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Credit woes to spread, says PwC chief
By Francesco Guerrera in New York and Jennifer Hughes in London
Published: February 6 2008 22:01 | Last updated: February 7 2008 00:06
The global credit crisis is set to spread beyond the financial industry as companies in other sectors are forced to write down the value of their investments, according to the head of the largest global audit firm.
Samuel DiPiazza, chief executive of PwC, said several US companies had invested in the asset-backed and mortgage-backed securities that caused billions of dollars in losses at Wall Street banks.
“It’s not just in banks,” he said. “We are going to find some problems at non-financial institutions.”
Only last week, Bristol Myers Squibb, the US pharmaceutical group, revealed a $275m charge to write down illiquid securities with exposure to subprime mortgages, and there are fears of similar admissions to come elsewhere as the annual report season looms.
The warning by the head of one the Big Four accounting firms is likely to heighten investors’ fears that troubles in the financial and property sector are rapidly spreading to the rest of corporate America.
Auditors have warned that they and their clients face enormous challenges in valuing the complex derivatives littering balance sheets.
Mr DiPiazza said that marking assets at “fair value” – the value they would fetch on the market – is particularly difficult because of volatility and lack of liquidity in a number of securities.
“Now that the markets are moving rapidly, the trading in the securities is thin and the collateral . . . is fragile, that makes for a tough audit,” he said.
However, he defended “fair value” accounting – blamed by some experts for exaggerating the size of the recent writedowns – and said that auditors were equipped to deal with the current problems.
Mr DiPiazza also said he thought large US companies could move from domestic accounting rules (US Gaap) to international financial reporting standards (IFRS) within five years – a faster timetable than that indicated by US regulators.
“The Europeans did it in five years. I would find it difficult to think that the Europeans are that much more capable than the Americans,” he said. “It is certainly possible for all large-cap companies to be in IFRS by 2015.”
Christopher Cox, chairman of the US Securities and Exchange Commission, has said the SEC will draw up plans this year for how to manage the move.
Companies with international operations are generally keen to switch, but smaller groups are more concerned about the costs it will bring.