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GAAP Accounting Change Positive For Banking Investors

by Glen Shapiro, LawAndTax-News.com, New York

05 January 2012


Fitch credit ratings agency has said a new accounting rule change requiring banks to book losses on loans sooner, will have a gradual positive affect on US bank income statements with the effect of insulating investors from risk.

Fitch Ratings says that the suggested change would give banks more time to replenish capital cushions by setting aside reserves as a result of projected loan losses, adding further protection for investors.

Having undertaken an assessment, Fitch said the changes would not impact the ratings of US banks.

The US Financial Accounting Standards Board and the International Accounting Standards Board agreed in late December on a draft proposal that would supersede banks' incurred loan loss approach with a speedier "expected loss" one. Under the model, banks will be required to book projected losses spanning the next 12 months instead of recording losses after they have actually occurred. A formal proposal is expected in 2012.

"If implemented, the proposed rule would bring greater clarity to bank financial statements as it is forward looking and recognition of exposure is certainly encouraged," Fitch said. "We also feel that, while changes in accounting for the financial industry coupled with regulatory reform heighten uncertainty, banks have been aggressive in responding earlier to reform suggestions as they have been afforded ample time to do so."

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TAGS: generally accepted accounting principles (GAAP) | business | law | accounting | banking | international financial reporting standards (IFRS) | financial reporting | Financial Accounting Standards Board (FASB) | standards

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