Wednesday 28 May 2014

Wednesday, May 28, 2014 Posted by Jake No comments Labels: , , , , , ,
Posted by Jake on Wednesday, May 28, 2014 with No comments | Labels: , , , , , ,

In April 2011 the US Senate held a hearing on "The Role of the Accounting Profession in Preventing Another Financial Crisis". Kicking off the hearing the chairman of the Senate committee, Senator Jack Reed, commented:

"Prior to the collapse or rescue of nine major financial institutions in 2007 and 2008, they each received unqualified audit reports within months of their demise from various major accounting firms. So this hearing is not about one company or one auditor. This is about systemic weaknesses in the audit process that may continue to impair investor confidence and provide inadequate information to the investing public and to directors of public companies and to the markets in general.

The costs of these problems are staggering. The Financial Crisis Inquiry Commission estimated that nearly $11 trillion in household wealth was lost through retirement accounts and life savings being diminished in the crisis. Auditors who have the responsibility for examining and reporting on the companies' books and records in the cases I have cited sounded no distinctive and helpful alarms prior to the demise of these companies.

As such, serious questions have been raised about the quality of financial reporting practices and about the quality of audits that should have revealed key financial irregularities or the poor status of these companies."

In May 2014 The UK's Financial Reporting Council (FRC), "the UK’s independent regulator responsible for promoting high quality corporate governance and reporting", produced a report stating only 2% of Bank and Insurance Company audits were "good".
Every other sector reported on had more than 10% categorised as "good". For Banks and Building Societies 64% had more than "limited" issues, with nearly 1 in 5 needing "signficant improvements" to their audits.
Have lessons been learned? The Parliamentary Commission on Banking Standard said in its report of June 2013 that pay per person in banks was higher in 2012 than just before the banking crash.

The Bank of England's Fourth Quarter Bulletin for 2013 showed that loan-to-value (LTV) ratios for mortgages are higher than just before the crash:

Lessons? What lessons?


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