The European Central Bank published a report today that looks at new international accounting standards from a financial stability perspective.

The report was prepared by the ESCB Banking Supervision Committee. The committee comprises representatives of the national central banks and banking supervisory authorities of the European Union and the ECB.

The report provides for an assessment, on the basis of some predefined criteria, of the International Financial Reporting Standards – as have recently been adopted in the EU – from the perspective of the stability of the financial system.

The report identifies areas where concerns could arise from a financial stability perspective. These include: the reliability of “fair” values, the economic basis for hedge accounting, and provisioning.

It also points out positive features of the IFRS from a financial stability point of view. These include: the overall increase in comparability and transparency, which enhances the level playing field between financial institutions and strengthens market discipline; the provision of early warning signals on exposures or risks, which is relevant both for the risk management function of financial institutions and for effective market discipline; and, the use of a principles-based framework, which provides for an adequate degree of flexibility in implementation.