Colella issues fair value rocket to politicians

Anton Collella has joined the ranks of dissenters firmly against a suspension of fair value accounting.

The ICAS chief executive said that he had written to the Prime Minister, the Business Secretary Peter Mandelson, David Cameron and the EU Commissioner for the Internal Market and Services to warn that any suspension of the rules would skew the landscape in the financial markets.

'[ICAS is] extremely concerned by the recent proposals in the US to permit the suspension of the fair value measurement rules for financial instruments, and the calls suggesting that similar steps should be taken by the European Commission or the IASB,' said Colella. 'We strongly believe that this suspension would not be in the public interest, and would be detrimental to the capital markets.'

Colella said ICAS recognised that the current illiquidity and volatility in the markets made establishing fair values for financial instruments more difficult, but fair value measurement still provided the 'most relevant information to investors.

'To use any other measurement basis would simply mask the real, current values of financial instruments, and past experience has shown that the absence of this information has in fact contributed to prolonged market turmoil.

A total suspension of fair value has been shelved for the time being in the EU, but a reclassification of certain assets has been called for. The full suspension could still come back onto the table if the US decides to drop the GAAP equivalent of the accounting rules.

Colella added: 'While fair value accounting has been blamed by many as one of the causes of the current financial crisis, we would argue that accounting is merely a language which reports the underlying economics in a transparent and neutral way.'

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