The lax rules on bankruptcy could allow the credit crunch to spiral out of control as Britons take on greater debt risksThe relaxed bankruptcy regulations that are available in the UK could be taking their toll on the credit crunch, it was reported in The Times.Current bankruptcy rules state that bankrupts can be discharged within a year, instead of the previous three, and apply for credit once more.There have been calls from the National Institute of Economic and Social Research for international cooperation, in order to crack down on bankruptcy regulation.However, Martin Weale, director of the institute, finds that the relaxed attitude towards bankruptcy will mean consumers will take excessive risks. 'This Government has done its best to make things worse' he said.See full...
Once subprime mortgages were put into QSPEs, they were ticking time bombs - HerzThe accounting standard setters have resolved to kill qualified special purpose entities which allowed lenders to take assets off their balance sheets.US Financial Accounting Standards Board chairman Robert Herz described the off balance sheet structures as 'ticking bomb' assets that were not 'Q-able' in a joint meeting with the IASB where they discussed their response to accounting issues that had arisen during the credit crunch.The FASB is to release an exposure draft by June, in which it proposes to eliminate the structures from accounting literature altogether.See full...
Jeremy Newman says clauses should be banned as he issues report on concentration in the UK audit marketThe UK accounting industry should have intervened more to increase audit choice by banning ‘Big Four-only’ clauses from bank audit contracts, the departing head of BDO Stoy Hayward has said, as the row over audit concentration flared up again.The mid-tier firm released provocative new research, carried out by the London School of Economics, showing a direct link between concentration in the audit market and increases in fees. It is the first research to link concentration and increased fees without hedging around the point.The biggest firms have proved extremely sensitive to the suggestion, insisting there is strong competition in the market.See full...
Accounting rules which allowed risky structures to be kept off the balance sheet are to be revised, with the structures no longer being allowedThe move is one of several plans to revise the rules announced by standard setters in response to the global credit crunch.The rules on off balance sheet structures allowed lenders to keep risky assets off their books, but were forced to bring them on to the books when their valuations dropped in a spiralling market, causing billions in writedowns.Financial Accounting Standards Board chairman Robert Herz said the group had been tasked by the US President’s Working Group to fix the problematic rules by the end of the year.The FASB has resolved to ‘kill’ qualified special purpose entities (QSPEs) which allowed lenders to take assets off their...
Author of corporate governance reforms dies in hospital after being taken illSir Derek Higgs, the man responsible for overhauling UK corporate governance in the wake of the Enron and WorldCom disasters has died suddenly at the age of 64.A statement from Alliance and Leicester, where he was company chairman, said: ‘It is with deep regret that Alliance & Leicester announces the unexpected death of its chairman, Sir Derek Higgs, at the age of 64. He was taken ill suddenly yesterday, 28 April, and died in a London hospital yesterday afternoon.’Sir Derek qualified as a chartered accountant with Price Waterhouse before moving to Barings and then to SG Warburg where he remained for almost 25 years. He became chairman of Alliance and Leicester in October 2005.See full...
Before they can audit a company, firms will be required to discuss the potential effects of relationships they may have with the company or staff engaged in financial reporting rolesThe US audit oversight board has adopted new rules which compel a firm to declare all relationships it or its affiliates may have with a company that it may audit.According to the Public Company Accounting Oversight Board, the declaration must be made in writing to the audit committee and must include any details relating to relationships the firm may have with any company personnel in a financial reporting oversight role, that could impact on the firm's independence.See full...
'We believe fair value gives you more transparency into the underlying assets' - FASBTechnical staff of the US Financial Accounting Standards Board defended fair value over the weekend, amidst questions raised by the senior figures.'We believe fair value gives you more transparency into the underlying assets,' FASB technical director Russell Golden said.See full...
From 2000 to 2003, Oxford Analytica was commissioned by EStandardsForum, a New York-based advisory firm, to develop and subsequently maintain a globally comprehensive on-line database providing detailed information on country compliance with a set of twelve international financial standards and codes.These standards were endorsed by the IMF, World Bank and G7 in the wake of the Asian crisis, and their implementation is considered to be a key measure for promoting international financial stability. The database, covering 85 countries, addresses various aspects of the financial system, including:See full Press Release (paid subscription...
IASB set to clarify that SME standards are for private companiesThe international accounting standard for SMEs is set to be rebranded as a standard for private companies.The standard, which has caused confusion for many who have queried the definitions of small companies, could be revamped, said International Accounting Standards Board chairman, Sir David Tweedie.Speaking to Financial Director magazine, Sir David said: ‘We’re thinking of changing the name to “private companies”.’He indicated that the criticisms of the standard from Europe were not unduly worrying him. Emerging markets are keen on the standard ‘and we have a duty to them as well as the big [countries]’.See full...
Delay in implementing IFRS leaves government struggling with two competing standards to account for PFIThe delay in implementing international accounting standards will leave government departments and local authorities to chose between two 'competing' standards when accounting for PFI, the Treasury has been warnedThe confusion opens the way for public bodies to exploit the 'arbitrage' potential of the two standards - or use the one that best suits their agendas.The loophole was revealed in a Commons Treasury committee report expressing 'disappointment' over the delay to IFRS, which it blamed on the Treasury having misjudged the complexity of the issues involved, 'in particular the issue of accounting for PFI assets'.See full...
Mercer welcomed the IASB Discussion Paper on changes to IAS19 but expressed concern over the practicalities of measuring pensioner liabilities.According to Phil Turner, principal at Mercer, “The introduction of the new "contribution-based promise" category of plans will certainly make the measurement of pension liabilities much more meaningful in countries like Belgium and Switzerland where the approach to pension provision is essentially defined contribution.”“However, measuring pension liabilities according to how they arose is impractical. In many cases the necessary information will not be available and this approach will give rise to inconsistencies,” commented Phil Turner. See full...
If Europeans and others can switch accounting standards in three years, how long will Americans need?This is a hot topic in the accounting world as the US moves towards international financial reporting standards, or IFRS, and so towards dropping its own well-developed rules.US acceptance of IFRS would be no small achievement, making it all but certain that a single set of accounting standards would be followed around the world.European Union countries managed the change in three years, from 2002, when it was announced, to 2005, when the first financial statements in IFRS were required.See full Article (paid subscription...
For the International Accounting Standards Board (IASB), success is producing headaches as well as plaudits. It was set up in 2001 with the task of bringing order to international financial reporting standards (IFRS).Then IASB was then thrust into the front line by the European Commission’s decision that all listed companies in Europe should follow IFRS from 2005 onwards.Not only did the IASB have its work cut out to achieve the deadline, it also found itself in a political minefield. Here was an independent and privately-funded standard setter telling French banks, for example, what they could and could not do in their accounts. See full Article (paid subscription...
It's time to start preparing for the arrival of international accounting standards.One of the densest thickets of generally accepted accounting principles is revenue recognition. By one tally, more than 160 pieces of authoritative literature relate to how and when companies record revenue. Now, however, U.S. and international accounting authorities are taking a scythe to the rules. They will mow down "broad swaths" of GAAP, says Robert Herz, chairman of the Financial Accounting Standards Board, en route to producing a single set of global accounting guidelines for revenue recognition.This slash-and-burn approach is a sign of things to come. For the past five years, FASB and the International Accounting Standards Board (IASB) have been working to merge U.S. accounting rules with...
Mercer welcomed the IASB Discussion Paper on changes to IAS19 but expressed concern over the practicalities of measuring pensioner liabilities.According to Phil Turner, principal at Mercer, “The introduction of the new "contribution-based promise" category of plans will certainly make the measurement of pension liabilities much more meaningful in countries like Belgium and Switzerland where the approach to pension provision is essentially defined contribution.”“However, measuring pension liabilities according to how they arose is impractical. In many cases the necessary information will not be available and this approach will give rise to inconsistencies,” commented Phil Turner.See full Press...
The movement towards International Financial Reporting Standards (IFRS) as the leading financial reporting framework for the global capital markets has gathered pace faster than most people expected, according to Ernst & Young.Dr. Allister Wilson of Ernst & Young says the remarkable success of the adoption of IFRS in 2005 across Europe and in other countries around the world is due to a number of factors. In particular he cites the courage, vision, and commitment shown not only by the members of the International Accounting Standards Board (IASB), but also by national governments, securities’ regulators, corporations, and the auditing profession.As a result, Wilson says that the IASB has successfully overseen a seven-year process of globalization of accounting standards, where today...
Accounting techniques like budgeting, sales projections and financial reporting are supposed to help prevent business failures by giving managers realistic plans to guide their actions and feedback on their progress. In other words, they are supposed to leaven entrepreneurial optimism with green-eye-shaded realism.At least that's the theory. But when Gavin Cassar, a Wharton accounting professor, tested this idea, he found something troubling: Some accounting tools not only fail to help businesspeople, but may actually lead them astray. In one of his recent studies, forthcoming in Contemporary Accounting Research, Cassar showed that budgeting didn't help a group of Australian firms accurately forecast their revenues. In a second paper,he found that the preparation of financial projections...
The US audit watchdog has suggested that audit firms introduce an independent partner, not associated with audits, to review audits and ensure their quality.The plan could help firms focus on and identify high-risk areas within audits, the Public Company accounting Oversight Board said.If the plans go ahead, large firms will have a framework with which to conduct their own internal reviews of the audits they perform.See full...
The U.S. corporate audit industry's watchdog on Tuesday proposed a new standard to identify and correct problems in audits before they are issued, a step meant to strengthen the quality of audits.The Public Company Accounting Oversight Board said its new standard would give auditors of public companies such as PricewaterhouseCoopers [PWC.UL] and Deloitte & Touche [DLTE.UL] a framework for conducting their own reviews of their audits.The PCAOB was set up by Congress in 2002 to police auditors after a wave of accounting scandals, such as the implosion of Enron Corp. TSee full...
The reporting burden on listed companies has taken a massive hike as the length of interim accounts ballooned by almost a thirdCorporates have been made to escalate their reporting efforts after IAS 34 interim demands became compulsory in 2007, with the average length of the half-yearly financial report up by 27%.‘A question has to be asked whether all the new rules were required in the first place,’ said Deloitte audit partner Isobel Sharp.Deloitte has been monitoring the situation closely since the rules came into force for reporting starting on or after 20 January 2007.See full...
The Public Company Accounting Oversight Board today voted to adopt Auditing Standard No. 6, Evaluating Consistency of Financial Statements, and an accompanying set of amendments to the Board's interim auditing standards.The Board adopted the standard and amendments in light of the Financial Accounting Standards Board's (FASB) issuance of Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections, and impending issuance of Statement of Financial Accounting Standards, The Hierarchy of Generally Accepted Accounting Principles.The new standard and related amendments update the auditor's responsibilities to evaluate and report on the consistency of a company's financial statements and align the auditor's responsibilities with SFAS No. 154. See full Press...
The International Accounting Standards Board (IASB) today issued amendments to improve the accounting for particular types of financial instruments that have characteristics similar to ordinary shares but are at present classified as financial liabilities.The amendments, which respond to requests from entities around the world, are set out in Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation.IAS 32 requires a financial instrument to be classified as a liability if the holder of that instrument can require the issuer to redeem it for cash. That straightforward principle works well in most situations. However, many financial instruments that would usually be...
Securities and Exchange Commission Chairman Christopher Cox today announced the launch of the “Financial Explorer” on the SEC Web site to help investors quickly and easily analyze the financial results of public companies. Financial Explorer paints the picture of corporate financial performance with diagrams and charts, using financial information provided to the SEC as “interactive data” in eXtensible Business Reporting Language (XBRL).At the click of a mouse, Financial Explorer lets investors automatically generate financial ratios, graphs, and charts depicting important information from financial statements. Information including earnings, expenses, cash flows, assets, and liabilities can be analyzed and compared across competing public companies.The software takes the work out...
The SEC will release a time line later this year for allowing U.S. companies to use international financial reporting standards.Securities and Exchange Commission chairman Christopher Cox, in a speech last week, quashed any doubts that the regulator will one day allow U.S. companies to use international financial reporting standards rather than GAAP. The SEC is working on a road map for transitioning U.S. companies to the global rules, he told members of the European-American Business Council."The expanded use of a single, high-quality accounting standard will eventually empower investors to make better-informed investment decisions by giving them information that is more easily comparable," he said. His speech came just a few months after the SEC began accepting IFRS-prepared financial...
Securities and Exchange Commission Chairman Christopher Cox today issued the following statement regarding the progress report presented by the Advisory Committee on Improvements to Financial Reporting: "The Advisory Committee on Improvements to Financial Reporting today presented to the Commission a progress report on the Committee's work to date. This is an important step toward making financial information more useful for investors and reducing unnecessary complexity. I have asked the SEC's professional staff to analyze the report and its proposals, and to provide recommendations to the Commission for possible consideration later this year. I thank the Committee members for their diligent work to date and look forward to additional proposals and recommendations as the Committee...
Basel II does not need to be overhauled – it is adaptable to rapid financial innovation and moreover, is designed to help steer banks through extreme market conditions, says Nout Wellink.Possibly the greatest challenge in banking regulation is to ensure that fundamental changes in the structure of financial markets are accompanied by upgrades in risk management, regulation and supervision. Basel I served us well for many years but ultimately failed to keep pace with an increasingly complex financial environment. Basel II takes a major step towards setting the right incentives. Its minimum capital requirements are more risk sensitive, it better captures all different types of risk, encourages sound risk management practices and enhances market discipline. And, it is able to adapt to...
Taking another step towards convergence of international accounting standards, the European Union announced this week that foreign-based companies doing business in E.U. countries will no longer be required to reconcile their financial statements in accordance with E.U. standards, according to CFO.com.The new regulation, which will be effective as of 2009, shadows a move made last year by the Securities and Exchange Commission to permit companies overseas to file their statements using International Financial Reporting Standards (IFRS). Such firms have previously been required to convert their statements to the U.S. generally accepted accounting principles (GAAP) format.The new E.U. rule, though, will apply only to those companies based in countries that are on their way to convergence...
Mercer today commented on the Accounting Standard Board proposals on pension accounting. The ASB has, amongst other proposals, suggested that companies use a lower discount rate when calculating the value of their future liabilities and substitute actual investment returns for expected investment returns. According to John Hawkins, principal at Mercer, “If accepted, the ASB proposals will fundamentally change what companies do over the longer term. For example, Finance Directors are going to face a trade off between the higher return expected from equity investments and the volatility equities will bring – and whether they can justify that to directors and investors. There will be some who can do this, particularly at the larger companies, but it will be a real issue for smaller and...
The Public Company Accounting Oversight Board this week voted to adopt Auditing Standard No. 6 – Evaluating Consistency of Financial Statements – and an accompanying set of amendments to the board’s interim auditing standards.The PCAOB’s adoption comes after the Financial Accounting Standard Board’s issuance of Statement of Financial Accounting Standards No. 154 – Accounting Changes and Error Corrections – and the impending issuance of Statement of Financial Accounting Standards, The Hierarchy of Generally Accepted Accounting Principals (GAAP). See full...
The Public Company Accounting Oversight Board hosts an open meeting tomorrow to consider adopting changes to its auditing standards.The PCAOB proposed changing its auditing standards last April after the Financial Accounting Standards Board's (FASB) issued changes related accoungint standards pursuant to Generally Accepted Accounting Principles (GAAP).See full...