Monday, February 15, 2010

FT.com / UK - Deloitte chief reignites debate over accounting for banks' losses

An accounting article from the Financial Times that is really interesting (yeah I didn't know such animal existed either).

FT.com / UK - Deloitte chief reignites debate over accounting for banks' losses:
"Politicians and regulators have blamed the current system of 'incurred losses' - whereby companies may make provision for loan losses only as they occur - for exacerbating the crisis, by encouraging a cyclical approach to risk management.

But that view is questioned by many accountants and bankers who say that 'incurred losses' give investors clarity. Accountants and bankers are also are sceptical about the 'expected loss' model, as they fear it raises the risk of 'cookie jar' accounting, whereby executives put funds aside during good years only to release them later to cover up bad performance.

Mr Quigley said he believed that 'one way we can bridge some of the current conflicts in financial reporting is with transparency'. 'The two-line idea accomplishes that transparency objective,' he told the FT. However, PwC, has said it is opposed to putting two lines in the income statement."

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