Accounting standards and regulating banks

 

Sir, – I write to correct various misleading statements contained in an article by Cormac Butler entitled “Taxpayers paying dearly as banks conceal loan losses”(April 23rd).

First, Mr Butler states that under existing requirements loans cannot be classed as non-performing until the borrower has defaulted. This is incorrect. There is nothing in the existing standard that requires banks to wait for default. Instead, the standard gives numerous examples of when a loan can be considered as impaired, such as evidence of financial difficulty or an increased number of borrowers reaching their credit limit.

Second, Mr Butler’s claim that the IASB has advised the EU not to force banks to reveal losses is quite ridiculous. To substantiate his argument, Mr Butler selectively quotes Hans Hoogervorst, chairman of the IASB, stating that “Enthusiasm for greater transparency in accounting is greatly tempered by the possibility of this leading to further bank bailouts.” However, if you read the speech, you will realise that Mr Hoogervorst was remarking not on the IASB’s lack of enthusiasm for transparency but on the resistance that the IASB’s drive for transparency had sometimes met. The opposite of what Mr Butler argues.

Third, Mr Butler states that our US counterpart has moved to reform its requirements for loan-loss provisioning, while the IASB has not. This is also incorrect. The IASB will issue in the coming months new requirements that require more timely recognition of losses than the existing arrangements — well in advance of the US’s own overhaul of its standards.

Finally, Mr Butler raises the question about the legality of IASB standards in the EU. However, he neglects to mention that the body responsible for accounting requirements in the UK and Ireland has already sought a legal opinion on the matter. That opinion was unequivocal in its view that there was no issue with the legality of IFRS.

The IASB’s standards may not be perfect. However, as a former chairman of the UK Accounting Standards Board, I can state with conviction that they are a significant improvement on what we had before in the UK and Ireland and that the global comparability offered by IFRS reduces costs and improves transparency for all. Yours, etc,

IAN MACKINTOSH,

Vice-Chairman,

International Accounting

Standards Board,

Cannon Street,

London EC4M 6XH