BusinessCompany NewsFSA warns banks not to overstate losses

FSA warns banks not to overstate losses

Adopting stressed values could undermine confidence in financial reporting, financial watchdog says

The FSA today told banks not to overestimate their losses from the sub-prime
collapse in order to appear prudent.

The financial watchdog said that some were urging banks to use stressed
models or otherwise overstate losses.

‘This could lead to reduced market confidence in the accuracy of financial
information,’ the body said in its annual
‘Risk
Outlook’
document.

‘For example, some might favour applying valuation adjustments made for
prudential purposes to financial reporting, or requiring firms’ financial
statements to value assets conservatively on the basis of an assumption of
stressed, rather than normal, market conditions, or loan loss provisions to be
set significantly above losses actually incurred to provide a margin of
prudence,’ it said.

The UK banks report full-year results soon, with writedowns expected as well
as anxious discussions with auditors over valuations.

The banks are struggling to value complex derivatives related to the
sub-prime mortgage collapse due to the market ceasing to operating. The
instruments thus have to be valued according to models rather than market
values.

Further reading:

Read
the FSA document

Related Articles

M&S business rate liabilities based on £570m rateable value

Company News M&S business rate liabilities based on £570m rateable value

2w Emma Smith, Managing Editor
BDO replaces Deloitte as Mitie auditor

Audit BDO replaces Deloitte as Mitie auditor

4m Emma Smith, Managing Editor
CVR Global appoints partner in London office

Company News CVR Global appoints partner in London office

8m Alia Shoaib, Reporter
FTSE100 failing to provide adequate ethics information

Company News FTSE100 failing to provide adequate ethics information

8m Alia Shoaib, Reporter
Moore Stephens recruits new private client partner

Accounting Firms Moore Stephens recruits new private client partner

11m Emma Smith, Managing Editor
Magma Group announces merger, partner promotions

Accounting Firms Magma Group announces merger, partner promotions

11m Emma Smith, Managing Editor
BDO on ‘recruitment spree’ with multiple partner appointments

Accounting Firms BDO on ‘recruitment spree’ with multiple partner appointments

11m Emma Smith, Managing Editor
Brand strength leads to fee income growth for RSM

Accounting Firms Brand strength leads to fee income growth for RSM

12m Emma Smith, Managing Editor