Oct 14th 2010
The International Accounting Standards Board (IASB), the global body whose rules are used in more than 100 countries, has strengthened regulations requiring banks to disclose window dressing transactions.
"These are important disclosure requirements that will help investors to better understand off-balance sheet risks, and to alert them to the possibility of so-called window dressing transactions occurring at the end of a reporting period," IASB Chairman Sir David Tweedie said in a statement.
Window dressing refers to the deceptive practice of using accounting tricks to make a company's balance sheet and income statement appear better than they really are. Window dressing came to the forefront when it was revealed that Lehman Brothers had shifted approximately $49 billion off its rolls at the end of each quarter to lessen financial leverage ratios, according to UK-based Financial Times.
The trades were designed to bolster the reported accounts and had no economic justification, according to the Financial Times, which added that the bank used short-term repurchase, or repo, deals.
"Investors were shocked when toxic securitized assets they knew little about were brought back onto bank balance sheets as the financial crisis unfolded, triggering huge write-downs and taxpayer bailouts," according to Huw Jones of Reuters.
The IASB and the U.S. Financial Accounting Standards Board (FASB) will conduct additional research and analysis, including a post-implementation review of the FASB's recently amended requirements before determining any further work to be undertaken.
The Financial Times reported that the IASB did not specify a format for banks to produce the disclosures, but it did require them to be in one location and not in multiple locations throughout the accounts.