After passing the Federal Reserve’s annual stress test in March and earning approval to increase quarterly dividends, Bank of America admitted to accounting errors in April. The error was a miscalculation in losses from 2009, when the bank bought financial advising company Merrill Lynch. The error accounted for an overstatement in the amount of capital on the company’s balance sheet by $4 billion. This miscalculation was not noticed by Bank of America accountants or by external auditors PwC.
The Securities and Exchange Commission and Bank of America have reached an agreement this week, where Bank of America will pay $7.65 million to settle the federal charges. The S.E.C. announced that when constructing the penalty they did take the fact that the bank self-reported the incident and took its own steps to amend the error into consideration.
The penalty is not a large sum considering the magnitude of the error. However the humiliation that has been adopted by the bank as a result of the mistake will cause damage to the company for years. It can be noted that once an accounting error is made it is nearly impossible to rectify it and many companies will keep the error hidden, in hopes of maintaining the reputation of the company. In the case of Bank of America, self-reporting the mistake will not only help to correct the error more quickly, but also give stakeholders in the company a greater sense of trust in the bank. By self-reporting the error Bank of America has let it be known that they mean to work in a truthful and reputable manner.
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