Tag Archive | "ifrs"

Accounting rules much too flawed, says BoE executive


When the Bank of England’s executive director of financial stability says that the accounting rules in the UK are flawed to the point that you’d might as well just go down to the local pub for a few pints, you know things are bad.

Andy Haldane, the exasperated Bank executive in question, says that it’s easier to pin the tail on a bucking donkey than it is to get an accurate grasp of a financial service provider’s assets.  Determining bank solvency is essentially hot or miss while using the accounting methodology as determined by the International Financial Reporting Standards, Mr Haldane added, as he called for a specialised set of accounting regulations in order to allow banks to provide more accurate ways for regulators and investors to evaluate risks.

The ‘fragile mix’ of uncertain assets and flighty liabilities when it comes to banking institutions means they must be evaluated in a different manner, the executive director said in a recent article. Risk needs to be priced by investors in order to evaluate this fragility, if the economic realities brought about by the banking crisis is to be learned from, he added, stating that accounting rules need to be able to recognise the unique nature of banks’ liabilities and assets – something that IFRS requirements simply do not meet.

Mr Haldane’s main role at the Bank of England is to examine market trends in order to head off any additional financial crises before they strike, and says that it’s difficult to work towards that goal while IFRS provides inaccurate information by exaggerating profits and losses during upturns and downturns in the economy. The executive director added that there must be a more graduated scheme put in place in order to avoid such inaccurate extremes.

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Big Four accused of dereliction of duty


The Big Four’s domination of the audit market came under threat last week when the House of Lords recommended a detailed Office of Fair Trading investigation.

This investigation would be the first time the Big Four have been investigated since a full scale competition investigation was discounted in 2002, following the collapse of Arthur Andersen.

The regulators also came under fire as the House of Lords committee slammed both groups for dereliction of duty and said the breakdown of communications between regulators and auditors compounded the financial crisis.

Box-ticking International Financial Reporting Standards were in the limelight and the Lords recommended that caution should once again become the guiding principle of audit.

The economic affairs committee has now published its report on the eight-month investigation into the UK audit market. The inquiry said that large firms are limited in their choice of auditors because of the oligopoly of the Big Four. Last year, they conducted the audit of all but one of the FTSE 100 organisations and these large companies tend to stick with the same auditor for an average 48 years.

The report went on to point out that there is a risk of one of the firms dropping out of the audit market and this would lead to an unacceptable level of market concentration.

The committee recommends, amongst other things, that companies in the FTSE 350 must put their audit contract out to tender every five years and that external auditors are banned from giving internal advisory services and advice to the risk committees of firms they audit.

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Image: September is the time of baseball magic by kevindooley

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