Accounting for loss
Allowance for some deadbeats
Some losers won't pay
Allowance for some deadbeats
Some losers won't pay
Showing posts with label accounting. Show all posts
Showing posts with label accounting. Show all posts
Thursday, March 10, 2016
Friday, February 12, 2016
Saturday, June 06, 2015
Wednesday, March 11, 2015
The Haiku of Finance for 03/11/15
Auditing the books
Where all the receipts must go
Reconcile expense
Where all the receipts must go
Reconcile expense
Saturday, November 08, 2014
Wednesday, April 09, 2014
Tuesday, February 25, 2014
The Haiku of Finance for 02/25/14
Chinese accounting
More than one set of records
Auditing challenge
More than one set of records
Auditing challenge
Wednesday, June 19, 2013
Basel III Capital Versus Incurred and Expected Loss Models
The GAO recently put out a study of small bank failures caused by bad loans in commercial real estate. This kind of important work sometimes escapes wider public notice, although CFO Magazine noted this study's implications. The incurred-loss model banks use to estimate CRE loan failures may be too flawed for the extremely leveraged world we have created.
My concern with the incurred-loss model (and its possible replacement, the expected-loss model) is its reliance upon a limited set of historical data. Assessing losses based on the historical experience of a single bank would be fine if that bank never expands geographically or never expands its balance sheet faster than its long-term average growth rate. The US economy's present credit bubble, with overall debt-to-GDP at historic highs, puts even historically sound banks in danger by tempting them to make irresponsible loans just to match competitors' asset base growth. The GAAP approach to incurred or expected losses requires calculations to be performed in a vacuum, as if banks were atomized from the larger economy. These limited accounting-based models invite unpreparedness for losses triggered by six sigma Black Swan macroeconomic conditions.
The Basel III regime's approach to measuring risk capital should apply to small banks too, not just systemically important ones. Basel III capital rules add a leverage ratio to the assets banks must count as their Tier 1 and Tier 2 reserves. Small US banks applying this standard will be discouraged from attracting yield-chasing depositors by offering CDs with abnormally high yields. The usefulness of the Basel standard is that it applies across all national accounting standards. Banks won't be able to hide behind GAAP if they get in trouble.
Small banks, here's your chance to act like the SIFIs you try to emulate by offering "financial supermarket" services. Use every single one of Basel's designated shock absorbers, not just the ones designed for TBTF banks. Jump on the Basel III bandwagon and use its countercyclical safeguards to stay healthy during the next credit crunch.
My concern with the incurred-loss model (and its possible replacement, the expected-loss model) is its reliance upon a limited set of historical data. Assessing losses based on the historical experience of a single bank would be fine if that bank never expands geographically or never expands its balance sheet faster than its long-term average growth rate. The US economy's present credit bubble, with overall debt-to-GDP at historic highs, puts even historically sound banks in danger by tempting them to make irresponsible loans just to match competitors' asset base growth. The GAAP approach to incurred or expected losses requires calculations to be performed in a vacuum, as if banks were atomized from the larger economy. These limited accounting-based models invite unpreparedness for losses triggered by six sigma Black Swan macroeconomic conditions.
The Basel III regime's approach to measuring risk capital should apply to small banks too, not just systemically important ones. Basel III capital rules add a leverage ratio to the assets banks must count as their Tier 1 and Tier 2 reserves. Small US banks applying this standard will be discouraged from attracting yield-chasing depositors by offering CDs with abnormally high yields. The usefulness of the Basel standard is that it applies across all national accounting standards. Banks won't be able to hide behind GAAP if they get in trouble.
Small banks, here's your chance to act like the SIFIs you try to emulate by offering "financial supermarket" services. Use every single one of Basel's designated shock absorbers, not just the ones designed for TBTF banks. Jump on the Basel III bandwagon and use its countercyclical safeguards to stay healthy during the next credit crunch.
Monday, July 16, 2012
Financial Sarcasm Roundup for 07/16/12
It's Monday. That means it's time to bust out of your workday boredom and pay attention to my bitterness.
Federal prosecutors are supposedly making a criminal case against bankers over Libor. I don't believe for a minute that DOJ is serious about prosecuting bankers who fudged Libor. This is the same DOJ that could find no criminal wrongdoing in the financial crisis of 2008 or bankers' extortion of municipalities though interest rate swaps. They haven't even indicted John Corzine for his theft of billions from MF Global clients. Puh-lease. Let's get real. Government prosecutors won't prosecute the heads of banks who will employ them in the future for corporate legal work. Expect a few eight-figure settlements later this year and nothing at all afterwards. Only smaller players get caught and punished, like the CEO of now-busted Peregrine Financial Group.
I was embarrassed when the U.S. government elected to keep GM and Chrysler alive with pre-packaged bankruptcies and bailouts. The government still hasn't been made whole on those deals. Now France is heading down pretty much the same road if it decides to save Peugeot. Automaking gravitates to lower-cost locales, which now even includes the non-unionized southern states of the U.S. Keeping high-cost producers alive keeps their products priced artificially high, ensuring an endless cycle of government bailouts and business failure. Unionized automakers will continue in this zombie pattern until the taxpayer has had enough and allows them to fail.
It's funny that we Americans think we have the right to criticize other countries' restrictions on foreign investment. The U.S. has placed so many reporting requirements on foreign-domiciled banks that they are refusing to open accounts for American citizens who want to do business overseas. The U.S. has also declined to adopt international accounting standards that would enable investors to compare financial results across national borders. I remember the debate about U.S. GAAP versus international standards from my MBA studies a decade ago, and back then the switch to international standards seemed imminent. I can only shake my head at the wrong turns the U.S. has taken since then, with SarBox and other stuff. Doing the right thing used to be so easy.
The defense bubble I've been warning about for years is about to pop. Wall Street is finally pricing in the likelihood that forced budget cuts will hurt the earnings of major federal contractors. This is good news for cheap analysts like yours truly, because there are some decent defense stocks I'd like to pick up at a discount. It's bad news for all of the Pentagon watchers and players who are still in denial about the inevitable end of major contingency operations. I've known plenty of people on active duty who were counting on jobs with contractors as second careers. They really need to switch gears now and make other plans.
I've had enough for one Monday.
Federal prosecutors are supposedly making a criminal case against bankers over Libor. I don't believe for a minute that DOJ is serious about prosecuting bankers who fudged Libor. This is the same DOJ that could find no criminal wrongdoing in the financial crisis of 2008 or bankers' extortion of municipalities though interest rate swaps. They haven't even indicted John Corzine for his theft of billions from MF Global clients. Puh-lease. Let's get real. Government prosecutors won't prosecute the heads of banks who will employ them in the future for corporate legal work. Expect a few eight-figure settlements later this year and nothing at all afterwards. Only smaller players get caught and punished, like the CEO of now-busted Peregrine Financial Group.
I was embarrassed when the U.S. government elected to keep GM and Chrysler alive with pre-packaged bankruptcies and bailouts. The government still hasn't been made whole on those deals. Now France is heading down pretty much the same road if it decides to save Peugeot. Automaking gravitates to lower-cost locales, which now even includes the non-unionized southern states of the U.S. Keeping high-cost producers alive keeps their products priced artificially high, ensuring an endless cycle of government bailouts and business failure. Unionized automakers will continue in this zombie pattern until the taxpayer has had enough and allows them to fail.
It's funny that we Americans think we have the right to criticize other countries' restrictions on foreign investment. The U.S. has placed so many reporting requirements on foreign-domiciled banks that they are refusing to open accounts for American citizens who want to do business overseas. The U.S. has also declined to adopt international accounting standards that would enable investors to compare financial results across national borders. I remember the debate about U.S. GAAP versus international standards from my MBA studies a decade ago, and back then the switch to international standards seemed imminent. I can only shake my head at the wrong turns the U.S. has taken since then, with SarBox and other stuff. Doing the right thing used to be so easy.
The defense bubble I've been warning about for years is about to pop. Wall Street is finally pricing in the likelihood that forced budget cuts will hurt the earnings of major federal contractors. This is good news for cheap analysts like yours truly, because there are some decent defense stocks I'd like to pick up at a discount. It's bad news for all of the Pentagon watchers and players who are still in denial about the inevitable end of major contingency operations. I've known plenty of people on active duty who were counting on jobs with contractors as second careers. They really need to switch gears now and make other plans.
I've had enough for one Monday.
Friday, April 06, 2012
Defense Contractors At Risk From Pension Obligations
Moody's is saying that America's leading defense contractors are at risk from underfunded pension plans. There is little comfort in arguing that contractors' ability to bill the government for their pension gaps will reduce the risk to their balance sheets or credit ratings. The government's ability to pay any unanticipated pension shortfalls is limited by the total appropriations for a given fiscal year. DOD's typical practice is to reduce Operations and Maintenance spending when it finds contingency-driven costs exceeding budgeted estimates. Paying such a sudden request for pension shortfalls will force DOD to rob money from O&M accounts even earlier in a fiscal year than it already does. This will place any contingency operations at serious risk and force DOD to seek even more frequent supplemental appropriations throughout the year.
This unheralded DOD accounting change will add a measurable burden to the federal government's already large unfunded liabilities. The defense industry lobbyists who pushed for this change shouldn't gloat. Any acceleration in the U.S. government's default/hyperinflation inflection point accelerates the day when defense contracts will be paid in hyperinflated dollars or go unfunded altogether. The defense sector has gained hypothetical relief for its balance sheet and credit rating pressures in the face of an oncoming fiscal train wreck.
This unheralded DOD accounting change will add a measurable burden to the federal government's already large unfunded liabilities. The defense industry lobbyists who pushed for this change shouldn't gloat. Any acceleration in the U.S. government's default/hyperinflation inflection point accelerates the day when defense contracts will be paid in hyperinflated dollars or go unfunded altogether. The defense sector has gained hypothetical relief for its balance sheet and credit rating pressures in the face of an oncoming fiscal train wreck.
Friday, March 30, 2012
Saturday, January 07, 2012
Monday, August 22, 2011
Analysis Of FAS 109 And Tax Policy Worth Reading
Read this blog post on how FAS 109 covers the effects of deferred tax assets and liabilities on net income. It's from Saria Nadeem, someone I trust who is very knowledgeable on complex tax issues. Relax, she's not paying me anything to say this.
Friday, August 29, 2008
Stocks Lower, Accounting Easier
Closing out a weird but light week, the DJIA was off today as it should be. I'm still waiting for The Crash, and any number of things could set it off.
In good news, the SEC is finally moving away from GAAP and toward international standards.
Aw, come on. Any worries are misplaced. U.S. accounting standards gave us dot-com EBITDAs, Enron, WorldCom, Tyco, mark-to-manure valuations of CDOs on bank balance sheets, and everything else contributing to the U.S.'s current malaise. I for one am glad to see the U.S. harmonize with the rest of the world on something. Now if only we could adopt the metric system of weights and measures . . . nah, that's just wishful thinking.
In good news, the SEC is finally moving away from GAAP and toward international standards.
Introduced in two steps, the shift could eventually cut costs for companies and smooth cross-border investing. At the same time, investors worry it will create confusion, especially during the transition. Other critics worry that the international system offers too much wiggle room for companies, compared with the more precise rules enshrined in U.S. standards.
Aw, come on. Any worries are misplaced. U.S. accounting standards gave us dot-com EBITDAs, Enron, WorldCom, Tyco, mark-to-manure valuations of CDOs on bank balance sheets, and everything else contributing to the U.S.'s current malaise. I for one am glad to see the U.S. harmonize with the rest of the world on something. Now if only we could adopt the metric system of weights and measures . . . nah, that's just wishful thinking.
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