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Reform of the regulatory structures is certainly needed, yet a complete clampdown would be a mistake, ACCA - the global body for professional accountants – concludes in its recommendations to the G-20 meeting in London.
The emphasis must be on transparency and accountability, with international standards guiding regulators, ACCA underlines. Improving international co-operation is one key area, but will not be achieved without reform of global governance structures.
ACCA recommendations:
1. The regulatory framework needs to be redesigned to cater for increasingly complex financial structures, and steps need to be taken to improve the transparency and stability of financial markets. The questions that need to be examined are many, and include: how to cope with the increasing complexity of financial markets; how to strike a balance between financial innovation and the management of systemic risks; what the role of global co-ordination of financial regulation should be.
2. In the interest of establishing a valid internationally accepted standard, rather than continuing with or reverting to disparate sets of regional rules, the focus should be on ensuring that IFRS continues to be a high quality, largely principles-based accounting language. An essential requirement for this is that the governance and process arrangements for the IASB (as the standard setting body), and its parent foundation, the IASCF, are in proportion to the global reach of their standards.
3. Priority must be placed on ensuring that existing legislative and regulatory measures are implemented and enforced effectively, rather than reactively rushing through new legislation.
4. In areas such as accounting, being too prescriptive with global measures could backfire. Issuing guidance that results in mechanical rule-following would be a recipe for disaster. Principles-based standard setting and professional judgement have a vital role to play and should not stifle recovery.
5. Issues of global governance and the importance of international co-operation need to be addressed. These include, for example, the need to improve co-ordination at global level and to review the role of international financial institutions.
6. The extent of the optional use of fair value has arguably been too wide. This has made the accounting for financial instruments harder to understand, comparability between entities even within the same sector has been diminished and it has probably increased the use of less reliable values. IASB should not allow further classes of liabilities to be stated at fair value, beyond those currently permitted.
7. ACCA does not believe that fair value accounting is a cause of the banking crisis. The calls for its suspension can be seen as trying to sweep the problems under the carpet, which would, if allowed, risk undermining the remaining confidence in the financial system.
8. The IASB could use the financial turmoil as an opportunity to establish definitively its long-delayed conceptual framework for financial reporting. The fair value crisis has shown the need for clarification of the purpose of accounts so that expectations of stakeholders are appropriately set and a clear framework established for the improvement and application of standards.
9. World leaders will need to consider whether there should be a formal agreement to make the G-20 feature a long-term feature of global governance.
The full document is attached below.