asked the Minister for Industry and Commerce if his attention has been drawn to the strong criticism of the manipulability value and veracity of published company accounts outlined in reports (details supplied); if he favours the proposal that assets owned by companies should be valued on the basis of their current actual value or earning capacity to the company owning them rather than at the price at which they were bought; his views on whether inadequate information on the true state of the affairs of companies contributed to the recent economically destabilising collapse in share prices; and if he intends to hold discussions with the Stock Exchange, the accountancy profession, the Revenue Commissioners and other appropriate representative bodies with a view to devising and enforcing through the Companies Registration Office, a more accurate system of company accounting.
Written Answers. - Published Company Accounts.
I assume the Deputy is referring to the academic study of accounting principles carried out in the UK and reported recently in the financial press.
I should say at the outset that there is nothing in existing legislation to prevent assets being valued on a current value basis. Indeed, Part III of the Schedule to the Companies (Amendment) Act, 1986, specifically provides that the assets of a company may be included in the balance sheet at their current cost.
Having said that, I am not aware that there is, or is likely to be, any widespread acceptance of the far-reaching suggestions in the study referred to by the Deputy. The study was an attempt establish a theoretical framework for accounting, relying on basic economic principles. I understand that many of the suggestions have been the subject of criticism since they were published.
For example, the proposal in the study that assets should be valued on the basis of "earning capacity" or "value to the owner" would have to be approached with considerable caution. The adoption of such a procedure would introduce a considerable measure of subjectivity into accounts and would mean that valuations would depend on the circumstances of each particular company. The likely effect of this would be to reduce, rather than increase, the value of company accounts by making it more difficult to compare them with those of other companies. The historical cost convention, on the other hand, whatever its faults, maintains a basic element of objectivity in valuations.
The Deputy will be aware that various attempts have been made previously to propose new asset valuation principles but none has proved satisfactory. The most substantial recent attempt, Statement of Standard Accounting Practice 16 (SSAP 16), was withdrawn by the accounting profession in June 1985 because of its poor acceptability, its complexities and because of its questionable relevance in a period of low inflation. There is no evidence yet to indicate that the proposals in the recent study, which are still at the level of theory rather than practical suggestions, will prove to be either satisfactory or widely acceptable.
On the question of whether inadequate information on companies' affairs contributed to the recent collapse in share prices, I am not aware of any widespread or significant evidence to suggest that such is the case. Indeed, such evidence as there is seems to suggest that the recent decline in share values was triggered by factors which had little to do with the valuation of the assets of quoted companies, whether here, in the United States or elsewhere.
I have no plans at present to engage in discussions on the question of changing company accounting procedures. I will, however, be keeping up to date with developments in this area.