The inflating effect on earnings may well have a correspondingly beneficial effect on otherwise blighted employee bonuses and share scheme performance. All additional positives for tax authorities such as our own. PAYE is the biggest earner for the UK government. Not all banks have leaped forward to adopt the change in accounting policy: they are caught between “the devil and the deep sea”. To make the change might highlight the deficiencies in your assets, which is not good for attracting investor confidence, but to decline the opportunity to revalue your assets might make it look as if you have something to hide – this change of accounting policy also carries with it the pain of substantial additional accounting disclosures. The International Accounting Standards Board (IASB) has been under since Easter to make a move on fair value accounting, but its head, Sir David Tweedie is unhappy with the evolving monster. According to a report in the Financial Times. he thinks that, “European bank’s accounting practices have worsened as a result of the easing of fair value accounting standards”. “They bought these assets originally and thought they were going to be fine. Well, they weren’t. So how accurate is [their long-term assessment]?” he said. “I don’t see how disguising things is going to actually make confidence higher. That’s why fair value is so important: get it up front, show it as it really is, and that makes people more confident.” The FT reports that Sir David also called for a loosening of the ties between accounting and banks’ regulatory capital requirements. Most regulators closely link their assessment of a bank’s reserves with its published accounts, meaning watchdogs can suddenly require a bank to hold more capital when markets are falling – just at the point it is hardest for it to do so. Many banks have complained fair value accounting was pro-cyclical because it helped to exaggerate the impact of a downturn, but Sir David argued for regulators to change instead how they used accounts to calculate capital needs.
Following an in International Accounting Standards last month, banks have been allowed to adjust their assets from a fair value basis back to amortised cost. The effect on banks’ reported earnings is substantial, it has saved them more than €3 billion in losses in the last week alone.