At the start of the year the US and international accounting standard-setting bodies made a pivotal announcement: They agreed on a single approach on how banks should account for losses on loans. As of this writing, the exact approach was set to be revealed by the end of January.
Some clues, though, were immediately apparent in the cryptic statement released by the International Accounting Standards Board: “The boards will propose an impairment model based on accounting for expected losses. This approach provides a more forward-looking approach to accounting for credit losses.”
Just that statement alone was met by relief from almost all quarters that will be affected by the change: accountants; borrowers; and, finally, potential investors of some of these assets. Negotiating between two competing and possibly conflicting standards, especially as the economy struggled to right itself, was seen as nothing short of calamitous.
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