Accounting Reforms May Trigger Second Banking Crisis

Tue, 16 Jun 2009

Accounting reforms relating to audits of the wholly-owned subsidiaries of major banks could cause another banking crisis in the UK, an industry expert has warned.

The Financial Reporting Council (FRC) is currently looking at whether institutions need to have the accounts of wholly-owned subsidiaries audited.

However, forensic accountant Richard Murphy explained that a subsidiary played a large part in the collapse of Northern Rock and raised fears that the proposed audit changes could lead to further problems in the financial sector.

Northern Rock subsidiary Granite held £49 billion worth of mortgages that were sold by its parent company and then moved offshore to the tax haven of Jersey, triggering the collapse of the bank .

Speaking to the Observer, Murphy said: " HM Revenue and Customs and the public should have a right to get high-quality audited information on every company."

"If this goes through, it will mean complex financial transactions will become harder to detect, so tax avoidance will increase."

Last week, Lord Adair Turner, chairman of the Financial Services Authority (FSA), called for a debate on whether changes in accounting approaches need to go hand in hand with amendments to the capital regulation of banks .
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