THE CENTRAL BANK of Ireland is taking legal advice on its powers to implement stringent accounting standards for financial institutions.

It wants to force banks to account for expected losses rather than simply incurred losses, as is currently required under International Financial Reporting Standards.

Supporters of the proposal said IFRS does not guarantee that banks report prudently, claiming the old GAAP system would ensure proper provision is made for loans that are expected to go bad.

However, critics have argued the view of GAAP as a more prudent system is false, saying it is erroneous to claim reporting under the old standards would produce different results.

In a statement, the Central Bank said: "We are reviewing our powers and are taking advice from accounting experts. We will be providing an update in our Banking Strategy Paper to be published at the end of June," The Daily Telegraph reports.

Next month will see a £24bn (£14.6bn) bank recapitalisation programme, and officials are eager to restore confidence in the battered sector that is already limping along as a result of government bailouts.

Governor of the Bank of Ireland, Patrick Honohan, said in a speech last year: "I find it unsatisfactory that expected losses in many parts of the portfolio are clearly higher than the provisions already taken. I fear that this evident and in some cases explicit discrepancy may awaken doubts in the minds of investors as to the relevance of other aspects of the reported accounts."

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