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September 2008

Impact of IFRS on Banks

By Uday Chitale, Murtuza Vajihi, Chartered Accountants
Reading Time 3 mins

Accountant Abroad

International accounting standards will make it harder for
banks to keep assets off their balance sheets, a UK regulator said on Monday,
while the United States continues to mull whether to broaden its use of foreign

Under current U.S. accounting rules, companies can keep
certain loans, such as those linked to risky mortgages and credit card debt, in
off-balance sheet vehicles known as ‘qualified special purpose entities’ (QSPEs).

The United Kingdom adheres to international financial
reporting standards (IFRS), which have more flexible accounting rules, but have
forced firms to include more assets on their books. It is said that having a
precise rule may be advantageous, but a precise rule also makes it possible to
design something that is precisely just outside the rule. Therefore the more
principles-based approach under IFRS adopted under UK (Generally Accepted
Accounting Principles) makes it much more difficult to design something in such
a way that it is off-balance sheet.

Few companies that have to adopt international accounting
standards have had to put about 200 off-balance sheet entities back on their
books. Many of the vehicles that were brought back on the balance sheet were
originally created using U.S. accounting rules and “a lot” were set up as QSPEs.
The SEC is examining whether to allow domestic companies to use international
standards instead of U.S. accounting rules.

Foreign-listed firms in the United States can already forego
U.S. standards for international rules and the SEC is expected to come up with a
“roadmap” to broaden use of IFRS. The treatment of off-balance sheet items is
one of many accounting methods that is being examined and debated.

The U.S. accounting rule maker, the Financial Accounting
Standards Board, will soon propose to eliminate the QSPEs. However, the board
has delayed the implementation of the rule change and said it should take effect
for reporting periods after November 15, 2009.

China pushes forward producing accounting, auditing and financing talents :

China’s three National Accounting Institutes are to teach
annually 100,000 people and help them become senior professionals in accounting,
auditing, and financing over the next five to ten years.

Meanwhile, another 1,000 will receive training and teaching
from the three institutes and reach an international level of competence each
year, according to the Chairman of the Institutes’ board of directors.

He raised these two ambitious goals after a board meeting
recently, which analysed the achievements and experiences of the institutes over
the past ten years.

Beijing National Accounting Institute was the first of the
three to be founded in 1998, and had taught more than 130,000 people over the
past decade, averaging 13,000 per year, according to figures from the
institute’s journal. The other two are in the eastern metropolis of Shanghai and
the coastal city of Xiamen, founded in 2000 and 2002, respectively.

Led and supported by multiple state departments, the
institutes are expected to produce talents in accounting, auditing and
financing, who will work as experts and professionals in the country’s
macro-economy management departments, large and medium-sized enterprises and
financial organisations.

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