IAS will inject volatility into financial statements, says S&P

The required adoption of International Accounting Standards (IAS) for publicly listed European Union banks by 2005 is set to boost not only the transparency, but also the volatility of these institutions' financial statements in coming years, rating agency Standard & Poor's (S&P) said in a report this week.

"With only four of the 50 largest banks having adopted IAS practices as of June 2002, major changes are set to take place in European banks' financial statements in coming years, during a time when accounting practices are the subject of scrutiny by investors and other market participants," said S&P credit analyst Sylvie Dalmaz.

"Overall, we view the pan-European introduction of IAS accounting rules as a mild positive, as it will improve transparency and facilitate cross-border comparisons," Dalmaz added. "At the same time, Standard & Poor's is concerned that fair-value accounting for derivatives and available-for-sale securities, and the burdensome restrictions on hedge accounting proposed by IAS 39 will introduce added complexity and volatility into banks' financial statements."