The principal source of the credit crunch is a failure in corporate governance at banks, which encouraged excessive short-term thinking and a blindness to risk, says ACCA in its policy paper about the year-long financial crisis. Climbing Out of the Credit Crunch examines five key areas – corporate governance, remuneration and incentives, risk identification and management, accounting and financial reporting and regulation – and recommends that accepted practices in all these areas need to change to avoid future failures. Richard Aitken-Davies, ACCA President, said: ‘The fundamental responsibilities of a corporate board – to provide strategic oversight and direction, to ensure a strong control environment and to challenge the executive – appear to have been inadequately discharged. Remuneration and incentive packages have encouraged short-term thinking. We need to ask what inhibited banks’ boards from asking the right questions and understanding the risks that were being run by their managements. Image source: accaglobal.com.

Source: Association of Chartered Certified Accountants