Joint rule proposed for bank losses

Another step towards the convergence of accounting standards was taken recently when a joint proposal was made by International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) in relation to recognizing the losses on loans by banks.

The current practice in many countries requires that the banks wait to write down the value of financial asset until they have hard evidence of the loss. But the proposed rule will require that the banks predict the losses ahead of time, so they have more time to find the extra funds to cover the losses.

This rule will help address one of the main issues in the recent financial crisis ; by the time the financial institutions recognized the loan losses it was too late in the game. The taxpayers funded bailout money was the savior for many of these financial institutions.