Accounting seems so dreary but what if broken rules allow banks to show false profits, overstate capital and hide losses? What if the banks have paid bonuses out of unrealised gains?
The Bill I introduced in March 2011 deals with just those problems. All the details are here.
I learnt today that the Bank of England will make a statement on Thursday about bank balance sheets. I expect they will require assets to be written down and more capital to be raised. I hope they will explain why the International Financial Reporting Standards are unsuitable for banks and that they should be overridden by the standard compliant with UK companies law, known as “UK GAAP”.
If so, the Government should adopt my Bill.
Updated: Via the Daily Telegraph, Mervyn King to challenge bank accounting that fails to show true level of risk.
Where did you get your accounting advice from, Steve? Because, while I’m not a banking expert, it’s my learned opinion that your statements about IFRS are almost completely wrong. As a result, the advice to adopt UK GAAP instead is also wrong and I suspect the guidance in your bill would cause more harm than good.
While “leave it to the experts” is often dangerous advice, you’ve demonstrated admirably that amateurs have the ability to make an even finer mess of a difficult situation.
It is a fact that professional accountants disagree amongst themselves on the suitability of IFRS for banks. As you confess to not being a banking expert, I suggest you read this publication by Gordon Kerr, a banker who took the advice of relevant accountants and banking theorists:
http://www.adamsmith.org/research/reports/the-law-of-opposites-illusory-profits-in-the-financial-sector
I contributed to the paper and it increasingly appears that the experts agree with me. I’ll look forward to tomorrow’s statement.