Thanks to management consultant and regular commenter on here, Brian Flanagan, it seems as if NAMA is to open up its books and provide far greater information. The concession which Brian has campaigned for – through writing letters to the national press, the Committee of Public Accounts, NAMA and the EU – is that NAMA will provide additional “shadow accounting” for the €74bn of loans the Agency has acquired from the banks. At present NAMA accounts for the value of the loans and interest receivable and paid, all based on NAMA’s acquisition value and an interest calculation which is by no means straightforward – just ask Fellow of the Institute of Chartered Accounts, Fianna Fail Deputy Sean Fleming. What NAMA will do in its 2011 Annual Report (due for publication over the summer, July 2012 probably) is it will show a separate, additional accounting of the loans and interest based on original values. This will enable the public to see how much debt has been effectively written off by NAMA – some might call this debt forgiveness, but NAMA will tell you that the full amount of the loan remains due from the developer even if NAMA writes down the value of the loan in its books.
So to illustrate – if NAMA acquires a €100m from Anglo and pays €30m for it, then NAMA currently shows the value of the loan in its books at €30m. It seemingly calculates annual interest, primarily by reference to the €30m. And that’s how NAMA presently presents its accounts.
In future, we expect NAMA will provide a separate set of accounts which will show the loan at €100m, a provision for loss of €70m and a current carrying value of €30m. In addition we expect to see interest calculated on the €100m original value of the loan less a provision for loss to give us the actual interest booked. In this way, we can see how much NAMA has provided for losses, and if these losses are eventually written off, then we can see how much debt forgiveness or to use more commercial language, “loan impairment losses”, have occurred.
I recommend you read Brian’s own account of his campaign and the results. The letter from NAMA to the public accounts committee confirming the changes is here and reproduced below. Well done to Brian for winning greater transparency in NAMA’s accounts! And remember before you suggest jokes around the theme of “shadowy accounting”, that this transparency provides both accounting to general accounting standard PLUS accounting to provide the public information on just how much debt is being written off.