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Depository Institutions: Flexible Accounting Rules Lead to Inflated Financial Reports

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Report Type Reports and Testimonies
Report Date June 1, 1992
Report No. AFMD-92-52
Subject
Summary:

In an April 1991 report (GAO/AFMD-91-43), GAO concluded that flexible accounting rules used to identify and measure loan losses had allowed failing banks to inaccurately report these losses in their financial reports. GAO is concerned that the accounting rules on problem loans are so ambiguous that they can be misused, resulting in substantial losses going unreported to bank regulators. In its latest report, GAO (1) identifies the specific problems with present accounting rules for loan losses, including the November 1991 "Interagency Policy Statement on the Review and Classification of Commercial Real Estate Loans"; (2) describes the status of Financial Accounting Standards Board projects related to these issues; and (3) recommends that the government set specific new accounting rules for losses from nonperforming bank loans.

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