UK Govt should present its liabilities correctly

BBC pointed to this intertesting news:

The Commons Treasury sub-committee said the government had failed to reveal its “significant liabilities” in full. Accounting for nationalised and part-nationalised banks must be at least as good as for those in the private sector, it added.

In its report, the committee said: “In order for public scrutiny to be effectively performed, the magnitude and nature of these liabilities must be comprehensively disclosed.”  The accounts for fully and part-nationalised banks should be “at least as comprehensive as those made by major banks”, and go beyond minimum accounting standards, it suggested.

 The mentioned report is here. The report further says (emphasis in the report):

 18. Northern Rock was taken into temporary public ownership on 17 February 2008 and the Treasury Resource accounts were published on 16 July 2008, suggesting that it took five months for HM Treasury to identify an accounting treatment of Northern Rock which the National Audit Office (NAO) would accept as true and fair.From this we must infer that the treatment of the part-nationalisation of the banks also remains to be addressed.The nationalising transactions of 2008–09 raise some complex accounting questions for the Treasury. In order to ensure that the Treasury Group’s 2008–09 Annual Report and Accounts can properly be laid before Parliament before the summer adjournment, we recommend that the Treasury engages early with the National Audit Office to agree appropriate accounting treatments for the transactions surrounding the nationalised and part-nationalised banks.

 

 

19. It is already apparent that the Treasury Group’s 2008–09 Resource Accounts will throw up a number of equally complex accounting issues: the treatment of the Government’s revised equity stake in Northern Rock; the transactions with Abbey Santander and Bradford & Bingley; and its investment in the part-nationalised banks.

20. Louise Tulett, HM Treasury’s Director of Finance, Procurement and Operations, told us that the accounting treatment of the Treasury’s transactions with Abbey Santander and Bradford and Bingley had not yet been agreed with the NAO. 

22. In its report on the Performance of HM Treasury in 2007–08, the NAO highlighted that no fewer then five liabilities relating to Northern Rock were disclosed in the Treasury’s Resource Accounts as contingent liabilities but listed as ‘unquantified’.These are shown in Table 3.

 

 

23. By nationalising financial institutions, th Government has taken on responsibility for significant liabilities. In order for public scrutiny to be effectively performed, the magnitude and nature of these liabilities must be comprehensively disclosed. We recommend that the Treasury quantify and disclose the liabilities involved in the nationalisations and part-nationalisations of financial institutions. These disclosures should appear in the Treasury Group Resource Accounts, must be at least as comprehensive as those made by major banks and should go further then meeting the minimum acceptable accounting standards.

 

See table 3 on page 13.

This is quite interesting. Just like the case of India, UK seems to be presenting its financial statements excluding certain liabilities (off-balance sheet liabilities). In this case the liabilities seem to be its acquisitions of financial firms in the crisis.

This is a global program now and part nationalisations have happened in quite a few economies. These problems wiil be present in their accounting statements as well. And above all, how do you value these financial firms at this moment? 

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