Johannesburg - South Africa's new head of the National Planning Commission, Trevor Manuel, said on Thursday evening that the period of deregulation has come to an end as the global crisis has brought home the need for good regulations and good regulators.
"No longer can we rely on enlightened self-interest to regulate global markets," he said.
Manuel was speaking at a South African Institute of Chartered Accountants (Saica) event in Kyalami, just outside Johannesburg.
"We are only now beginning to understand the complexity of what happened in the past eighteen months. We understand that regulatory failure was a common denominator. We need to act swiftly to correct the weaknesses in our overall regulatory system, strengthen our economies, and try our very best to get out of the downturn as quickly as possible."
But he added that care needed to be taken not to shift to the other extreme, where companies are tied up in so much regulation that they can barely function.
"Perhaps the Sarbanes-Oxley Act of July 2002 appeared to introduce such strictures. But clearly we do need what President Barack Obama has called 'supervision by the grown-ups'."
Manuel says this re-affirms the need for the professional auditor.
"Just when we thought that auditors were dull, unnecessary, and simply a hindrance, we have discovered the crucial role that your profession must and should play in our global economy.
"(Previously) I questioned the fact that we rely almost entirely on self-regulation in the accounting profession. Attempts to toughen accounting and ethical standards do not easily win acceptance; industry groups very easily lobby for rules that protect them and help them appear more profitable. SAICA should fight against such efforts.
"The integrity of the auditing profession and the CA(SA) designation relies on your ability to check the accounts of firms independently," he said.
"I am railing against the failure of the global economic system, when we in South Africa have missed the worst of the crisis. This is in no small measure due to organisations such as Saica.
"It was somewhat heartening to sit in the G20 discussions. One of the key recommendations flowing out of the technical committee is that G20 countries should move swiftly ahead to adopt IFRS and Basel II.
"Of course, SAICA facilitated that process long ago, particularly on IFRS. I felt quite proud that such a complex process was handled with a minimum of fuss."
Shocked disbelief
Manuel added that perhaps "we were naive to think that bankers were only interested in the common good.
"To our shocked disbelief, we have discovered that the average big company (or say the average global multinational bank) is quite happy to play at hocus-pocus accounting, creating off-balance sheet vehicles to hide odious losses, artificially boosting revenues through selectively and inappropriately applying the rules of valuation, and massaging the treatment of derivatives."
Manuel said "we need to go back to basics", and rethink how we derive the value of assets on a company's balance sheet in a way that is consistent, fair and reliable.
"Shareholders, investors and regulators would all welcome improvements to the accounting of off-balance sheet items. The very term 'off-balance sheet' suggests that firms wish to hide assets or liabilities," he said.
"I wish I understood the International Financial Reporting Standards (IFRS) statements relating to the valuation of derivatives. I am sure there are some highly paid specialists in this room that do. But one thing we have realised is that derivatives have the ability to collapse entire firms. Globally and locally, we clearly need a little bit more light on this somewhat obscure area of accounting."
Manuel said there are many pieces of this puzzle, telling us there is still more to come.
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