In the ongoing economic global crisis facing countries, financial institutions and many other corporates around the world, many who cant avoid or transfer their risks are fast becoming extinct. Regulators and markets are wondering how to stall this slide which is leading us to the worst recession in history. Whilst macro factors may cause corporates to fail plenty of questions are being asked: how did the educated well governed Boards not recognize this risk; did the risk management structures and models fail them; why did the independent directors not act; did they even understand the risks in the business models being pursued; did the regulators fail; were the credit agencies at fault; are the risks of securitisation still properly understood; did short-term performance bonuses encourage greed and excessive risk taking; did the banks create the recessionary conditions?
In this commotion there are others who are looking for the auditors: they ask, where were the auditors? Audit reports reassured readers about these companies’ accounts even though, in many cases, the underlying business model was suspect and the businesses were exposed to high risks. Obviously, forgetting who was responsible for Governing these corporates into the ground! If I got my car serviced by a garage and then drove the car over a cliff, would it be the fault of the garage? for this I have not got a good answer from the “wizards of Boards”. There are wizards who will come up with the so called ‘what-if’ analysis, but let’s look at it with common sense.
This is where an explanation is required that the looks at the past and reassures the reader that transactions are properly recorded and the assets and liabilities are also stated in a true and fair manner. Unfortunately, it does not say that the business is viable and that the business model will survive into the future. nor does it confirm that the values of assets and liabilities are stated at readily available market values. Rating agencies review the aspects of viable business and the governance and risk management practices to see if the company has the wherewithal to survive into the future. However, it is the Board of directors who are responsible to ensure that all of the above is operating effectively for the company to be a going concern into the future. Therefore, in my humble opinion, please catch the Directors and hold them responsible, rather than look for scapegoats.