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Audit Group: Tightening in Credit Markets Could Complicate Corporate Accounting By JUDITH BURNS (Dow Jones Newswires) Oct. 5, 2007 (Associated Press) WASHINGTON - The Center for Audit Quality weighed in Wednesday on credit-market jitters spawned by troubled subprime-mortgage loans, warning the problem may keep investors sidelined and pose challenges for auditors. The group, affiliated with the American Institute of Certified Public Accountants, issued three white papers addressing concerns raised by a liquidity crisis in credit markets. The crisis that could have a "potentially pervasive impact on public companies," the group said. "It is not possible at this time to predict how long investors will stay on the sidelines or which markets will be most affected, but it is not unreasonable to expect - especially for subprime mortgage-related assets - that current conditions could persist for an extended period of time until the uncertainty is reduced," the Washington nonprofit said. Mounting defaults on risky home-mortgage loans to subprime borrowers have rattled investors in mortgage-backed securities, and the anxiety has quickly spread to other sectors, including high-yield junk bonds, debt issued in leveraged buyouts and even short-term, asset-backed commercial paper, the Center for Audit Quality noted. It said the rapid change in credit market conditions poses "unique challenges" for auditors as they review and audit corporate results. The white papers [see below for direct links] cover fair valuation, consolidation of commercial paper conduits, and accounting for underwriting and loan commitments. The reports outline existing U.S. accounting rules and practices in those areas and explain their application in "illiquid market conditions." The center said the papers were prepared by a working group of its professional practice executive committee, with input from the Financial Accounting Standards Board, the Securities and Exchange Commission, the Public Company Accounting Oversight Board, bank regulators and industry trade groups. The AICPA-affiliated group isn't alone in scrutinizing audit issues raised by the subprime lending mess. The accounting oversight board, created by Congress in 2002 to inspect and discipline public-company auditors, also is considering issuing guidance on the subject. White papers (PDF): Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. |
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