Paul Boyle, Chief Executive of the Financial Reporting Council, has called for a thorough and public debate if there is a desire that accounting should be used to achieve policy objectives for which it has not been designed. Speaking at the IEA/Marketforce conference on the future of the financial system, he noted that accounting standards are designed to support a system of which is intended to be useful to a wide range of users.
He said:
"However, the proportionality-based decision to have a single set of multi-purpose financial statements has certain consequences. Firstly, the effort to satisfy the information needs of a wide range of users within a single accounting model will mean that almost all users of financial statements will find that the statements contain some information which they do not find useful. Secondly, not all of the needs of all users can be provided by a single set of financial statements.
"There are, of course, special categories of user of financial statements (for example the tax authorities and the financial regulators) who have legal powers to require companies to provide them with precisely the information which they require for their particular information needs.
"General purpose financial statements which are the product of applying accounting standards are unlikely to be wholly suitable for raising taxes, or determining how much it is prudent for a bank to lend. General purpose financial statements are even less likely to be suitable instruments for contributing to macro-economic stability, an aim which some people have advocated assigning to accounting.
"If there is a wish to use accounting to achieve policy aims for which it is not designed then this will have implications for the current uses of accounting. It is essential that there is a thorough and public debate about any such changes so that the advantages and disadvantages can be properly assessed and compared to the other options available for achieving those policy aims."
Referring to the controversy over mark-to-market or mark-to-model valuations, he said:
"Perhaps we should consider whether investors would find it useful to have disclosure of both market and model valuations. Given the uncertainty around the valuation bases, investors may also find it useful to information in future periods to help them assess which is the more reliable measurement basis. This could be done, for example, by requiring the disclosure in subsequent years of the difference between the proceeds for assets which have been sold and the market and model valuations at the previous year-end. There may also be other methods of conveying this information to investors."