European banks 'may have inflated balance sheets over Greek debt'

Guardian
August 30, 2011

The International Accounting Standards Board has said European banks may have inflated their balance sheets and profit and loss accounts by not taking full writedowns on distressed Greek debt.

In a highly unusual intervention, the IASB on Tuesday published a letter from chairman Hans Hoogervorst to the European Securities and Markets Authority saying that some banks were using models to mark down the value of Greek assets, where market valuations existed.

When accounting for trading assets, banks are required under International Accounting Standard 39 to use arm's-length values taken from actual transaction prices to value the assets on their books. Where trading is very illiquid and market valuations cannot be obtained, they can then use valuation models using internal estimates of value.

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