Publication Date


Document Type


First Advisor

Iliff, Karthryn

Degree Name

M.S. (Master of Science)

Legacy Department

Department of Accountancy


Banks and banking--Accounting; Accounting


Banking in the United States is a regulated industry. Many of the accounting methods and reporting requirements for banks are set by Federal regulatory agencies. In the past, these accounting methods and reporting requirements were depositor oriented and did not provide sufficient information to stockholders and potential investors. The Securities and Exchange Act Amendment of 1964 included bank securities that are traded on the exchanges, but the enforcement of the Act was left to the bank regulatory agencies. Consequently, the bank regulatory agencies issued new regulations regarding the form and content of financial statements to be filed pursuant to the Act. In 1966, the American Institute of Certified Public Accountants issued Opinion No. 9 which set forth generally accepted accounting principles to be followed in reporting the results of operations. Banks were exempt from this Opinion because the Committee on Bank Accounting and Auditing was in the process of recommending accounting principles for the banking industry. The Committee's publication in 1968, in the form of an industry audit guide, and Opinion No. 13 of the American Institute of Certified Public Accountants, requiring banks to abide by Opinion No. 9 if they were to obtain an unqualified opinion on their financial statements, caused great controversy in the banking industry. The major areas of disagreement occurred in accounting for investment securities, accounting for loan losses, and the format of the income statement. The purpose of this thesis was to make a detailed study of the current bank accounting practice in each of these three areas to determine if generally accepted accounting principles could be applied to bank accounting to provide more useful reports to bank management, stockholders, depositors, and the investing public. This was accomplished by comparing current bank accounting practices, as set forth in banking manuals, with the methods suggested by the Committee on Bank Accounting and Auditing, and with Opinions Nos. 9 and 13 of the American Institute of Certified Public Accountants. Several tables are presented showing the alternative methods of accounting for the gains and losses on investment securities and the related effect on income. The Internal Revenue Rulings and the resulting methods of accounting for loan losses in the banking industry were compared to the generally accepted accounting methods suggested by the Committee on Bank Accounting and Auditing. Income statement formats currently being used by banks are presented and compared to the format suggested by the Committee and by the Opinions of the Accounting Principles Board. It is the conclusion of this thesis that banking is not a unique industry, and therefore, generally accepted accounting principles should be applied to bank accounting to produce more meaningful financial reports. Just prior to the completion of this thesis, the bank regulatory agencies were in the process of issuing new accounting and reporting requirements for banks. These new rulings only followed part of the recommendations of the Committee on Bank Accounting and Auditing. The regulatory agencies accepted the income statement format suggested by the Committee, but did not accept the deferral method of accounting for investment securities, and came up with three methods of accounting for loan losses. This combination will cause bank income statements to be less uniform and more difficult to compare than they have been in the past. A follow-up study of this thesis could be conducted to determine if the banking regulatory authorities eventually realize their responsibilities under the Securities and Exchange Act, and institute generally accepted accounting principles for the banking industry, before the Securities and Exchange Commission steps in to enforce its own ruling.


Includes bibliographical references (pages 80-81)


82 pages




Northern Illinois University

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