Sir, Robert Lenzner has indirectly mentioned a major area of the regulatory framework for financial institutions that has been only cosmetically reformed in the wake of the financial crisis; that of accounting standards ( Comment, April 21). It is widely argued by accountants and the banking sector that the accounts of a company serve only to inform investors of its financial state, who will then make a decision about whether to invest their funds or not. However a closer reading of European company and case law would suggest that accounts play a much more integral role in the corporate governance framework, in the sense that they also determine the solvency of a company.
Although often written off as the preserve of technical experts, the standards by which accountants and auditors compile the accounts will in large part determine how reliable a set of accounts will be. Surely, in light of the continuing opacity of the financial system, we would want the accounts of banks to give a genuinely true and fair view of their financial health? According to European law, this means that all likely losses are not only booked but also provisioned for in the accounts, which should result in directors taking a much closer look at what is in their company’s accounts.
This is particularly pertinent in view of the forthcoming discussion about the IFRS9 standard on loan loss provisioning, which follows a one-year expected loss model. Some argue that this model does not comply with what EU law requires, but irrespective of this legal issue we need to ask the question what is it that we want the accounts of a company to do.
Syed Kamall and Sven Giegold
Members of the European Parliament, Brussels, Belgium
Get alerts on Letter when a new story is published