23 September 2017
Stanley Epstein
Stanley Epstein

Stanley Epstein

Stanley Epstein - Citadel Advantage Ltd

44Posts 180,571Views 52Comments

Accounting standards - where is the honesty?

03 May 2009  |  2602 views  |  0

Once again I am appalled by the banks. Here we are, all in the midst of the worst financial crisis of the past seventy years, brought on by the greed and stupidity of the banking community and what are the banks doing? Well they are now moaning at the poor folk setting the accounting standards. They don't like some of these accounting rules because they "exaggerate" the losses suffered by banks and this shows banks up in a poor light.

And why don't they like these rules? Well, for the uninitiated amongst us, these rules say that certain bank assets must be valued at the price a third party would pay and not at the price the banks managers or regulators would like them to fetch.

The rule is pretty simple and easy to understand. If I own an asset and I want to sell it and the best price I can get today is say £200, well that is the value of the asset. However according to the banks they think that they should be able to value it at some other higher level. And valuing the asset at a higher level will simply fudge the real extent of the banks loss. The banks try to justify this by claiming that the current market prices overstate losses, because they reflect the "temporary illiquidity of markets", not the likely extent of bad debts.

The banks have been lobbying like mad in both the U.S. and in Europe regarding changing these rules. In the U.S., Congress demanded it, and in response the American "Financial Accounting Standards Board" couldn't wait to change the rules. Watching from the wings were the Europeans, who have now demanded that the International Accounting Standards Board do the same.

What a lot of chicanery! Imagine if I used the same ploy with my bank, when applying for a loan, and justifying the overstatement of the value of my property on the basis that the market price is "unrealistic" or not a "true reflection of the properties intrinsic value". I would be laughed right out of the banking hall.

TagsRetail banking

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Stanley is a Director and co-founder of Citadel Advantage Ltd., an international consultancy to the financial services industry that provides specialist services and training in the areas of operation...

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