The Role of Managerial Prudence in Bank Loan Loss Provisioning

摘要

The recent market crisis has prompted greater awareness of the fragility of managerial estimates in bank financial statements. In the past, financial statement preparers were directed to employ conservatism in reported figures (Financial Accounting Standards Board, 2004). This practice could be perceived as favoring financial system stability because conservative accruals during good times would build capital buffers and preserve solvency and maintain stable market confidence during times of financial system volatility.