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Posts Tagged ‘Spanish banks’

I’ve been writing about the Spanish bank crisis (“Spanish Non Sequitur” and “Followup to the Spanish Non Sequitur“) because it is related to mainstream financial reporting and auditing.  How so?

The Spanish government recently hired all of the Big 4 (still don’t know from which countries) to tidy up the financial statements from many banks in the industry.  I’ve written about how this is a novel strategy to cleaning up faulty financial statements.

In addition, this is related to the push for global accounting standards.  If IFRS doesn’t work well in a mid-size European country, then how can it work as the primary tool for regulating banks world wide?

Nathalie Tadena, of the Wall Street Journal, wrote yesterday on “Moody’s Cuts Ratings on 28 Spanish Banks.”  Moody’s has downgraded bank ratings to one notch above junk.  Ouch.  In part, this is because of Spain’s sovereign debt crisis, and in part this is because “banks … have been hollowed out by a five-year property slump that has left them exposed to hundreds of billions of dollars in loans to builders and developers.”

The U.S. has experience in dealing with bank difficulties caused by economy shaking issues in real estate. The 1980s Savings & Loan Crisis and 2008 Subprime Financial Securities Crisis come to mind.  Both American crises showed that banks easily succumb to temptation in hiding losses from investors, and that auditors are loathe to alert investors to going concern difficulties.

Spain, welcome to the club.  It is dealing with its bank crisis by hiring Big 4 audit firms to clean up the financial statements of larger banks in its banking industry.  Undiscussed, though, is why Spain is hiring the same audit firms which previously had been a party to issuing unflagged misleading financial statements.

I’m glued to the newswire looking for the next development in this story.

Debit and credit – – David Albrecht


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In other parts of the world, large accounting firms took heat for giving clean audit opinions to banks that were floundering or dying.  In Spain, though …

Julien Toyer (Reuters) reports in a news brief (published on IBNLive and Yahoo Finance) Spain’s government is hiring all of the Big 4 audit firms to conduct a review of distressed Spanish Banks:

MADRID (Reuters) – Spain has picked the ‘Big Four’ accounting firms KPMG, PwC, Deloitte and Ernst & Young to carry a full, individual audit of its ailing banks, a source with knowledge of the decision told Reuters on Saturday. The review, which should take a few months, will complement an ongoing exercise to stress test Spains banking sector by consultors Oliver Wyman and Roland Berger, whose first results are expected around mid-June. ‘I can confirm (the names),’ the source said.

Mr. Toyer said that the source did not specify from which country the auditors would come.  ABC.es reports that the audit reports are due by July 31.

I wonder if the eventual reports to the Spanish government will differ from previously issued audit opinions.

Debit and credit – – David Albrecht


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