The World Gold Council, a market development organization for the gold industry, has some ideas about developing a common accounting framework for gold that could be used by central banks in countries around the world.
The group has published a white paper, “Working Towards a Common Accountancy Framework for Gold,” by Kenneth Sullivan, a former senior financial sector expert at the International Monetary Fund. The paper examines the current landscape of accounting practices for monetary gold at central banks and advocates a move towards a common framework.
The paper surveyed the financial statements of 98 central banks and two international financial institutions that hold gold, the IMF and the Bank for International Settlements, to ascertain how they account for gold. Under International Financial Reporting Standards, gold is not considered to be a financial instrument, but instead a commodity, and is supposed to be accounted for accordingly, according to the paper. But while monetary gold is not considered a financial instrument, IFRS does not specify that gold qualifies as a currency either.
“If gold is not a currency, then it qualifies as a non-monetary item under the standard covering foreign exchange (IAS 21),” according to the paper. “Although the world has yet to universally adopt IFRS, its principles increasingly provide the basis for national accounting frameworks where IFRS is not the default framework. The convergence between IFRS and the US’ Generally Accepted Accounting Principles (GAAP) provides a broadly similar framework on accounting for gold holdings. As a result of these factors, central banks adopt a variety of approaches in their accounting for gold and the treatment of the revaluation gains and losses arising from it.”
The paper presents a range of current accounting practices for monetary gold and advocates a move to a common framework that draws on elements from various existing approaches. If the framework is widely adopted, it could provide an internationally recognized body of central bank practice.