Our lead story this week makes stark the cost of implementing the new
accounting standard for banks known as the expected-loss model. £225m is a large
sum in anybody’s model. The change represents the biggest overhaul to accounting
since the introduction of international standards in 2005 and the banks are
resisting the detail, even though they accept much of the current system doesn’t
The IASB is behind the change but already the issue has placed the board at
the middle of yet another accounting controversy that threatens to spill over
into the political sphere.
This is a key issue for the IASB and for politicians. The IASB is a standard
setter and it is pushing ahead with the changes on the request of politicians
and regulators represented at the G20, the Basel committee and the Financial
Crisis Advisory Group. They all have political and regulatory motives.
But the IASB’s concern is accounting. It’s reform must be justified on
accounting grounds. And yet somehow please other interest groups. This is a
difficult place to be. The outcome will not please everyone and once again the
IASB will be under attack. It could even fuel the arguments of the detractors
who oppose the IASB on principle. IASB officers will have to stand firm and
support first principles. And they could do with a degree of sympathy for once
from stakeholders, but don’t hold your breath.
Consulting’s return unwelcome for MPs
The big firms having consulting businesses is controversial all over again.
This week MPs on the House of Commons Treasury committee reignited the debate by
questioning the balance of fees from audit and non-audit and asking why
regulators had not warned auditors against the growth of big consulting units.
The question was asked of Stephen Haddrill, chief executive of the Financial
Reporting Council, why the regulator should put out a warning against auditors
offering internal audit services but had not warned against consulting
businesses. Of course, the FRC is consulting on this very issue and Haddrill
made clear that the regulator, and investors, wanted to see a proper balance.
The big firms have been growing their consulting businesses enthusiastically
– they are recruiting furiously. Some firms, of course, never divested
themselves of consulting arms when it became a delicate issue last time around.
But the MPs were spikey – they clearly came at the subject suspicious of
developments in the market. Consulting businesses among the big firms are not
liked and, no matter what conclusions the FRC may reach in its own consultation,
we can expect to see the Treasury committee express concern. The Big Four are in
for another bashing.
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