Accounting standard setters have been urged to improve the accounting and
disclosure standards for off-balance sheet vehicles on an accelerated basis and
work with other standard setters toward international convergence.
The recommendations, from the global Financial Stability Forum which reviewed
the issues that led up to the credit squeeze, were welcomed by the G7, who met
in Washington on Saturday.
The FSF – which includes the International Monetary Fund and other financial
and regulatory bodies – said that the build-up and subsequent revelation of
significant off-balance sheet exposures highlighted the need for clarity about
the treatment of these structures and the risks they posed to the institutions
‘The use of off-balance sheet entities created a belief that risk did not lie
with arrangers and led market participants to underestimate firms’ risk
exposures. Risk exposures and potential losses associated with off-balance sheet
entities should be clearly presented in financial disclosures, and the
accounting standards affecting these entities should be enhanced and their
international convergence accelerated based on the lessons learned,’ the report
The group noted that the standards of the IASB and the US Financial
Accounting Standards Board differed.
‘The IASB and FASB have projects underway to converge their standards in
these areas and this work should be accelerated so that high-quality, consistent
approaches can be achieved. In doing so, and consistent with their required due
process, the IASB and the FASB should consider moving directly to exposure
drafts on off-balance sheet issues, rather than discussion papers, to meet the
urgent need for improved standards,’ the FSF urged.
The G7 nations are set to begin an FSF-recommended 100-day program of
restoration to the global financial system.
Bank of Italy governor Mario Draghi said the G7’s embrace of the
recommendations lays the groundwork for the regulatory response needed to ease
the severe financial stress now taking its toll on the world economy,
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