AICPA Drops Controversial Loan-Loss Proposal

The American Institute of Certified Public Accountants has decided to drop its loan-loss reserve proposal, which had run into strong objections from federal banking regulators and the banking industry."We are going to proceed with the project, but it is going to focus on disclosures only, as opposed to trying to develop more detailed guidance on the basic accounting for loan losses," said AICPA director Dan Noll. The AICPA undertook the project several years ago in response to the Securities and Exchange Commission's concerns that some banks were using reserves to manage earnings. But the accounting group ran into strong objections to the proposal it circulated last fall because of concerns that it would force banks to reduce their loan-loss reserves to unacceptable levels. The American Bankers Association welcomed the AICPA's decision to drop the proposal. "We are also grateful that federal banking regulators shared our concerns and stepped forward to strongly oppose this proposed rule," said Donna Fisher, the ABA's director of accounting. America's Community Bankers also objected to the AICPA proposal. But ACB executive vice president Robert Davis said banks still have to do a better job of explaining why they are setting their reserves at certain levels -- so there are no questions about earnings management.