Deloitte chief speaks out on loan-loss provisions

Sir David Tweedie

The chief executive at one of the world’s largest accounting firms wants to
see a fusion of expected and incurred losses on banks’ financial statements.

Jim Quigley, Deloitte CEO, told the Financial Times he would like to
see banks use a combination of existing and proposed rules on how to provision
for bad loans.

Last week Accountancy Age reported that that the proposed changes to
bank accounting could cost as much as £225m and take years to complete and that
banks had already begun to model the impact of the changes.

Paul Chisnall, executive director of the British Bankers Association, told
Accountancy Age that the cost would have a bearing on the cost of

International Accounting Standards Board chairman Sir David Tweedie has met
with regulators of the Basel Committee as part of discussions on the loan loss

Under the existing practice, known as the incurred loss model, banks report a
loss when there is an observable “trigger” event. Under proposed rules, known as
the expected loss model, banks would calculate the expected losses from a loan
from day one, and report a corresponding loss in their profits.

Quigley said he would like to both the incurred loss number and the expected
loss number in financial statements.

“The two line idea accomplishes that transparency objective,” Quigley said.

Banks are concerned the proposed rules would lead to an overhaul of their
accounting and credit risk systems. They also fear they would have to roll out
the rules across loans on a granular level, which would take years to implement
and would cost as much as £225m across the UK’s largest six banks.

The International Accounting Standards Board is seeking feedback on the
proposals and has set up an expert advisory panel, of credit risk experts, to
discuss the proposals.

Read the full story:
chief urges banks to separate loss accounts

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