Accounting standards are now on the agenda at the highest level. They are cited by some as being a cause of the crisis. The number-one suspect is “fair value”, the accounting method based on observable transaction prices or, if none are available, evaluation models. The IFRS make liberal use of fair value, as do the US GAAP standards applicable in America; similar controversies rage on both sides of the Atlantic. As early as March 2008, Martin Sullivan, then CEO of insurance giant AIG, championed the call for the “suspension” of fair value. While AIG has collapsed for other reasons in the meantime, this call is still echoed by much of the US banking industry and many European financiers, especially in France.

 

The IFRS are not yet doomed to failure, which would mean global fragmentation and divergence of accounting standards used in Europe, the US, and Asian countries. But this risk is becoming increasingly real. If this were to happen, Europe is most likely to find itself at a disadvantage compared with the US, as it was in the 1990s, as most investors would consider the US GAAP standards to be more demanding. Actually, everyone would lose out.