Friday, 23 May 2008 
 
 
The Institute of Chartered Accountants (the Institute) has today released a report on the Collapse of the United States sub-prime mortgage market and the impacts under International Financial Reporting Standards (IFRS).  
 
The report provides an insight into the many factors involved in the United States credit crisis, including the effects to financial statements of financial institutions and investors in mortgage backed securities around the world.  
 
The report finds that many stakeholders contributed to the collapse of the mortgage market, and played an important role to contributing to the credit crisis environment.  
 
“Responsibility for the collapse can not be placed on one particular stakeholder. Borrowers, mortgage originators, investment banks, credit card agencies, preparers and investors each played a role in the collapse. Even those involved in protecting investors, including accountants, auditors, standard setters, legislators and regulators need to reconsider their role,” said Kerry Hicks, Institute of Chartered Accountants, Head of Reporting.  
 
The report details how the collapse effected the financial statements of banks, other financial institutions and investors in mortgage backed securities around the world. A number of lessons can be learned from the experience.  
 
“Financial statements are the primary source of information about a company’s financial position, performance and profitability and provides investors with vital information on which they base their investment decision. Without sufficient reliability or timeliness of financial reporting, this decision can not be made in the investors best interests.” 
 
“The report finds that the accounting standards alone are not the answer. It is important to understand that much of the information provided to investors in advance of a securities purchase is not within the realm of the standard setters, but of the relevant regulator.” Ms Hicks said.  
 
Discussions are already in progress at both the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) level to address the financial reporting issue.  
 
“The challenge is to make financial reporting dynamic, in terms of reporting changes in risk or other forward thinking information which could be required by regulators.”  
 
“As regulators and standard setters consider future changes it is important that blame not be laid upon the traditional scapegoats, being the accounting and auditing profession. Regulators, in particular, need to consider all parties in any legislative changes.” Ms Hicks said. 
 
Companies and funds that invested in United States mortgage loans and their shareholders and creditors are all over the world. Therefore, the impact of the credit crisis can and will effect companies, financial institutions, investment funds and individuals worldwide.  
 
The report Collapse of the United States sub-prime mortgage market and the impacts under IFRS is available on the Institute’s website.