An article today in the Guardian, a UK-based publication, discussed a think tank report that came out yesterday written by the Adam Smith Institute. The report stated that there are loopholes in the International Financial Reporting Standards (IFRS) that allow banks to falsely inflate their profits and increase employee bonuses. Specifically, there are rules under IFRS that allow banks to call their expectations of future income current profits. This rule encourages banks to make risky investments with the potential for a high pay-off.
Another issue, according to this article, is the way that assets are valued. Banks are allowed to value their assets at market value; however, if assets had to be sold quickly in a forced sale to keep the company afloat, the bank likely wouldn’t get market value for those assets. This rule also helps to falsely inflate a company’s worth.
Given this report, it’s a very good thing that the SEC is carefully looking at IFRS and examining these loopholes before adopting the standards in the United States.
Present Value LLC is a worldwide international appraisal and advisory company that provides a range of professional services such as Certified Machinery and Equipment Appraisals, Inventory Appraisals, Asset Verification Services, Business Valuations, and Real Estate Appraisals. Contact us today!
