From Alex – yup, I think I agree with every word of this. Also, please, please, please sack the walking corpse…
People have been blethering on about the ‘moral hazard’ created by government deposit insurance for banks. Unfortunately, they’re idiots.
Deposit insurance *does not* encourage financial institutions’ shareholders to invest in risky assets, because it doesn’t prevent the shares from losing all their value when the risky assets go tits-up and the company goes bust. Since shareholder liability is limited to the value of their shares, there is no difference whatsoever for shareholders between a bank that goes bust losing its depositors all their money, and a bank that goes bust but whose depositors are baled out.
Providing deposit insurance simply means that the grannies who’re getting 5% a year on their life savings don’t need to become financial analysts to work out whether it’s safe to leave their money in (what they still think of as) the building society…
What kind of loony keeps more than £35k in savings accounts with a single bank?
NB if you’re reading this and you have more than £35k in savings accounts with a single bank, you should immediately transfer the balance over £35k to a different bank. There is no sane reason not to do this, and it’ll save you from having to spend your Saturday in comedy queuing lemming mode next time there’s a bit of a liquidity fuss…
#1: I’m the top hit on Google Hong Kong for “senior accounting partner glamorous life”. Hurrah! (note: I’m not a senior accounting partner, despite my glamorous life).
#2: a right-wing nutcase (with the amusing trait of pretending not to be right-wing, which is easier to do if you oppose extra-judicial punishment beatings) is trying to smear me as the world’s most evil, objectively-pro-thug person in the comments to the last post. Even though the last post was about iPods. Ahh, it’s like summer 2005 all over again – do feel free to pile in.
Ignore the pointless new wi-fi iPhone-with-no-phone device (although it’ll serve as a good badge of ‘who is a tosser’).
The truly excellent news is that a 160gb iPod is soon to be available. I reckon that’ll last me at least another year of music…
Unrelatedly, I’ve got another Sharpener piece up about the Tube strike – specifically how Bob Crow isn’t even protecting the interests of his members (never mind the rest of us…)
What do you do when someone who you think, but aren’t sure, was the older brother of your classmate at primary school (who you haven’t seen in 15 years) gets horribly murdered in a gangland shooting?
Asking on Friends Reunited seems rather inappropriate – indeed, given the utter lack of relevance to my actual life, the morally most appropriate action would be to forget about the whole thing – but it’s hard to rein in one’s curiosity when mixed up in something so horrendous, even if it’s in an entirely vicarious and tenuous way.
Suggestions from the gallery are most welcome…
…nonetheless, I’m delighted to hear that Boeing’s oh-so-clever, oh-so-globalised, not-like-those-silly-Europeans approach to developing the 787 has run into trouble. Hopefully the damn thing will never fly…
Accounting isn’t a topic of wide general interest. Nonetheless, accounting professor Prem Sikka’s CIF piece on the International Accounting Standards Board is one of the more bizarre and surreal things that I’ve ever read.
The point of International Accounting Standards is to ensure comparability of accounts of companies that report their financial results in different geographies – so that you can be sure a company reporting €500,000 of profit before tax in Spain has actually generated the same returns as a company reporting the same figure in France.
The IASB’s role is to set these standards. Broadly, it does so by taking national Generally Accepted Accounting Principles (GAAP) from across the world and to try and come up with acceptable ways of making them compatible.
Now, national GAAP is generally determined by a local industry body – in the UK, the accounting standards board. These are made up of accountants, unsurprisingly, and are usually funded by a levy on companies. This has broadly worked (yes, there’s been the occasional corporate disaster – but in nearly all cases, the company in question has deliberately broken the accounting rules in a way that audits have failed to detect, rather than publishing accounts that follow them).
You might, therefore, not be especially surprised to hear that IASB is run on a similar basis: trustees drawn from the Great and the Good of the global accounting profession (senior partners, academics, businesspeople with accounting backgrounds) appoint a board drawn from the Pretty Great And Good But Not Quite So Important of the global accounting profession.
You might, however, be slightly suprised to hear that Dr Sikka believes this is a terrible thing:
the IASB is not accountable to democratically-elected parliaments. Its members are not elected by stakeholders or any representative organisations. Neither is their suitability scrutinised by parliamentary committees.
Yes, what we really need in order to ensure the international comparability of financial statements is for every standard to be approved by a committee of MPs (nearly all of whom don’t have a financial background) in every single country of the world. That would be workable.
However, what really upsets Dr Sikka is that not only do investors want to see consistency between accounts across different countries in the developed world, they also feel that this ought to encompass the developing world. Some people even go as far as to suggest that imposing consistent accounting standards might reduce the incidence of corruption in the developing world, what with ‘bribes paid’ not being a recognised income statement entry under IAS and all…
This is part of new colonialism and ideological domination. Such imposition makes developing countries dependent on the west and prevents them from developing appropriate local institutional structures.
The only spin I can put on ‘appropriate local institutional structures’ that makes any sense whatsoever here is ‘allowing dodgy practices’. Seriously – I can’t think of a single way in which a developing economy would lose by adopting IAS compared with local standards, aside from short-term costs of transition. And nor does Dr Sikka cite one [*].
There are reasons why, and ways in which, it would be good to impose corporate social responsibility standards internationally. But that has absolutely nothing to do with the imposition of financial statements, any more than the technical standards behind DVDs impact on film criticism…
[*] some commenters mention ‘transfer pricing’ – e.g. manufacturing goods in a high-tax country and selling them at an artificially low price (generating an artificially low local profit) to a subsidiary in the low-tax country where you retail them. But IAS says you shouldn’t do that, and in any case tax accounts are separate from financial accounts – they are subject to tax agency rules, not accounting standards.
From the BBC website’s article on this year’s A-level results (yes, I know – we’re always first with the news here):
Twin sisters Tania and Mahua Bhaduri from West Malling, Kent, both got five grade As. But unlike her sister, Tania has not got a university place.
Their father, Dr Bim Bhaduri, said his daughter Tania… had been rejected from universities including Oxford, Bristol and Sheffield.
But Mahua, who studied almost the same A-levels as her sister at state foundation school Tonbridge Grammar for Girls – but took geography instead of psychology, has earned a place at Imperial College, London.
Dr Bhaduri added: “The system really is a lottery, they can’t differentiate between bright and brighter and this is a problem.
No: this is a sign of the system working admirably. One of your daughters took a subject which is not especially popular or fashionable at a university where it is not a specialist subject (to be honest, I was surprised to discover Imperial even offered geography); the other applied for a subject which is highly fashionable at prestigious institutions where the course is particularly respected.
(and Sheffield, which probably rejected her for also applying to Oxford and Bristol…)