Accounting and Auditing Reforms Are Urgently Needed and Essential to Any Plan for Recapitalizing the Bank Insurance Fund or Deposit Insurance Reform

T-AFMD-91-3: Published: Apr 23, 1991. Publicly Released: Apr 23, 1991.

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GAO discussed accounting and auditing reforms essential to recapitalizing the Bank Insurance Fund and modernizing the nation's banking system. GAO noted that: (1) accounting principles regarding loss contingencies and determining fair market value need revision and clarification to ensure the proper accounting and reporting of transactions; (2) if accounting rules cannot be promptly resolved, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Federal Reserve Board should promulgate accounting standards; (3) audits performed by independent public accountants could improve the reliability of banks' annual financial statements and call reports; (4) for large banks, the independent public accountant and the regulator should meet at least annually with bank audit committees to review the assessment of internal controls and financial reports and forecast; (5) regulators should have the authority to remove auditors when they do not follow generally accepted auditing standards or special regulatory prescribed standards; and (6) regulators should assess the effectiveness of auditing and management reporting reforms at large banks and biennially report the results to Congress.

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