Corporate Governance

New Study on Financial Reporting Gives Banks Low Marks for Substance and Transparency

By Jim Hodgson

According to a report released by PricewaterhouseCoopers earlier this week, large banks have been holding back critical information from investors.  PwC reviewed the 2007 financial statements of 22 global banks that follow GAAP and international financial reporting standards.  Specifically at issue was the banks? implementation of the International Accounting Standards Board?s rule for disclosures related to financial instruments.  Called ?IFRS 7,? disclosures pursuant to this rule are designed to inform investors of specific risks that financial institutions carry ? both on and off their books.

Ultimately the rule is meant to lead to more transparency about overall risk at large financial institutions.  PwC found, however, that many institutions ?did not take the opportunity to present a truly comprehensive and clear picture of how they manage risk, opting instead to focus on achieving compliance with . . . minimum requirements.?  In particular, the report argues that more fulsome disclosure under IFRS 7 would paint a clearer picture of banks? exposure to subprime mortgage market risk ? and, in turn, would ?restore market confidence.?

In a time when investors seem to get hit by news of financial impropriety -- if not outright scandal -- every time they turn around, restoration of market confidence is sorely needed.

Full post as published by PomTalk on August 15, 2008 (boomark / email).