The ‘R’ word
The pound suffered its worst decline in 16 years the day after Bank of England
Governor Mervyn King said it was “likely” the UK economy was entering a
recession on 21 October. His comments came shortly after Ernst & Young’s
ITEM Club said recession was “inevitable”.
‘R’ word II
Gordon Brown followed King’s brevity the next day with a statement to the House
of Commons that “We must now take action on the global financial recession,
which is likely to cause recession in America, France, Italy, Japan and because
no country can insulate itself from it, Britain, too.”
Blame the banks
A report by the Association of Chartered Certified Accountants has blamed banks
for creating the credit crunch. “The principal source of the credit crunch is a
failure in corporate governance at banks, which encouraged excessive short-term
thinking and a blindness to risk,” the report said. The British Bankers’
Association rejected the claim.
French finance minister Christine Lagarde ordered an audit of all French banks
following the uncovering of a (euro) 600m loss on an unauthorised equity
derivatives trade at Caisse d’Epargne. The bank’s finance director Julien
Carmona resigned on the news, following chairman Charles Milhaud and CEO Nicolas
Merindol to the door.
Joint rate cut
The Bank of England cut interest rates half a percentage point to 4.5% following
a special meeting ahead of its scheduled rate meet in early October. It was a
co-ordinated effort with the Bank of Canada, the European Central Bank, the
Federal Reserve, Sveriges Riksbank, and the Swiss National Bank, which all cut
Correction: Co-op group
We said in our October 2008 issue that the Co-operative Group owns Aegis
Security Services, “a risk management services contractor to the United
Nations, the US government and various operations”. This is inaccurate. The
Co-operative Group subsidiary Aegis Security Services’ sole business is
providing security for the Group’s own buildings in the UK and none of the
services we stated. We apologise for this mistake.
and US standard setter FASB announced details on their joint approach to
financial reporting issues arising from the financial crisis. They announced the
creation of a joint advisory group on 16 October and followed that up four days
later with a statement that said the group would be comprised of senior leaders,
charged with identifying the most urgent accounting issues and those requiring
longer-term consideration. Public roundtables will be held around the world.
They reiterated their determination to find common solutions.
The IASB and
amended, respectively, IAS 39 and IFRS 7 and FRS 26 and 29 to permit
reclassification of financial instruments. The hastily-prepared amendments allow
certain held-for-trading non-derivative financial assets to be moved out of the
‘fair value through profit or loss’ category, but only in rare circumstances.
‘Rare’ isn’t defined.
Financial Reporting Review Panel commented on the financial
reporting challenges in the current environment, noting that directors ought to
pay particular attention to the carrying values of assets and liabilities;
revenue recognition criteria; and relationships with special purpose entities.
The FRRP’s review of 300 company accounts highlighted a number of issues
relating to disclosure of principal risks and uncertainties in the business