You must be logged in to use this function.
A stormy start to a stormy year?
Wednesday 11 January 2012 - by Michael Izza
Uncertainty in the eurozone combined with a host of regulatory challenges ensure that 2012 will be tricky year for accountants and auditors, argues Michael Izza, chief executive at the Institute of Chartered Accountants in England and Wales.
We have had a stormy beginning to the New Year and the unsettled start - weather wise - is also reflected in the economy. Many of the challenges from 2011 remain and could even be amplified in the year ahead. We'd all better prepare for a stormy year. From an accountant's point of view, the challenges ahead come in various guises. Some of the larger ones include:
Economic uncertainty: economists have suggested that 2012 may 'beat' 2009 when it comes to gloom. The uncertainty over major European countries' sovereign debt situation and the viability of the Eurozone remain a rather dark and threatening cloud over the world economy. There are some positives; the latest US manufacturing data were optimistic and unemployment levels in Germany are down. It is a paradox that, despite the gloom, a lot of individual companies continue to report good results.
However, for every positive story there seem to be a handful of negatives. Singapore, which is often seen as a bellwether for the world economy and which has coped well compared to most other economies over the past few years, has now reported contraction in the last quarter of 2011 and is expecting a tough year ahead. Unemployment levels in Spain are very high. UK business confidence is at its lowest level since the depths of the recession in 2009.
Businesses' growth expectations are declining and capital investments are heading south. A major task for accountants for 2012, whether they are in the finance function of business or work as business advisors and auditors, will be to help businesses cope with the strong headwinds as best they can.
Auditing challenges: the uncertainty of the economy and the strain on businesses also means auditors must be on guard when scrutinising companies' financial statements, which are the responsibility of the board of directors.
We may see an increase in the number of modified audit reports, as the future viability of businesses become increasingly hard to attest in the current climate. It is critical that where modified audit opinions are issued, investors and other businesses respond in a measured and considered manner. It is also important that stakeholders appreciate the difference between a modified and qualified auditor opinion to prevent scare mongering.