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IFRS for banks debated in England

Trying to value bank assets is like trying to "pin the tail on a very boistero

The International Financial Reporting Standards were the subject of a vigorous debate in the pages of British accounting magazine Economia recently, with two heavy hitters squaring off on each side.

In one corner, Andy Haldane, executive director of financial stability at the Bank of England, argued against imposing the accounting standards on banks. According to Haldane, banks are a special case. Their delicate balance of assets and risks requires accounting rules that allow financial reports to reflect the true complexity of their operations in order to make them appealing to investors. Furthermore, trying to value banks' constantly changing assets under current rules is like asking auditors to "pin the tail on a boisterous donkey," he said.

Katheryn Cearns, meanwhile, argued that IFRS can give a fair view of banks. In her role as chair of the Institute of Chartered Accountants of England and Wales, Cearns argued that IFRS was not to blame for the recent financial meltdown, and that banks should not be allowed to account for their assets and liabilities differently than other companies simply because they have more of them.

"What investors currently think about banks has nothing to do with the accounting or auditing rules per se and everything to do with an economic view of their prospects," she said. "Conflating transparent financial reporting for investors with prudential priorities will not change that view."