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May 1, 2014

Bank of America’s Bad Accounting

“The strange accounting that tripped up Bank of America is on its way to being changed.

“That accounting rule, which has been around since 2007, has vexed investors in financial institutions ever since it began to be applied. The banks greatly enjoyed it at first because it had the seemingly perverse result of increasing their reported profits — or at least reducing their reported losses — at a time when the banks seemed to be in dire straits in 2008 and 2009.

“Since then, the banks have liked it less because it reduced profits as their chances of survival appeared to increase.

“The rule has provoked a lot of criticism about how ludicrous accounting results could be, and the people who write the standards have been moving to change the rule. Just last week, the Financial Accounting Standards Board tentatively agreed, on a 5-to-2 vote, to end that practice at a date to be determined.”

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Read full New York Times article here

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