IRELAND: A continuing source of accounting controversy

CormacButler 141IRELAND: A continuing source of accounting controversy by Cormac Butler

Irish businesses have received loans for property from banks on very favourable terms. For example in the early years of this century, banks have agreed non-recourse loans where the customer is allowed to benefit from better than expected property prices while the bank is contracted to bear losses if property prices decrease. Property prices did decrease in Ireland around 2008-2010 and that left banks with losses. However, according to the banks, there is no loss on these loans because the current ECB accounting rules do not require the recognition of such losses/subsidies. It follows that subsidies given to property developers and speculators are hidden. Prior to 2005,when the current accounting rules were issued by the European Central Bank this was not accepted practice

A second controversy is that the loophole allowing entities to hide insolvency can lead to businesses being closed to extract value for the owners by avoiding obligations. Venture capitalists behind the closure of Cleary’s department store in Dublin in June for instance have been accused of manipulating the complexities of financial reporting to enable them to extract a huge profit while putting the firm in liquidation with the loss of some 600 jobs and leaving creditors unsure about whether they will receive money that they are owed.

Trading while insolvent is generally illegal. Some Irish government officials feel uncomfortable when discussing insolvency as a recent Irish bank inquiry discovered. The term ‘solvency on an accounting basis’ as used in this clip generally means that you can hide losses and overvalue assets when determining whether you are solvent.

34 minutes in https://inquiries.oireachtas.ie/banking/hearings/kevin-cardiff-former-secretary-general-department-of-finance/?v=video

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