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K.R. Srivats

New Delhi, April 14 Accounting standard setters should accelerate efforts to reduce the complexity of the ‘accounting standards for financial instruments’.

A G-20 working group co-chaired by Dr Rakesh Mohan, Deputy Governor of the Reserve Bank of India, had recommended this in its report ahead of the London Summit of G-20 leaders early this month.

The report had also urged the accounting standard setters to enhance presentation standards to allow the users of financial statements to better assess the uncertainty surrounding the valuation of financial instruments.

In India, the accounting standards on financial instruments (AS 30 and AS 31) are already recommendatory (from April 1, 2009) for corporates.

These accounting standards are almost in line with international accounting standards on financial instruments.

These international standards are considered to be somewhat difficult to comprehend in the wake of innovations in the financial markets.

The working group on “Enhancing Sound Regulation and Strengthening Transparency” was tasked by the G-20 leaders to make recommendations that will strengthen international regulatory standards and enhance transparency in global financial markets.

It was asked to ensure that all financial market products and participants are appropriately regulated or subject to oversight depending on the circumstances.

The report, which set out 25 recommendations for G-20 leaders, also suggested that accounting standard setters should strengthen accounting recognition of loan loss provisions.

They should consider alternative approaches for recognising and measuring loan losses that incorporate a broader range of available credit information.

They should examine changes to relevant standards to dampen the adverse dynamics associated with fair value accounting, including improvements to valuation when data or modelling is weak, the report had recommended.

The recommendations contained in the report are a response to the causes of the current global financial crises and are intended to prevent future ones from occurring.

More Stories on : Financial Markets | Accounting Standards

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