Accountancy news: Accounting & Business

Posted on July 22, 2009 · Posted in Accounting & Business

 

UK News

FRC appoints new chief exec

Stephen Haddrill is to become the new chief executive of the Financial Reporting Council in November, after Paul Boyle steps down. Haddrill is currently Director General of the Association of British Insurers, a member of the Financial Crisis Advisory Group (FCAG) and was Director General at the Department of Trade and Industry’s Fair Markets Group. “The financial crisis has raised important questions about the future of accounting and governance,” said Haddrill. “I look forward to ensuring that the FRC finds the right answers, bringing in reform where necessary whilst preserving a market-based system of governance.” Sir Christopher Hogg, Chair of the FRC, said that Haddrill’s experience at the ABI will “enable him to bring a strong investor perspective to the work of the FRC”. Hogg added that a priority would be to create “strong and effective synergies between the FRC’s work in relation to corporate governance, corporate reporting, auditing, actuarial practice and professional oversight”.

 

Fast facts

FRC

Budgeted total spending 2008/9 £15.7m

Budgeted total spending 2009/10 £16.9m

Increase in Review Panel case costs 38%

 

Soros proposes CDS ban

Credit default swaps should be banned, the billionaire financier George Soros has said. “It’s like buying life insurance on someone else’s life and owning a licence to kill,” he told a meeting of the Institute of International Finance in Beijing. Soros argued that creditors holding CDSs were given a vested interest in pushing companies into collapse, rather than accepting a compromise financial settlement or a debt-for-equip swap. It also created a new class of financial instrument that could be used by hedge funds to speculate against weak companies. CDSs had become a factor in global financial markets uncertainty and were “instruments of destruction”. The extent of AIG’s underwriting of CDSs forced it to be nationalised last year, because of the ripple effects if the insurer had closed. “AIG thought it was selling insurance on bonds and as such CDS were outrageously overpriced,” Mr Soros said. “In fact AIG was selling bear market warrants and it severely underestimated their value.”

OECD steps-up tax action

Andorra, Liechtenstein and Monaco have been removed from the OECD’s list of uncooperative tax havens, following commitments to share information on possible tax evaders. Over 30 bilateral tax agreements have been signed since November: one of the most recent being between the UK and the Cayman Islands. OECD member governments have now agreed a ‘roadmap’ to take further action against tax havens to reduce offshore tax evasion and avoidance. Douglas H. Shulman, Commissioner of the US Internal Revenue Service said that “individuals who hide assets overseas” can expect international cooperation from tax authorities to force them to “pay their fair share” of taxes.

MPs criticise HMRC

MPs have criticised HMRC for allowing tax debt to grow. A third to tax payments are late, responsible for £17bn of overdue tax, the House of Commons Public Accounts Committee reported . HMRC should collect arrears using credit cards and direct debit, chasing overdue taxpayers by making out-of-hours phone calls. MPs regretted that HMRC had decided it could not afford an IT system to link tax debts, saying that this is crucial to an effective debt management programme.

ASB proposes changes to FRSs

The Accounting Standards Board has issued a Financial Reporting Exposure Draft of changes to FRSs that increase convergence with IFRSs. These strengthen disclosure requirements for asset impairments and make other changes flowing from the IASB’s annual improvements process. They also respond to comments from ASB constituents. Minor editorial corrections are no longer included in FREDs, but are instead listed on the ASB’s website.

 

HMRC sets 10% penalty on tax evaders who voluntarily disclose

UK taxpayers who voluntarily disclose unpaid tax liabilities on monies held offshore will be required to pay a 10% penalty, plus interest on the tax due. The arrangements are similar to those on the previous tax amnesty, which affected taxpayers holding money offshore in Barclays, HSBC, HBOS, RBS and Lloyds accounts. People covered by the previous amnesty will not be eligible for the lower penalty rate under the latest arrangements.

 

Rise in M&A activity

A big increase in mergers and acquisitions activity in the owner-managed business sector is likely, according to a survey from Baker Tilly. Almost three quarters of owner-managed businesses surveyed by the firm plan to acquire another firm or enter into a joint venture with competitors in the next three years to take advantage of opportunities created by the recession. But more than half of the companies expect to lose sales and make further redundancies.

PwC poaches partners from E&Y

PwC has poached two senior partners from Ernst & Young. Paul Davies has moved from head of tax at E&Y to become PwC’s tax industry leader for the firm’s retail and consumer group. Andrew Dale becomes a corporate tax partner in PwC’s international and large corporate team in Birmingham, having been a tax account leader at E&Y, handling priority accounts in the international large corporate sector.

SFO appoints from PwC

Josh Ellis, formerly regional director of forensic services for PwC in Moscow and Prague, has been appointed chief information officer at the Serious Fraud Office. He will lead the SFO’s operations against the use of technology in serious fraud cases. He will also head the SFO’s Digital Forensic Unit, which is used by the City of London Police and analyses electronic evidence in investigations and prosecutions of serious and complex frauds.

KPMG cuts UK staff

KPMG is cutting staff in its tax practice. A spokesman for the firm said: “KPMG is making a number of job losses in its tax function – but we are not saying how many right now because of consultations and discussions. This is almost entirely due to the fall in transaction-related activity in the financial markets. But it is also due to a big change in clients’ buying habits – they simply want other sorts of help and advice these days. So we’re expanding in pensions and indirect tax – and some people may be re-deployed where we can.”

 

Business travel ‘goes unclaimed’

A third of business travellers fail to fully claim their expenses, according to a survey of Barclaycard corporate card holders. They average £373 in unpaid claims each year. Senior executives were least likely to full claim their travel expenses, but women are more likely to claim in full than are men. Barclaycard says that if its survey results are representative of the whole country then nearly £500m in expenses is going unclaimed from employers each year.

UK businesses pessimistic

Most UK businesses do not expect the economy to recover until 2011, while the majority of German, Italian and Spanish businesses expect improvement next year, a KPMG survey has concluded. Asia Pacific region enterprises are the most likely to take advantage of the recession to reassess their operations to improve their competitiveness. Sue Bonney, head of tax at KPMG Europe, said the survey results showed that UK businesses are more pessimistic about recovery than many economists and that many companies will have to radically overhaul their corporate strategies.

 

ACCA calls for Code shake-up

Corporate governance is the main cause for the global economic crisis – and not just within the financial sector – says ACCA in its submission to the Financial Reporting Council’s review of the Combined Code. Non-executives have too often been taken by surprise by events, often because executives control the supply of information to boards, says ACCA. The Combined Code should be strengthened to include expectations of the training, qualifications, time commitment and conduct of NEDs.

IFAC annual report

The financial crisis “should be a wake-up call in terms of convergence to common standards,” the International Federation of Accountants’ CEO Ian Ball said in its annual report. “The dysfunctional effects of multiple, competing standards has never been so starkly displayed as at present.” Convergence is just as important for public bodies as it is for the commercial sector, he argued. IFAC’s total revenues grew by 9% in 2008 to $18.5m and its total expenditure also rose by 9% to $18.4m. It recorded a surplus of $81,320.

FRC updates going concern guidance

The FRC has published an exposure draft of updated guidance for directors to assess going concern and evaluate the nature and extent of disclosures. The draft will replace existing guidance for directors of listed companies published in 1994 and is relevant to directors of all sizes of UK companies, including smaller entities. It includes recently published FRC material on going concern. It is hoped that the guidance will be in place for 31 December this year.

Survey on financial reporting complexity

There is excessive and avoidable complexity in accounting standards dealing with hedges, financial instruments disclosure, share-based payments and pensions’ liabilities, according to an ACCA report, Complexity in Financial Reporting. But the study, based on a members’ survey, recognized that the underlying complexity resided in the transactions themselves, rather than in the financial reporting standards. The study recommends there should be greater engagement by standard-setters with accounts’ preparers. Impact assessments should be conducted on major new standards and amendments. Some standards have excessive obligations for disclosures, the report added.

Cost of transfer pricing ‘overstated’

The Department for International Development has published a study examining the impact of a possible move to ‘country-by-country’ company reporting, to clampdown on the use of transfer pricing. The report, by the Oxford University Centre for Business Taxation, concludes that tax losses from the manipulation of transfer pricing have been greatly overestimated by lobbyists. Christian Aid is campaigning for country-by-country reporting, arguing that developing nations lose about £191bn in tax revenues annually. It is calling for a new accounting standard to identify transfer pricing practices.

IFRS on small entities

The IASB is to publish an IFRS for small and medium-sized entities in early July. It will be based on an Exposure Draft published in 2007, which followed a 2004 discussion paper. The Exposure Draft stated that it was intended that an IFRS for SMEs should be a standalone document, with minimal cross-referencing to other IFRSs. In general, it said, accounting policy options available in full IFRSs should be available to small firms.

Institute of Internal Auditors campaigns for chartered status

The Institute of Internal Auditors for the UK and Ireland has launched a members’ consultation asking whether to seek chartered status. If there is a positive members’ vote in September it will launch a campaign, seeking to raise standards and the profile of the internal audit profession. The IIA works closely with ACCA, whose chief executive, Helen Brand, is backing the move to chartered status.

Employment opportunities in accountancy, says ACCA

There remain many employment opportunities for accountants despite the recession, ACCA reported to its seminar, Accountancy careers in a changing economy, held at the Imperial War Museum, London. The key for graduate accountants is to make themselves stand out, highlight their experience and show themselves as excellent communicators, said Dorothy Wood, head of education for ACCA UK.

Rest of world news

African leaders call for IMF and World Bank reform

Reform of the governance of the World Bank and the International Monetary Fund are essential to prevent a recurrence of the global economic crisis, South Africa’s president Jacob Zuma told the World Economic Forum on Africa. “A critical lesson from the current crisis is the need for a transformed global financial system,” said Zuma. Reform of these ‘Bretton Woods institutions’ would “reflect changing economic realities and provide a voice for emerging and developing countries.” African leaders complained that governance reforms at the IMF and World Bank had been delayed, leaving them over-influenced by the richest countries. Former Secretary-General of the United Nations, Kofi Annan, said: “The countries that sit on the boards and have the bigger voice in the decisions being taken will have to reflect on how much they are prepared to give up to make the participation of the emerging nations and the poorer countries meaningful.”

Fast Facts on Africa

Output predicted to fall in 2009 0.9%

Output predicted at start of year to increase in 2009 4.8%

Increase in people in poverty because of output slowdown

105 million to 143 million people

Soros proposes ban on credit default swaps

Credit default swaps should be banned, the billionaire financier George Soros has said. “It’s like buying life insurance on someone else’s life and owning a licence to kill,” he told a meeting of the Institute of International Finance in Beijing. Soros argued that creditors holding CDSs were given a vested interest in pushing companies into collapse, rather than accepting a compromise financial settlement or a debt-for-equip swap. It also created a new class of financial instrument that could be used by hedge funds to speculate against weak companies. CDSs had become a factor in global financial markets uncertainty and were “instruments of destruction”. The extent of AIG’s underwriting of CDSs forced it to be nationalised last year, because of the ripple effects if the insurer had closed. “AIG thought it was selling insurance on bonds and as such CDS were outrageously overpriced,” Mr Soros said. “In fact AIG was selling bear market warrants and it severely underestimated their value.”

OECD announces more countries to co-operate on tax collection

Andorra, Liechtenstein and Monaco have been removed from the OECD’s list of uncooperative tax havens, following commitments to share information on possible tax evaders. Over 30 bilateral tax agreements have been signed since November. OECD member governments have now agreed a ‘roadmap’ to take further action against tax havens to reduce offshore tax evasion and avoidance. “Individuals who hide assets overseas can expect an increasing number of revenue bodies to cooperate and share information to ensure people pay their fair share to help fund governments worldwide,” said Douglas H. Shulman, Commissioner of the US Internal Revenue Service.

IFRS for small entities

The IASB is to publish an IFRS for small and medium-sized entities in early July. It will be based on an Exposure Draft published in 2007, which followed a 2004 discussion paper. The Exposure Draft stated that it was intended that an IFRS for SMEs should be a standalone document, with minimal cross-referencing to other IFRSs. In general, it said, accounting policy options available in full IFRSs should be available to small firms.

Survey on financial reporting complexity

There is excessive and avoidable complexity in accounting standards dealing with hedges, financial instruments disclosure, share-based payments and pensions’ liabilities, according to an ACCA report, Complexity in Financial Reporting. But the study, based on a members’ survey, recognized that the underlying complexity resided in the transactions themselves, rather than in the financial reporting standards. The study recommends there should be greater engagement by standard-setters with accounts’ preparers. Impact assessments should be conducted on major new standards and amendments. Some standards have excessive obligations for disclosures, the report added.

Christian Aid campaign on country by country reporting gains ground

The UK’s Department for International Development has published a study examining the impact of a possible move to ‘country-by-country’ company reporting, to clampdown on the use of transfer pricing. The report, by the Oxford University Centre for Business Taxation, concludes that tax losses from the manipulation of transfer pricing have been greatly overestimated by lobbyists. Christian Aid is campaigning for country-by-country reporting, arguing that developing nations lose about £191bn in tax revenues annually. It is calling for a new accounting standard to identify transfer pricing practices.

IASB is “making progress”

IASB chairman Sir David Tweedie has told EU finance ministers that a final standard on impairment and fair value will be available for use before the end of the year, with the new IFRS available for use for 2009 financial statements. It will be “a comprehensive solution that addresses fundamental issues of concern regarding IAS 39”, he insisted. The statement was welcomed by Helen Brand, ACCA’s CEO. It would be “disastrous” if accounting standards convergence around IFRSs were now “unpicked, for political reasons” she said.

 

Gibraltar’s tax rise

Gibraltar is to abolish its tax exempt regime on multinationals and introduce a standard corporate tax rate of 10% on domestic and international companies. Chief minister Peter Caruana said he did not believe that the change would lead to companies deserting Gibraltar.

US strengthens regulation

Fundamental reform of the financial regulatory system has been unveiled by US President Barack Obama. All major companies that could pose a threat to the financial system are to be regulated and monitored by the Federal Reserve. Hedge funds will be regulated by the Securities and Exchange Commission. Financial institutions’ minimum capital levels will be increased and the Government will be able to seize control of any company that hits difficulty. Regulation of credit ratings agencies will be strengthened. A Consumer Financial Protection Agency will be established to prevent the mis-selling of mortgages and other financial products.

Japan approves IFRS roadmap

Japan has provisionally agreed a ‘roadmap’ for the adoption of IFRS that would permit IFRSs to be used by listed companies from years beginning 1 April 2009 and become mandatory from 2016. Sir David Tweedie, Chairman of the IASB said: “This is a landmark decision, both for Japan and for IFRSs. For Japan, it signals the eventual adoption of IFRSs. For the IASB, adoption of IFRSs by the world’s second largest national economy underscores the truly global nature of IFRSs and the acceptance of these standards by all major economies.”

 

Countrywide former chief accused of fraud by SEC

Former Countrywide Financial chief executive Angelo Mozilo has been charged with fraud by the US Securities and Exchange Commission. Countrywide’s former chief operating officer and president David Sambol and chief financial officer Eric Sieracki have also been charged. All are accused of securities fraud for deliberately misleading investors about the significant credit risks being taken in efforts to build and maintain the company’s market share. Mozilo was additionally charged with insider trading when selling Countrywide stock for nearly $140m in profits.

Half of global businesses expect recovery in 2010

Half of global businesses expect a recovery next year, according to research by KPMG International. Another 11% believe things will get better this year and 22% think it will happen in 2011. Business leaders in Germany, Italy and Spain all predict recovery next year, but their UK counterparts are less optimistic. Companies in the Asia Pacific region are much more likely to have been prompted by the recession to change business strategy than are firms in Europe, the survey found.

E&Y criticised

Ernst & Young has been criticised by the US Public Company Accounting Oversight Board for failing to obtain sufficient evidence from clients in reaching audit opinions. In one audit, highlighted by PCAOB, E&Y failed to identify that a client had departed from GAAP in its estimates for future product returns and also failed to identify a material weakness in internal controls over the accounting for sales returns. Other audits were criticised for weaknesses in audit documentation.

IFAC annual report

The financial crisis “should be a wake-up call in terms of convergence to common standards,” the International Federation of Accountants’ CEO Ian Ball said in its annual report. “The dysfunctional effects of multiple, competing standards has never been so starkly displayed as at present.” Convergence is just as important for public bodies worldwide as it is for the commercial sector, he argued. IFAC’s total revenues grew by 9% in 2008 to $18.5m and its total expenditure also rose by 9% to $18.4m. It recorded a surplus of $81,320.

Qatar ‘in strong position’

Qatar is in a strong position to grow its economy, according to a report sponsored by Deloitte and written by the Oxford Business Group. Massive reserves of natural gas and a reputation for political stability give it a competitive edge, say the authors. “Besides a strategic location in the Gulf and rich hydrocarbons reserves, the country also boasts progressive social policies that place human capital development at the centre of long-term economic growth,” the report concludes. The Qatari government has protected the country from the impact of the global recession through well-planned diversification and well-paced development, it adds.

Free State accountability

South Africa’s Free State has established a monitoring and evaluation unit to make public spending more accountable. The state’s new premier, Ace Magashule, said that elected representatives must be made accountable for their actions. The unit will track implementation of funded programmes and resource allocation and act as an early warning system where things go wrong, with the capacity to redirect finances where appropriate. The unit will support struggling municipalities in the Free State.

European inward investment suffers in downturn, says E&Y

European inward investment suffered last year as a result of the global downturn, concludes a report from Ernst & Young. The financial value of inward investment in Europe in 2008 was level with the previous year, but the number of jobs created by that investment fell 16%. The report found that five years of growth came to an end last year. The largest recipient countries were the UK, France, Germany and Spain.

 

Politics

 

Regulators and auditors ‘must talk more’

 

Banking regulators should regularly meet the auditors of banks, the House of Lords Economic Affairs Select Committee has advised. Meetings should take place whether or not there are problems in the banking sector, or in particular banks. The Lords found no evidence that banks’ auditors failed in their statutory duty in making going concern judgements. Auditors should not be required to make judgements on the quality of their clients’ strategies, said the committee. The Lords supported mark-to-market valuations, but said that regulators must identify ways to ensure their use does not amplify the economic cycle.

 

IASB promises progress

 

IASB chairman Sir David Tweedie has told EU finance ministers that a final standard on impairment and fair value will be available before the end of the year, with the new IFRS available for use for 2009 financial statements. It will be “a comprehensive solution that addresses fundamental issues of concern regarding IAS 39”, he insisted. The statement was welcomed by Helen Brand, ACCA’s CEO. It would be “disastrous” if accounting standards convergence around IFRSs were now “unpicked, for political reasons” she said. Ms Brand added: “There is an urgent need for a new standard on financial instruments. The current standard IAS39 can produce overly complex financial statements and is difficult to apply.”

 

EU accountant becomes MEP

 

Former European Commission chief accountant Marta Andreason has become a Member of European Parliament – for the Eurosceptic UK Independence Party. The Argentinian-born Spaniard now represents the South of England. Andreason was suspended by the European Commission for refusing for two successive years to sign-off the EC’s accounts, alleging they contained large numbers of errors caused by fraud. She was subsequently dismissed for disloyalty for publicly criticising weaknesses in the EU’s accounting system.

 

ACCA’s tax policy paper

 

ACCA has published a guide Tax principles: from Adam Smith to Barack Obama – on producing open, accountable and transparent tax systems, offering 12 tenets to be considered. Chas Roy-Chowdhury, head of taxation at ACCA, says: “Central to our policy paper is the need for governments around the world to ensure their tax systems are truly accountable – that people understand why they are paying taxes. Legislation also needs to be clear – no more stealth taxes, no more unexplained tax hikes. Regimes need to be user friendly for business and individuals alike. Volume of legislation needs to be kept to a minimum too, especially to help over burdened small businesses and entrepreneurs.”

 

Tax havens ‘should be abolished’

 

Tax havens should be abolished for reasons of fairness and to promote good governance and robust management of public finances in poor countries, the House of Commons International Development Select Committee has concluded. The existence of tax havens disproportionately damages developing countries, say the MPs. The UK can assist with eradicating tax havens by taking action against British Overseas Territories to ensure they cease to be tax havens. Prime ministerial letters to British Overseas Territories asking them not to be tax havens is not enough – the Department for International Development and the Foreign and Commonwealth Office should be actively engaged in ensuring UK-connected territories comply with OECD taxation standards.