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IASB: EU banks fudged Greek bond holdings

Tuesday 30 August 2011 - by Andrew Hickley

The International Accounting Standards Board has released a letter claiming that banks have deliberately massaged annual results to show smaller than expected losses on Greek government bonds.

Sent to the European Securities and Markets Authority at the beginning of August, the IASB says that standards relating to fair value measurement and impairment losses on the bonds have been "inconsistently" applied across the European Union.

While it does not identify any particular banks, the London-based IASB notes that a number valued their impaired assets at future prices despite a tumble in their value. They should have instead reflected their fair value in current market prices, as required under IAS 39, it said.

Highlighting the inconsistency as a matter of "great concern", the IASB also accuses banks of relying on internal valuation methodologies, instead of market prices, to measure the fair value of assets. Under IAS 39, the value of so-called 'available for sale' sovereign debt must reflect current market conditions or relevant market prices - even if using a valuation model.

Hans Hoogervorst, chairman of the IASB, says in the letter: "It would therefore not be in accordance with either the requirements in, or the intent of, IAS 39 to measure a loss on government bonds classified as AFS financial assets solely by assessing the present value of the future cash flows arising from a proposed restructure of those bonds."


"It is hard to imagine that there are buyers willing to buy those bonds at the prices indicated by the valuation models being used. In my view it is therefore difficult to justify that those models would meet the objective of a fair value measurement."

While the IASB sets international accounting rules, it relies on national regulators to ensure they are applied consistently across Europe.

The qualms were raised with Esma because of the two bodies' mutual interest in ensuring the highest quality in the application of IFRS, the letter says.

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Email: andrew.hickley@gfsnews.com


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