Accounting rules will disclose off-balance sheet activity

Sir David Tweedie

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

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

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

Under the new rules, banks will have to tell the market if a disproportionate
amount of transactions take place close to sensitive reporting periods. The
disclosures go someway to addressing so-called “balance-sheet window dressing,”
highlighted in March by a US report into the collapse of banking giant Lehman

In the report, court appointed examiner Anton Valukas accused Lehman
executives of deliberately shifting assets off their balance sheets, through the
use of repurchase transactions, known within the company as “Repo 105s”. The
accounting treatment, however, would be difficult under international accounting
rules, used in the UK.

IASB chairman Sir David Tweedie said the new rules would help investors
better 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:

finalises enhanced derecognition disclosure requirements for transfer
transactions of financial assets

IASB concerns voiced at global meeting

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