed the provisions banking counter-cyclical (see the March issue of "Environment", the journal of economic studies of BNP Paribas). A posteriori, the Bank of Spain has been a great foresight and avoided Spanish banks in crisis. Instead of changing thermometer (accounting standards), it is better to act on behaviour: Basel II on the coverage by own funds banking standards which should integrate the cyclic aspects of risk.

The directors of the IASB should represent all of the stakeholders. The issue of such a proposal is to determine what these stakeholders. The authors consider that it is the central banks, regulators and supervisors. In reality, the issue of governance of the IASB returns to the issue of corporate governance. What mode of governance do we want Governance exclusively oriented to the shareholders and the market, or on the contrary a governance that takes also into account the expectations of employees, customers, public authorities, etc. The answer to this question determines the composition of the IASB, but also its role: accounting information must be limited to financial information

In conclusion, the international accounting standards are an easy scapegoat. Gérard Mestrallet, Gerhard Cromme and Michel Pébereau were correct to point out that it was time to learn the lessons of the crisis. But accounting standards are that the thermometer, the revealer of the crisis, it is therefore at the confluence of different sources of standardization should now focus our attention.