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not a surprise – evidence that bank financial statements are misleading September 28, 2009

Posted by Bradley in : disclosure , trackback

Harry Huizinga & Luc Laeven, Accounting Discretion of Banks During a Financial Crisis, IMF Working Paper 09/207 (Sep. 2009):

In the present crisis, the financial statements of banks appear to overstate the book value of assets to the point of becoming misleading guides to investors and regulators alike.. Thus, the present crisis can be seen as a ‘stress test’ of the accounting framework that reveals that book valuation need not always reflect the best estimate of asset value, especially at a time of sharp declines in market values. Accounting reforms announced so far and discussed in this paper, however, seem to go in the direction of increasing the gap between book and market values. This may be testimony that bank interests weigh heavily in this debate.

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