Professor Eamonn Walsh:

Part of the difficulty is that these accounting standards are written for all enterprises. They have the same set of accounting standards for a retailer, a bank or a manufacturer. The challenge is that banking is a different business to retailing or manufacturing. There is not a specific standard that deals with accounting for banks. As a result we get these unusual settings and the one I would worry most about is accrual of interest. A bank can make a loan to somebody and it can agree with that person that he or she does not need to pay any interest for five years. During the life of that loan, for five years, the bank can book interest every month as if it had received cash from the customer. It will then be able to say that the loan is continuing to perform because cash is being received from the customer.