ADVOCACY: OVERVIEW
Advocacy news
IS FAIR VALUE A FAIR MEASURE?
Members will no doubt be aware of the
debate on fair value accounting. It is
raging at the highest levels – US Congress
no less. This is an important issue to
CFA UK COMMENTS ON TWO valuable additional comments. The members who, as investors, are arguably
CONTROVERSIAL ISSUES results show the membership’s opinion the most important users of fi nancial
Not unsurprisingly, the crisis currently is almost evenly split. A small majority, statements.
facing the fi nancial markets is 52%, believes that liquidity support A CFA Institute survey of members
prompting a raft of regulatory changes. should be disclosed, ensuring shows overwhelming support for the
These changes will affect the transparent capital markets. However, use of fair value. With this in mind,
investment industry and society 48% feel that short-term non-disclosure CFA UK has entered the debate with its
members. As Joe Biernat, CFA, may be appropriate in order to response to the International
Chairman of CFA UK said at the maintain fi nancial stability. Accounting Standards Board’s (IASB)
society’s Annual Dinner: “We’re keen The survey also asks members consultation paper on Reducing
that we should do more to inform whether the delay in disclosure of Complexity in Reporting Financial
regulators and policy-makers about liquidity support would best serve the Instruments and a letter published in
issues that concern the profession and interests of investors, fi nancial the Financial Times.
that we should help them identify institutions seeking liquidity support, In its response to the IASB, prepared
solutions.” depositors and overall capital market by the Accounting Advocacy Committee,
With this in mind, the society has integrity. Not surprisingly, a vast the society:
recently commented on two majority of respondents, 83%, think • Argues that balance sheets should
controversial issues that have arisen the fi nancial institution needing refl ect current values. Market prices
from the credit crunch: liquidity support will benefi t most provide primary evidence of what
The FSA’s proposal to permit from non-disclosure measures. Views these values are and market-based
non-disclosed liquidity support to on the impact to depositors are inputs to models are essential. The
solvent fi nancial institutions and which divided whilst members believe that committee recognises that, especially
measures should be used to value investors and overall market integrity in inactive markets, these inputs
complex fi nancial instruments. would be adversely affected: 57% and may not be suffi cient, so a variety
53% of respondents state that these of other measures will continue to
TO DISCLOSE OR groups have little to gain from be used.
NOT TO DISCLOSE? non-disclosure rules. • States the importance of disclosure of
In light of the Northern Rock crisis, In its response to the consultation valuation methods, including the key
the FSA recently issued a short paper, the society opines that markets assumptions used and the source of
consultation paper to amend its rules would work out the true position these assumptions.
for the Bank of England’s role as within two weeks. We, therefore, • Urges for clearer presentation of
lender of the last resort. The recommend that two weeks should be re-measurements to assist users. The
amendment would allow public the maximum permissible time for non- response notes that the current
disclosure of liquidity support to disclosure of liquidity support. arrangement, whereby changes in the
solvent fi nancial institutions to be The society also suggests that the value of some fi nancial instruments go
delayed. This raises the thorny issue of FSA/Bank of England should have the through the profi t and loss account
whether fi nancial stability authority to refuse to permit non- while others are taken straight to
considerations should be allowed to disclosure when appropriate. This equity, is confusing.
override investors’ demands for would ensure that a bank’s own In a letter to the Financial Times, the
transparency. commercial interests do not take society criticises the stance on fair value
When preparing its response, the precedence over the interests of other accounting taken by President Sarkozy of
Investment Professional Advocacy parties or participants in the fi nancial France and the US Congress. The letter
Committee canvassed members’ views markets. Lastly, the response argued argues that fair value accounting is not
on whether disclosure of support for that undisclosed support should only be the cause of the current fi nancial
solvent fi nancial institutions should be provided in extreme circumstance and instability but rather a refl ection of
permitted. A large number of members that institutions should be penalised for depressed valuations that are a symptom
(340) responded with many providing receiving such support. of the crisis.
50 WINTER 2008/09
5050 Advocacy.indd 50Advocacy.indd 50 27/11/0827/11/08 16:01:0516:01:05
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76