In a video interview, Sir David Tweedie, chairman of the International Valuation Standards Council (IVSC), talks about the work of the IVSC and its efforts to develop unified global standards for valuation. One particular area of concern is the valuation of financial instruments.
“We are finding that financial institutions are getting quite different, wide variations in the value of these identical instruments,” he says. “That instantly worries you because if some of them are hugely different, and we know they are, you have a situation where you don't know how reliable the balance sheet is. And the balance sheet clearly affects the income statement, so how reliable is the profit number? And then if we talk about financial stability, which is based on the capital buffers, based on balance sheet numbers, are those rubbish, or do they mean something?”
Tweedie is pulling together regulators, auditors, banks, and standard-setters to work toward unifying standards for financial instruments—which can be extremely complex mechanisms. “Here's the guys with the pointy heads and the whirling eyes, astrophysicists and so on,” Tweedie remarks. “We have to say: ‘Wait a minute. What are you doing in your little black box?’ We have to bring this out and shine a light on it and see what is happening.”
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