Finance professionals around the world are facing up to the challenges of the credit crunch. As banks pull back from lending, many of us are dealing with the immediate ripple effect arising from restricted credit facilities and volatile financial markets in general. Although price volatility will be directly affecting those of us whose firms are engaged in debt, equity, derivative and/or leveraged-finance activities, there are other risks and opportunities facing the finance function as jittery chief executives, investors and other stakeholders review the situation.
Confidence in corporate governance and reporting is at greater risk than it has been for several years. One immediate consequence is that financial reporting regulators and global accounting networks have put preparers of accounts, audit committees and auditors on their guard. The Financial Reporting Council (FRC), the UK's independent regulator, has produced an extra set of questions for audit committees to consider in fulfilling their responsibilities for 2007-08 reports. One of the more sobering questions asks whether the board can confirm that it has sufficient financial skills to cope with the current challenges.
There have also been calls for clarity over the basis on which such judgments have been exercised. The Auditing Practices Board (APB), one of the operating bodies of the FRC, has issued a useful bulletin aimed at helping auditors to locate guidance and standards that are relevant to current issues. The world's six largest accounting networks have issued a paper to improve awareness of IFRS requirements--the aim being to help companies determine fair values of financial assets and liabilities and related disclosures.
It's clear that all of us in the financial reporting chain need to be even more diligent than usual, but the current extra guidance can be viewed as a timely gift and opportunity. It will further clarify and strengthen the position of finance directors faced with exercising a greater degree of judgment in the interpretation of...