Summary: Testimony was given concerning depository institutions' reporting problems and their relationship to accounting practices prescribed by federal regulatory agencies and the responsibilities of independent auditors. GAO believes that relaxing the accounting and public reporting rules for depository institutions would result in a misleading picture of the true financial condition of the institutions, which is especially disturbing considering the problems that the industry is facing today. GAO found that: (1) the recent, controversial regulatory accounting techniques began as a means of providing time for troubled financial institutions to regain financial stability without any immediate cost to the deposit insurance funds; (2) changing the accounting methods, however, would not cure the problems of troubled institutions; (3) accounting methods are not a substitute for the responsibilities of an institution's management, or its regulators or auditors, to ensure that assets are properly valued and uncollectible loans reserved; (4) financial statements and the notes thereto must provide users with a complete view of the true financial condition of the entity; and (5) failure to recognize the true financial condition of institutions only makes a difficult situation worse for investors, depositors, regulators and other policymakers, including Congress, to respond effectively.
