Mario Christodoulou, Accountancy Age, Thursday 7 October 2010 at 12:06:00

Banks forced to disclose greater detail when removing items from balancesheets.


New accounting rules will make it harder for banks to hide items off theirbalance sheet and shed light on last-minute transactions taken just beforesensitive reporting periods.

The rules, released by the International Accounting Standards Board (IASB)today, will force banks to disclose greater detail when they remove items fromtheir balance sheets.

Investors have been calling for new rules since the crisis, when banksseemingly removed items from their balance sheet, but retained a continuinginvolvement sometimes via a call option or other financial contract.

Under the new rules, banks will have to tell the market if a disproportionateamount of transactions take place close to sensitive reporting periods. Thedisclosures go someway to addressing so-called ?balance-sheet window dressing,?highlighted in March by a US report into the collapse of banking giant LehmanBrothers.

In the report, court appointed examiner Anton Valukas accused Lehmanexecutives of deliberately shifting assets off their balance sheets, through theuse of repurchase transactions, known within the company as ?Repo 105s?. Theaccounting treatment, however, would be difficult under international accountingrules, used in the UK.

IASB chairman Sir David Tweedie said the new rules would help investorsbetter understand off-balance sheet risks.

?And to alert them to the possibility of so-called ?window dressing?transactions occurring at the end of a reporting period,? he said.

Further reading:

IASBfinalises enhanced derecognition disclosure requirements for transfertransactions of financial assets

Europe'sIASB concerns voiced at global meeting