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Accounting for Loan Losses Could Change

The way banks account for losses on loans could change under an IASB-FASB proposal.

The standards for loan-loss reporting could soon undergo an update, The Wall Street Journal reports, meaning banks may have to record some of their losses sooner.

The U.S. and international financial standards boards have agreed to a plan that would require banks to report on their expected losses rather than those they have already incurred.

Accounting Today notes that the provisional deal between the Financial Accounting Standards Board and the International Accounting Standards Board would also help investors measure how offsetting/netting affects their companies' financial standings.

"Under the system agreed to by the two accounting rule makers, companies would book loan losses upfront if the cash flows aren't expected to be collected within the next 12 months," the Journal explains. If there are additional losses on the loan, the banks would have to figure out if there was a fair chance that the borrower would default and the lender would be incapable of recovering its contractual cash flows.

Donna Fisher, senior vice president for tax, accounting and financial management at the American Bankers Association, told the newspaper that the proposed model is much better than earlier suggestions.

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Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

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