Accounting must help to avoid another bank crisis

News Article - 22 February 2010
Category: Regulatory

The FSA Chairman has called for global accounting standard setters to work more closely with banks to help prevent economic crises. Speaking to the ICAEW banking conference, Lord Turner made it clear he wanted greater scrutiny over banking activity, particularly related to loan losses.

The FSA is keen for standards to reflect a more forward-thinking approach to loan losses, and to limit the use of fair value accounting in the most appropriate areas, such as markets that maintain liquidity close to 100% of the time.

Since the sub-prime mortgage crisis hit, calls for banking standards to change have been made repeatedly. One of the biggest criticisms of current operations has been over investment in risky financial instruments at the expense of safer investments that carry a smaller ROI but much less risk. In December 2009, the Basel Committee of central bankers urged for higher capital requirements to slow down lending and investment banking business.

Accounting standards may be set to tighten as bank transparency gains importance following the sub-prime mortgage crisis. As global accounting standard setters work to ensure standards require greater transparency, businesses – particularly those occupying important positions in supply chains – will inevitably come under pressure to comply. Without a robust infrastructure capable of producing and supporting full financial transparency, companies may find resources suffer significant strain.

“The importance of the banking sector means operational transparency is essential for the well-being of the British economy,” comments Alex Reeves, director for Access.  “However, other sectors must ensure they operate with complete financial transparency to ensure they can meet compliance regulations fully and do not experience difficulties at the audit stage.”

Access Dimensions business software is regularly updated to ensure new accounting standards trickle down throughout business divisions as quickly as possible. Companies can then dedicate resources to growth strategies instead of having to focus on administration. The package also allows copious notes to be kept for each transaction, ensuring details do not get lost between the transaction date and the audit stage.

For more information on how business software can facilitate company transparency, please call 0845 345 3300.

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