New accounting rules will prevent banks ‘window-dressing’ results, IASB claims

8 October 2010

Rules have been amended to prevent banks from enhancing their performance by moving assets from balance sheets before the end of a reporting period, a global accounting organisation has claimed.

The International Accounting Standards Board has made changes to regulations surrounding disclosures of off balance sheet behaviours.

Amendments will ensure institutions will have to provide further details on any transactions relating to financial transfers and if a disproportionate amount of assets have been moved towards the end of a quarter or financial year, the body explained.

The rule changes, which will align disclosure requirements by the International Financial Reporting Standard with the generally accepted accounting principles from the US, should also ensure investors are more aware of the risks related to the entity transferring the assets.

Sir David Tweedie, chairman of the IASB, said: “These are important disclosure requirements that will help investors to 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.”

Reuters reported that use of Repo 105 was one of the motives for the changes to disclosure regulations.

An official investigation into the collapse of failed bank Lehman Brothers by Anton Valukas found that the accounting practice was used by the institution to hide the amount of risk attached to its balance sheet.

By Jim Ottewill

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