Lords enquiry: accounting fuelled banking crisis

(Accountancy Age) Accounting rules were a significant contributing factor to the banking crisis, a House of Lords enquiry into the audit profession has heard.

Tim Bush, a member of the Accounting Standards Board’s (ASB) Urgent Issues Task Force, said international accounting standards forced auditors to abandon the principle of prudence in their audits.

“The biggest factor has been the loss of prudence in accounting standards,” said Bush.

He highlighted accounting rules on impairment, securitisation and contingent liabilities as key areas that contributed to banking collapses.

“I believe that these deficiencies were a major factor in the banks that failed in the UK and Ireland,” he said.

“I think we need UK GAAP back.”

Bush has previously clashed with ASB chairman Ian Mackintosh over the role accounting played in the crisis. In August Mackintosh said that Bush’s views were not “widely held”.

Bush’s comments came in a hearing of the economic affairs committee of the Lords, which also heard members say that auditors were well placed to raise the alarm in UK banks.

“The auditors were one of the dogs that didn’t bark,” said Lord Lawson.

Stephen Kingsley, of professional services firm FTI Consulting, said accounting rules had grown more complex since international standards were introduced.

“When I was a kid, there was a great stall set in truth and fairness… that has gone out of the window for something that says ‘more or less, this applies with the accounting standards’,” said Kingsley.

The Lords are expected to hear from representatives of the Big Four accounting firms next week.