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Fair value changes could worsen crisis – Edhec

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  • Fair value changes could worsen crisis – Edhec

GLOBAL - GLOBAL - Over a quarter of investors fear the amendments to IAS 39 and IFRS 7 adopted by the International Accounting Standards Board (IASB) in mid-October 2008 could worsen the current financial crisis, according to a survey by French business school Edhec.

Seeking a response to an Edhec position paper on the changes, the French institute surveyed 836 respondents globally, almost 60% which are institutional investors and asset managers.

In the response, Edhec said that 28.1% think that new standards could worsen the crisis by making financial information less trustworthy.

Also, less than one-fourth of respondents said the amendments are necessary and well suited to resolving the problems of bank solvency, while 75% of respondents think that they are even likely to lead to new problems.

Edhec's position paper followed when on September 22, 2008, the G7 finance ministers requested implementation of the Financial Stability Forum (FSF) recommendations, some of which had to do with accounting standards.

Under pressure from the European Commission and the European Parliament, the IASB prepared amendments to IAS 39 and IFRS 7, which were implemented in October.

The objective of the IAS 39 standard is to establish principles for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items.

Requirements for presenting information about financial instruments are in IAS 32 Financial Instruments: Presentation. Requirements for disclosing information about financial instruments are in IFRS 7 Financial Instruments: Disclosures.

According to Edhec, the number of critics of fair value accounting has continued growing, as they think they have a pro-cyclical nature and there is insufficient information provided by the standard setters on the means of valuing financial instruments in inactive markets.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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