The strive of FASB to boost bank profitApril 3rd, 2009 - 1:31 am ICT by GD
The chairman of FASB reported how the agency reached out to analysts, accountants, mutual funds and officials of the rating agencies before the introducing this new guidance. All these agents readily approved this new measure.
The situation that called for the need of this measure is the viable assets the banks hold. Such assets are accompanied with strong cash flows and cannot be sold because of the lack of market.
In order to resolve this aforesaid situation, FASB’s guidance permits banks and their auditors to use “significant judgment” while valuing the illiquid assets like mortgage securities. The other provision that FASB board has approved will give freedom to companies to put certain illiquid debt assets like the mortgage securities, which they would otherwise had to write down into a category named “other comprehensive income.” As a result of this provision, the operating income of the financial institutions’ is improved as they can record a lesser quantity of loss in their income statements.
The success of FASB’s new measure requires some expanded disclosure. It is required that the corporations must offer more details, about the methodology they use to put certain assets in the “other comprehensive income” category.
According to Accounting Professor Robert Willens of Columbia Business School, this new audit guidance would not only offer banks to make use of internal models and analysis, it will also increase their earning by almost 20%.
Tags: accountants, audit guidance, cash flows, columbia business school, corporations, disclosure, fasb, financial institutions, illiquid assets, income category, income statements, internal models, judgment, methodology, mortgage securities, mutual funds, operating income, other comprehensive income, professor robert, provision