European Central Bank Executive Board member Gertrude Tumpel-Gugerel insists that fair value is useless in illiquid (read: dysfunctional or non-existent) markets, putting forth the all-important query “what is the use of marking-to-market when there is no market?” in a Paris speech yesterday.
Tumpel-Gugerel is also a tad concerned that the push for convergence around the globe by 2011 could mean compromised accounting standards. “The ECB strongly opposes a full fair value approach,” she said. “In this context, convergence should not come at the expense of high-quality accounting standards.”
The ECB has taken the financial crisis as a lesson in valuation, guidance, and a deft accounting system that leaves plenty of slack available for adjustments should the need arise in, say, a crisis situation. That’s all well and good but guidance only gets you so far and without a firm commitment to when and how to use fair value around the globe, we can pretty much keep debating this point indefinitely.
Her views on FASB’s fair value approach are not at all subtle. In short, it appears as though the ECB supports convergence but only if the idiotic American ways are better aligned with the IASB’s. “With regard to recent assertions made by the IASB and FASB that convergence is on track, I would like to highlight that we are not so optimistic,” she said. “In this regard, putting in place a reconciliation mechanism that simply discloses figures at amortised cost and fair value for each item on the balance sheet would certainly not achieve the aim of convergence.”
Well snap, guess she told us.