CICA offers subprime crisis

The Canadian Institute of Chartered Accountants (CICA) has
released a document to help company directors cope with the credit
crunch in light of concerns among investors over the recent
subprime crisis in the US.

It focuses on asset-backed commercial papers (ABCPs) – a secured
short-term debt obligation – and was developed by the CICA’s risk
management and governance board. The CICA document is designed to
provide guidance to directors in their oversight roles. Further
analysis and clarification on the financial reporting of ABCPs was
due to be released and posted on the Canadian Accounting Standards
Board website.

Investors’ concerns centre on the credit quality of many
securitised products, especially those backed by subprime debt.
Many large banks have had to write off huge sums of money and most
countries have been affected by the credit crunch, Canada in
particular. In August, trading of up to C$35 billion ($36 billion)
of ABCPs had to be suspended before the a government proposal was
implemented in an attempt to salvage investors’ holdings.

The CICA believes investors are still worried about companies that
have exposure to asset-backed securities. According to the
institute, the main problem with ABCPs is their complexity and few
understand what their true value is or should be.

The CICA has devised a list of 28 questions that it feels will help
directors answer investor’s worries. According to the CICA,
directors must look at the wider implications of the credit crunch
and how it will affect capital and debt markets.

Dave Pollard, vice-president of knowledge development for the CICA,
commented: “Our document walks directors through these questions to
help them understand what investors want to know and the level of
information needed to provide appropriate disclosure… It is in the
interest of businesses, investors and the reputation of Canada’s
capital markets that all parties provide clear, accurate and
complete disclosures.”