Bookkeeping changes to help ailing banks
Canada's main accounting standards group announced Friday changes to controversial accounting rules to help financial companies deal with mountains of worthless corporate debt.
The Accounting Standards Board, the Canadian group that makes rules regarding how companies deal with revenue and expenses in their corporate statements, said it will allowing firms to postpone the writedown of its distressed financial instruments.
The changes mean Canadian institutions now holding billions in bad asset-backed commercial debt will not be forced to record losses on those debt instruments right away if those pieces of paper have not been sold.
"The amendments allow entities to move financial assets out of categories that require fair value changes to be recognized immediately in net income," said accounting board chair Paul Cherry.
Mark-to-market messThe problem goes by the alliterative term "mark-to-market" and had forced firms to recognize the reduced value of debt and similar financial assets as those losses occurred in the marketplace.
Thus, companies which might plan to hold these paper assets for future years were forced to write down their balance statement value as if management had just sold the commercial paper that day.
"I think these kind of accounting practices are wrong theoretically. They’re wrong operationally. They make no sense for anybody," said Manulife Financial president and CEO Dominic D'Alessandro earlier in October.
Manulife, Sun Life Financial and a number of other Canadian institutions have recently disclosed looming paper losses because of their holdings in American International Group and other once-solid companies since swept away in September's financial maelstrom.
Cherry pointed out the bookkeeping changes, which will let firms move distressed assets into accounting categories that do not require the immediate recognition of paper losses, will not allow firms to hide a bad financial performance.
"However, it must be stressed that assets will remain subject to impairment testing and the amendments involve extensive disclosure requirements. Transparency will remain for investors," he said in a news release.
0 comments:
Post a Comment