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STUDY RAISES DOUBTS ON NEW ACCOUNTING STANDARDS

 STUDY RAISES DOUBTS ON NEW ACCOUNTING STANDARDS
 LOS ANGELES, Aug. 5 /PRNewswire/ -- A new study shows that


bankers, investment bankers, analysts and other users of financial statements oppose the adoption of fair market value accounting. Instead they prefer the historical cost method of accounting with expanded disclosure on asset quality.
 The study, which was released today by KPMG Peat Marwick on behalf of the Association of Reserve City Bankers, a Washington, D.C., association comprising the highest-ranking executives from the nation's major banking institutions, surveyed financial statement users and preparers' expectations in light of new reporting requirements by the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) and the Financial Accounting Standards Board's (FASB) Accounting Standard 107.
 "Since fair value accounting methods and assumptions will vary," said Tim E. Bentsen, partner in charge of financial services in KPMG Peat Marwick's Los Angeles office, "this study will help preparers implement a practical system that meets user needs and expectations."
 As of December 1992, certain financial institutions will be required to disclose the fair market value for financial instruments. Staff members of the General Accounting Office, Securities and Exchange Commission and some members of Congress believe that fair market values of financial instruments are an important tool in detecting troubled financial institutions, rather than relying solely on the historical cost basis. The purpose of this new study was to allow more informed judgments on the expected reliability and relevance of fair value information, and how useful it will be for analytical purposes. The study also addressed the likely impact on the behavior of bank management, investors and regulators, in light of the two new reporting requirements under FDICIA and FASB.
 Rare Unanimity on Retaining Historical Cost Approach
 Both preparers and users of financial statements agreed that fair value accounting should not replace historical cost accounting as the basis of an institution's financial statements. When asked whether fair value accounting should be the primary accounting basis for financial statements, 90 percent of users responded no. When asked to rate the usefulness of alternative financial statement formats, the clear preference (95 percent) was historical cost with supplemental fair value disclosure. The next most frequent selection (76 percent) was a continuance of the current historical cost model without fair value disclosures, followed by users (58 percent) who thought it would be beneficial to have two versions of financial statements -- one based on historical cost and the other on fair value. Receiving the smallest amount of support (26 percent) was a comprehensive change to financial statements. Only 5 percent of preparers believed that financial statements adjusted to reflect fair values would provide a more accurate presentation of an institution's financial position.
 "The danger in using fair value estimates is that you don't know what you're dealing with by looking at raw numbers. The reliability of the estimated fair value of the loan portfolio, in particular, could be difficult to assess and investors may assume the estimate is the actual value," said Bentsen. He added, "Understanding the detailed methodologies and assumptions used to estimate the fair values is critically important."
 The study, conducted over the past six months, included a survey which was distributed to the member institutions of the Association of Reserve City Bankers. In addition, frequent users of banks' statements were contacted. KPMG Peat Marwick's methods for accumulating the information included written surveys, focus groups and direct interviews. The study illustrates the subjectivity of calculating fair value estimates and "brings to light significant issues which must be addressed and are important to our bank, thrift and insurance clients," says Bentsen.
 Through 135 offices in the United States, KPMG Peat Marwick provides industry-specific accounting, taxation and consulting services to a broad range of businesses and other organizations in the financial, commercial and service sectors. The worldwide KPMG network has more than 76,000 people operating in 125 countries.
 -0- 8/5/92
 /CONTACT: Raelene Arrington of KPMG Peat Marwick, 213-955-8639/ CO: KPMG Peat Marwick ST: California IN: FIN SU: ACC


KJ-AL -- LA011 -- 7083 08/05/92 12:03 EDT
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Date:Aug 5, 1992
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