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Accounting A) In the current accounting rules for banks, there is a distinction between financial instruments for trading (trading books) and those held to maturity (banking books). All instruments in the trading books are priced at market prices. As a result, any profits or losses that arise from the revaluation are recognized in the balance sheet (profit and loss account). This indicates that the trading book takes into account all market risks including price, interest rate, foreign exchange, and liquidity risks. However, instruments in the banking book are carried on to the balance sheet at the lower of the market value and historical cost. This means that a loss is transferred to the balance sheet and accounted for but unrealized gains are not displayed or recognized. The gains may thus become hidden reserves within the balance sheet, and market risks are not accounted for in the banking books. The historical approach delves on income statements major focus and as the historical cost a reference for measurement. According to the Exposure Draft, the changes to the fair value do not flow to the net income but appear as a separate line on the balance sheet and in the statement of comprehensive income along amortized cost. It would be beneficial to the stockholders as it would add new disclosures and call for disaggregation. Including all risks on the balance sheet means an increased accountability and transparency especially on the company’s unregistered benefits (Biondi et al. 861-863). For a stakeholder, this will ensure transparency in profit accounting and sharing. All benefits and losses are viewable hence giving a real account of the bank’s assets, gains and
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