IASB Modifies Rules On Bank Disclosures

The International Accounting Standards Board (IASB) has mandated that banks report with greater detail their off-balance sheet activities, particularly structured investment vehicles. Participants in an IASB meeting yesterday called for tighter controls over assets that in the past have been excluded from banks’ balance sheets, citing hopes that such an amendment would clarify and legitimize such activity.

Structured investment vehicles are a type of long-term fund that has been problematic in the credit crisis due to its general illiquidity. As these vehicles typically invest in mortgages, loans, and debt liability, they have suffered under the recent market turmoil.

The IASB’s motivations stem in part from the credit crisis, during which some accountants have called into question the legitimacy of certain disclosure practices that may distort a company’s assets. The most prominent concern among these accountants has been the practice of fair value accounting, in which assets are priced according to their current—and not potential—worth.

In discussing the IASB’s intentions, Chairman David Tweedie reinforced the organization’s commitment: “You have to be pretty ruthless on the language. We have to hit people over the head with a baseball bat on this.”

The IASB plans to draft an official amendment later in the year.