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Accounting rules much too flawed, says BoE executive

When the Bank of England’s executive director of financial stability says that the accounting rules in the UK are flawed to the point that you’d might as well just go down to the local pub for a few pints, you know things are bad.

Andy Haldane, the exasperated Bank executive in question, says that it’s easier to pin the tail on a bucking donkey than it is to get an accurate grasp of a financial service provider’s assets.  Determining bank solvency is essentially hot or miss while using the accounting methodology as determined by the International Financial Reporting Standards, Mr Haldane added, as he called for a specialised set of accounting regulations in order to allow banks to provide more accurate ways for regulators and investors to evaluate risks.

The ‘fragile mix’ of uncertain assets and flighty liabilities when it comes to banking institutions means they must be evaluated in a different manner, the executive director said in a recent article. Risk needs to be priced by investors in order to evaluate this fragility, if the economic realities brought about by the banking crisis is to be learned from, he added, stating that accounting rules need to be able to recognise the unique nature of banks’ liabilities and assets – something that IFRS requirements simply do not meet.

Mr Haldane’s main role at the Bank of England is to examine market trends in order to head off any additional financial crises before they strike, and says that it’s difficult to work towards that goal while IFRS provides inaccurate information by exaggerating profits and losses during upturns and downturns in the economy. The executive director added that there must be a more graduated scheme put in place in order to avoid such inaccurate extremes.

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