This, I stress is not a minor difference. This is the two bodies being fundamentally at odds with each other and with the IASB being absolutely in the wrong.
The IASB promotes the mark to market model. This is the absolute reverse of what accounting used to be when it came to bad debts. Accountants always used to anticipate losses on debts and make provision for them. This was prudent.
But come mark to market and securitised loans so long as there was a market for the security no provision for loss was allowed EVEN IF the underlying assets were obviously not performing: the market ruled value and prudence could not overtake. So there was no provisioning. Imprudence ruled. Losses could only be recognised when they had occurred with regard to the vast majority of bank debt.
So, of course, IFRS accounts allowed bank profit to sky rocket as loss provisions fell.
And then the world fell apart because bankers believed they could lend and never make a loss.
That is completely and utterly the fault of the International Accounting Standards Board.
No wonder Basel disagrees with them.
And Basel has to win this one. And all accountants should support Basel because prudent may be boring but it’s what good accountancy is about.
Rightie ho. IASB are evil bastards bringing the world closer to the precipice because they\’re in the pay of the Grey Aliens running the accounting firms. Or something. But definitely the baddies and we should all be siding with the Basel Boys.
So, what do the Basel Boys say about this idea of provisioning through the lifetime of the loan rather than only at the moment it all goes sour?
The Committee is promoting stronger provisioning practices through three related
initiatives. First, it is advocating a change in the accounting standards towards an expected
loss (EL) approach. The Committee strongly supports the initiative of the IASB to move to an
Oh. It\’s the Grey Aliens who actually suggested the expected loss approach, the IASB who brought the whole thing up and the Basel Boys fully support them in having done so.
Methinks Ritchie might have allowed his enthusiasm too long a leash there.