Tweedie refuses to accept blame for recession

Group Business Correspondent

Friday 21 September 2012

SCOTLAND's senior accountant has denied the profession should bear any responsibility for the banking crisis which triggered a global recession, and said it could end up playing an important role in the economic recovery in Scotland.

DEFIANT: Sir David Tweedie rejected claims that accountants should have spotted problems at banks ahead of the recession. Picture: Ian Munro

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MARK WILLIAMSON

Sir David Tweedie, president of the Institute of Chartered Accountants of Scotland, rejected suggestions accountants should have done more to highlight the problems at banks that led to the financial crisis, arguing others should shoulder the blame.

Sir David, who was chairman of the International Accounting Standards Board from 2001 to 2011, said the crisis resulted from a massive rise in borrowing at banks which had been chasing high returns and where risk management "fell to pieces"."You've got management taking risks, shareholders wanting to because they are short term and then to say that it's the accountants fault I think that's really trying to duck it," said Sir David.He added: "The regulators, when you see the banks' balance sheets exploding like that, you really have to say the leverage is so high, the equity stake is so low, where were they?"Sir David's comments will be studied with special interest in Scotland where some leading firms have audited big banks.Lindsay Gardiner, who heads PwC's operations in Scotland, was lead partner on the audit of Northern Rock when the bank was hammered in 2007 after the wholesale funding markets it relied on for funding seized up.Mr Gardiner told The Herald recently: "People talk a lot with the benefit of hindsight. If you go back and look at the financial statements, Northern Rock's business model wasn't a secret." Sir David noted: "The thing that's a bit unfair in the Northern Rock situation is who foresaw that wholesale funding markets would grind to a halt? They never had before."Asked if auditors should have highlighted that some banks' balance sheets were bloated with assets that were potentially overvalued, he said: "They weren't in 2007, people were paying those prices."But Sir David believes failings in the nature of the reports auditors must issue may have prevented them highlighting issues of importance.He wants auditors to be able to say much more than whether accounts give a true and fair view, without being accused of exceeding their briefs."They should say what keeps them awake at night. Was it the loan book? Was it derivatives? There is so much more that we can warn markets about, but that wasn't allowed at the time."Sir David does not support calls for auditors to be changed at fixed intervals, and he believes accountants can help boost the recovery in Scotland."If I've got someone very tough I'd have to be persuaded pretty hard to change him."We've set up a working party. [Some of these] small companies don't have chartered accountants or finance directors, and what we can do is look at their business model and say why don't you do that? ... That could make a big difference because growth in this economy is going to come mainly from small companies not the big ones."

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Tweedie refuses to accept blame for recession

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