This week’s blogs: banking on trust

Given the current economic gloom, market participants need to be extra
vigilant in demonstrating that the regulatory frameworks, codes of conduct and
industry practice within which they operate are fit for purpose and capable of
helping UK plc withstand the downturn.

My view is that, post-Enron, the incremental changes introduced in terms of
regulatory oversight and corporate governance reform are generally holding up
well. While it is probably little comfort to Northern Rock shareholders, 12
months into the credit crunch the list of UK corporate casualties has been

Historically company directors have had to declare one of three positions:

  • That they have a reasonable expectation the company will cont-inue in
    operational existence for the foreseeable future.
  • That they have identified factors which cast doubt on the ability of the
    company to continue in operational existence for the foreseeable future.
  • That they consider the company is unlikely to continue in operational
    existence for the foreseeable future.

The FRC is proposing a fourth provision, reflecting the requirements of IFRS:

  • That they have identified material uncertainties that may cast significant
    doubt about the ability of the com-pany to continue as a going concern.

Investors need a clear understanding of the ongoing health of the companies
in which they invest. One question is whether a fourth provision clarifies or
confuses, or whether the second of the three current provisions should just be
aligned better with IFRS.

Michael Izza, ICAEW chief executive

Insider wrote in his blog that auditors are having a good crisis. This seems
to be borne out by research from Graydon among SMEs. The results so far seem to
suggest that smaller businesses are seeking more advice from accountants and
turning away from bank managers as trust in banks deteriorates. Through the
liquidity crisis, SMEs have found it difficult to obtain finance at affordable
rates, if at all, and are clearly frustrated, worried and annoyed.

SME owners are probably blaming banks for the global downturn through their
greedy lending in the good times. But the banks have been bailed out with the
taxpayers money. Now the bad times have arrived, the rescued banks don’t seem to
be doing much to help their own business customers survive.

It’s easy to see why SMEs are turning to a profession they trust.

Martin Williams, UK managing director, Graydon UK

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