European Commission Green Paper’s Long-term Financing Receives Response from IASB

In reply to the Green paper ‘Long-term financing of the European economy’; IASB (the International Accounting Standards Board) submitted its feedback to European commission. Major theme of the letter sent by IASB to the European commission revolves around the question regarding the relationship between the use of fair value accounting principles and short-termism in investor behavior.

European commission Q20 has been raised in the memorandum by IASB, the question which states that How far you believe that value accounting principle with its fair use has led to the short-termism in investor behavior? And what are the suggestions for other methods in order to compensate the effects.

Whereas on the other hand, IASB (the International Accounting Standards Board) believes that fair value accounting principle has nothing to do with short-termism in investment behavior. While explaining various factors responsible in short-termism, IASB shed light on various factors in this regard, also, they were mentioned in the response to green paper.

Fair value can be used in order to capture the meaningful information regarding the financial instruments. Complex cashflows can identify these financial instruments but this doesn’t led to the fact that IASB is keen on having a full fair value model for financial instruments. As far as the comment letter goes, it explains that claims are contradicting and failed to raise expressis verbis in the Green Paper.

IASB Chairman, Hans Hoogervorst who was appointed in the year 2011, explained in his speech, Accounting and long term investment – 'Buy and hold' that shouldn’t be mistaken for 'buy and hope', this has been put in the letter as an Appendix and carries immense significance. He further added that it is essential for the investors to keep an account of the investments for not only the long-term set up but also for the short-term set-up. In this way unbiased performance measures will help them to keep a tract of their investments and outcomes which will be helpful for the long-term investments.

IASB also sheds focus on the IFRSs 13 Fair Value Measurement, in order to explain the techniques to measure fair value for financial reporting and transparency of the market.