Accounting & Business – news April 2010

Posted on September 21, 2010 · Posted in Accounting & Business

UK News

 

RSM fined over Lehman advice [long, with fast facts]

RSM Tenon has been fined £700,000 by the FSA for failures in advice relating to the sale of structured products backed by Lehman Brothers.  The firm was found to have provided unsuitable advice on structured products and pension switching, because of poor systems and controls.  The action was the first to result from an FSA review of the marketing and distribution of structured products.  RSM Tenon was found that because of its failures it had failed to treat some of its customers fairly.  As well as being fined £700,000, RSM Tenon will have to conduct a thorough review of all of its sales of Lehman-backed structured products, review its sale of other structured products, pay compensation where appropriate and conduct a review of its pension switching business.  RSM Tenon fully co-operated with the FSA, resulting in a reduction of what would have been a £1m fine.

 

FAST FACTS

5,620 – number of UK investors in Lehman-backed structured products

£107m – original value of the products

Probably not much – current value of the products#

[source: Daily Telegraph]

 

UN climate chief joins KPMG [long]

 

KPMG has recruited Yvo De Boer, executive secretary of the United Nations Framework Convention on Climate Change, to work with its private and public sector clients in developing sustainability frameworks.  De Boer is recognized as a world leader on climate change and sustainability, he facilitated the Copenhagen climate summit and has advised China and the World Bank.  De Boer said: “Although it is the role of governments to provide the necessary policy frameworks, I have always maintained that business will deliver the necessary innovation and solutions, providing the right conditions are created. With KPMG, I now have a chance to help make that happen.” KPMG’s Global Head of Advisory Alan Buckle said: “At KPMG, our member firms are building teams that have in-depth insight and skills, which can open up new opportunities for their clients and help them with an increasingly complex web of corporate governance and reporting, emerging regulation and taxes.” 

HMRC to ‘name and shame’

HMRC has been given new legal powers to name individuals and businesses who deliberately evade taxes.  HMRC will begin publishing names of taxpayers who have evaded paying more than £25,000 in 2009/10 on its website next year.  Stephen Camm, a PwC tax partner, warned:  “Being named publicly in this way could be likened to ‘ASBOs for tax evaders’ causing a lot of damage to the individual’s personal and commercial reputation.”

BAA wins VAT refund

 

Companies’ chances of reclaiming VAT on the cost of buying and selling subsidiaries have been improved by a landmark VAT tribunal victory by British Airports Authority.  HMRC had refused to allow BAA to recover £6.7m of VAT incurred on legal fees and other costs related to its takeover by Spanish infrastructure giant, Ferrovial on the basis that the costs had been incurred by a special purpose vehicle company created to buy BAA.  The Tribunal rejected this argument as the SPV later became part of the BAA VAT group registration.

The management of tax knowledge

 

ACCA has published a research report on the management of tax knowledge.  The report focuses on the process of the management of tax knowledge within companies, saying that taxation influences operating and financing decisions by the direct imposition of a tax charge and indirectly though associated compliance costs, but that effective tax-knowledge management can allow companies to reduce the adverse effects of taxation.

Firms are good employers

Accountancy firms have been rated as top employers in the Sunday Times 25 Best Companies to Work For list.  PwC was listed as the fourth best big company to work for and the second best financial services firm, after Goldman Sachs.  KPMG is ranked as 3rd best financial services employer and 10th best big company.  Deloitte is 6th best in the finance sector and 15th overall.  

 

 

IIA gets chartered status

 

The Institute of Internal Auditors has been granted chartered status by the Privy Council.  It becomes the Chartered Institute of Internal Auditors from October.  The IIA was formed in 1948 and represents over 8000 internal auditors in the UK and Ireland.  It has a close association with ACCA.  Institute president Dr Sarah Blackburn said: “The award…. comes at a time when risk management and corporate governance have never been a higher priority.”

 

 

ACCA opposes micro audit exemption

 

ACCA and EFAA (the European Federation of Accountants and Auditors) are opposing proposals from the European Commission to exempt micro-companies from audit obligations.  “The main effect of adoption would be to reduce the amount of corporate information which is freely available to users via the public record…. [and would] have adverse consequences for cross-border comparability of performance, standards of financial management in small companies, result in a lack of transparency and, potentially, have implications for the incidence of financial crime.”

 

 

PAC condemns HMRC

 

HMRC has been criticised by the House of Commons Public Accounts Committee over its handling of older people’s tax affairs.  MPs found that HMRC’s systems do not cope well with the complexity of the variety of sources of income common for pensioners.  About 1.5 million older people have overpaid tax because of discrepancies between HMRC’s records and those of employers and pension providers and 2.4 million overpaid £200m in tax because their savings income was not paid gross of tax.

 

 

Gaines-Cooper ruling snares tax exiles

 

HMRC will claim tax from more UK citizens living overseas following a Court of Appeal judgement which ruled against wealthy businessman Robert Gaines-Cooper, who has lived in the Seychelles since 1976 and spends less than 91 days a year in the UK.  The court found he had never been exempt from UK taxes as he had not cut his ties with the UK.  He faces a tax bill of £30m.

 

ACCA report examines pension risk exposure

 

An ACCA report – Pension Plan Risk: The Impact Upon the Financial Markets – examines the composition of pension funds, incidence of pension scheme deficits and their volatility for FT350 companies. It investigates trustee attitudes to managing different levels of pension scheme deficits and surpluses and assesses the impact of continuing legislative changes.

 

IASB announces governance reforms

 

The IASB is to concentrate on the promotion and adoption of IFRSs, with accounting standards convergence a strategy rather than an objective, the trustees of the International Accounting Standards Committee Foundation, which oversees the IASB, have announced.  They reaffirmed the IASB’s commitment to a ‘principle-based’ approach to accounting standards, ‘based upon clearly articulated principles’. The IASC also announced further governance reforms, including three yearly public consultations on the IASB’s technical agenda. 

 

Deloitte buys war gaming firm

 

Deloitte has bought a leading ‘war gaming’ firm, Simulstrat, a spin-off from King’s College, London.  It will be integrated into the Resilience and Testing team, part of Deloitte’s Information & Technology Risk practice.  Simulstrat is a pioneer in scenario simulations for public and private sector organisations.  Deloitte’s I&T Risk practice employs over 500 staff: Simulstrat will add another 40 specialist consultants.  The CEO of Simulstrat Ken Charman, joins Deloitte as a director.

 

Welsh auditor general faces indecent images charges

 

Wales’ auditor general, Jeremy Colman, has resigned and been charged with making and possessing indecent images.  The results of an internal investigation were referred to the police, leading to the charges.  Colman was the first full time Auditor General for Wales and is a former Assistant Auditor General of the National Audit Office and Price Waterhouse partner. Gillian Body is the Interim Auditor General for Wales while a permanent replacement is recruited.

 

AstraZeneca settles long running tax dispute

AstraZeneca has settled its long-running transfer pricing dispute with HMRC.  AstraZeneca will pay £505m to HMRC to resolve all claims made by HMRC for the period 1996 to the end of 2010.  A first instalment of £350m was made last month, with a second and final instalment of £155m to be paid next year.  The agreement means that the joint referral of this issue to the UK Tax Court as been withdrawn.  The settlement also resolves other outstanding tax claims. 

FRC gets top marks from independent Hampton Review

The Financial Reporting Council has been praised by the Better Regulation Executive for its flexible approach to financial regulation and compliance with the ‘Hampton criteria’ of soft touch regulation.  The FRC was found to operate with strong input from practitioners, supplemented by excellent wider consultation.  But the FRC was told to consider better the impact of its high level of consultation on stakeholders.  The flexible ‘soft law’ approach to raising standards of corporate governance in listed companies was found to be ‘world-class’.

 

New actuarial standard on pensions published

 

The Board for Actuarial Standards – part of the Financial Reporting Council – has published a draft actuarial standard for pensions, intended to ensure that pensions trustees can rely on information provided by advisors and understand the limitations of any advice.  It places the onus on actuarial advisors to check their data, use reasonable assumptions and explain the uncertainty around any figures. The information supplied will have to be understandable to users, and – in the case of the final report – to pension scheme members. 

Gem of Tanzania no great gem

 

A jewel that had appeared in company accounts as worth £11m has been sold by Ernst & Young for £8,010.  The so-called Gem of Tanzania achieved notoriety in the Financial Times because of scepticism about the valuation as reported by its owner, Wrekin Construction, which is now in administration.  The buyer was Tim Watts, whose business, Network Group, is one of Wrekin Construction’s largest creditors.  E&Y is Wrekin’s administrator.

 

McAlpine executives fined

 

Three former Welsh Slate executives have been fined a quarter of a million pounds for fooling the company’s auditors.  Failure to pay the fines will lead to extensions of previously imposed prison terms.  The prosecutions by the Serious Fraud Office followed investigation of the McAlpine subsidiary, triggered by the parent company.  Managing director Christopher Law was fined £186,914; head of sales Paul Harvey, £38,685; and operations director Geraint Roberts, £17,899.  The senior managers had provided falsified stock reports and fake letters from customers promising payments.

 

RoW News

 

 

Goldman faces Greek questions [with fast facts]

 

The US Federal Reserve is investigating Goldman Sachs for allegedly assisting Greece to manipulate its declared fiscal deficit and then, with other investment banks and hedge funds, effectively bet via credit default swaps that it would not repay government debt on time.  As banks bought higher levels of CDSs, so the Greek national debt became more expensive to service, making default more likely.  During a period of heavy speculation against Greek government bonds, the cost of insuring against default almost doubled.  Following news reports of the allegations, the French government called for tight regulation of the CDS market, which was already under criticism for its role in undermining the viability of some corporations.  The Securities and Exchange Commission is reportedly conducting its own investigation into the destabilizing impact of traded CDSs, but it failed to respond to a request for information.  Goldman Sachs declined to comment.

 

FAST FACTS

 

$75.4bn – Greek government debt held by French banks

$64bn – Greek government debt held by Swiss banks

$43.2bn – Greek government debt held by German banks

 

*Figures from the Bank for International Settlements, quoted by the New York Times.

 

UN climate chief joins KPMG [long]

KPMG has recruited Yvo De Boer, executive secretary of the United Nations Framework Convention on Climate Change, to work with its private and public sector clients in developing sustainability frameworks.  De Boer is recognized as a world leader on climate change and sustainability, he facilitated the Copenhagen climate summit and has advised China and the World Bank.  De Boer said: “Although it is the role of governments to provide the necessary policy frameworks, I have always maintained that business will deliver the necessary innovation and solutions, providing the right conditions are created. With KPMG, I now have a chance to help make that happen.” KPMG’s Global Head of Advisory Alan Buckle said: “At KPMG, our member firms are building teams that have in-depth insight and skills, which can open up new opportunities for their clients and help them with an increasingly complex web of corporate governance and reporting, emerging regulation and taxes.” 

 

IASB announces governance reforms

 

The IASB is to concentrate on the promotion and adoption of IFRSs, with accounting standards convergence a strategy rather than an objective, the trustees of the International Accounting Standards Committee Foundation, which oversees the IASB, have announced.  They reaffirmed the IASB’s commitment to a ‘principle-based’ approach to accounting standards, ‘based upon clearly articulated principles’. The IASC also announced further governance reforms, including three yearly public consultations on the IASB’s technical agenda. 

 

SEC agrees new IFRS road map

 

The US Securities and Exchange Commission reaffirmed its commitment to a single set of high-quality globally accepted accounting standards.  But if it decides to incorporate IFRS into the US financial reporting system, US companies will not report under IFRS before 2015.  Outstanding convergence issues include whether IFRS is regarded by the SEC as sufficiently developed and consistent in application for use as the single set of accounting standards in the US reporting system.

 

 

SEC condemned by judge in Bank of America row

A $150m settlement imposed on Bank of America by the US Securities and Exchange Commission has been described by New York Judge Rakoff as “half baked justice at best”.   But the judge supported the SEC’s view that Bank of America had failed to adequately declare to shareholders details of bonus commitments or the scale of losses at Merrill Lynch, before the two banks merged.

 

Deloitte hires 12,000 in India

 

Deloitte is reportedly hiring an extra 12,000 staff in India, working across offices in Hyderabad, Bangalore, Mumbai and New Delhi.  The additional staff will more than double the head count of the firm in India.  Deloitte failed to respond to requests for information.

 

 

Madoff operative charged with fraud

 

A senior associate of Bernard Madoff has been charged by the US Securities and Exchange Commission with falsifying accounting records to enable Madoff’s multi-billion dollar ‘Ponzi’ fraud to take place and continue.  According to SEC charges, Daniel Bonventre hid Madoff’s fraud and the related financial losses by creating false book entries suggesting other income sources.  Bonventre was Madoff’s Director of Operations, overseeing the firm’s accounting and securities clearing functions for 30 years and allegedly illicitly earned $1.9m.

 

PCAOB proposes new accounting standards for PPPs

New accounting standards have been proposed for Public Private Partnerships (PPPs).  The International Public Sector Accounting Standards Board (IPSASB) has published an exposure draft designed to provide consistency in the way PPPs are accounted for by both parties to PPPs, or service concession arrangements as they are termed by IPSASB.  The ED, Service Concession Arrangements: Grantor, provides requirements and guidance to grantors that is consistent with IFRIC 12, Service Concession Arrangements, which at present applies only to contract operators.

 

Audit Analytics say fewer accountancy scandals

 

Audit Analytics found that 630 US companies reported 674 accounting problems serious enough to warrant a restatement last year.  This is a 24% reduction in accounting problems compared to 2008, suggesting that the crisis in corporate accounting practices has eased.  The number of companies restating accounts and the number of restatements have fallen for each of the last three years.  Restatements in 2009 reduced corporate earnings by $4.6m on average, compared to $23.5m in 2006.

 

ACCA opposes micro audit exemption

 

ACCA and EFAA (the European Federation of Accountants and Auditors) are opposing proposals from the European Commission to exempt micro-companies from audit obligations.  “The main effect of adoption would be to reduce the amount of corporate information which is freely available to users via the public record…. [and would] have adverse consequences for cross-border comparability of performance, standards of financial management in small companies, result in a lack of transparency and, potentially, have implications for the incidence of financial crime.”

 

 

 

Deloitte and PwC clash on bank reporting proposals

 

Deloitte and PwC have clashed over proposals to reform banks’ financial reporting.   Jim Quigley, global head of Deloitte Touche Tohmatsu, suggested that banks report asset values using both current mark-to-market fair values and predictions of future crystalised gains or losses.  These would be reported in different lines of the accounts.  Quigley said “the two-line idea accomplishes [the] transparency objective”.  But PwC responded this “would muddy the waters” and cause greater confusion.

 

Zimbabwe approves new local ownership law

 

Major foreign firms operating in Zimbabwe must relinquish majority control of their businesses to local people, under a controversial new law.  Companies have been given five years to comply.  But within days of publishing the new controls, industry minister Welshman Ncube promised the measure would be reviewed, following strong complaints by overseas investors.  President Robert Mugabe said the law was necessary to correct the legacy of colonialism.

 

‘Trade to drive Dubai’

The Dubai Chamber of Commerce predicts that trade and logistics will become the driver of the Gulf state’s economy, in place of property and tourism.  “Real estate is moving from [being] a key driver to a supporter because… it will definitely take a longer time to recover,” said Hamad Bu Amim, director-general of the Dubai Chamber of Commerce and Industry. 

 

Fears for Kuwait banking

 

Fears are growing for Kuwait’s banking sector, with growing expectations that it could follow Dubai’s property and financial sectors into crisis.  Moody’s predicts that Kuwaiti banks will suffer from poor profits because of high levels of provisions for bad debts and the weak performance of the Kuwaiti stock exchange.  Meanwhile, the cost of insuring Dubai’s sovereign debt again rose, suggesting that its crisis is not over.

 

US company accused of forging audit report

Indiana mining exploration company Tsukuda-America has been charged by the Securities and Exchange Commission of forging an audit report, causing its stock offering to be suspended.  The company had filed an audit report supposedly in the name of accountancy firm Weinberg & Co – which denied knowing of the company.  The SEC has also filed a legal action against the company’s sole officer, director and shareholder, John W. Petros of Texas.

 

 

Arab money ‘must go to Arab states’

 

Arab nations should respond to the economic crisis by conducting fundamental economic restructuring and use their funds to support other Arab states, not to bail-out Western nations, says the Arab League.  “The natural place for Arab surpluses should be in Arab countries,” said Mohammad Al-Tuwaijri, Assistant Arab League Secretary General for Economic Affairs.  Arab funds had already made heavy losses by investing in the West, he argued.  Kuwait has called for Arab nations to adopt common economic policies to combat the crisis.

 

Economists demand greater banking reform

A prominent group of economists has warned that major banks are putting the global economy at risk by continuing with high risk activities.  The report, commissioned by the Roosevelt Institute, argues that banks are paying large shareholder dividends and staff bonuses through the use of borrowed funds.   The authors – who include Rob Johnson of the United Nations Commission of Experts on Finance, and Elizabeth Warren, chair of the Congressional Oversight Panel – are calling for stronger regulation and oversight of the banks.  Asking what will happen without that, they say, “We may be nearing the stage where the answer will be — just as it was in the Great Depression — a calamitous global collapse.”

 

Politics

 

Deloitte and PwC clash on bank reporting proposals

 

Deloitte and PwC have clashed over proposals to reform banks’ financial reporting.   Jim Quigley, global head of Deloitte Touche Tohmatsu, suggested that banks report asset values using both current mark-to-market fair values and also predictions of future crystalised gains or losses.  These would be reported in different lines of the accounts.  Quigley said that “one way we can bridge some of the current conflicts in financial reporting is with transparency”, adding that “the two-line idea accomplishes that transparency objective”.  But PwC responded that this “would muddy the waters” and cause greater confusion.

Economists demand greater banking reform

A prominent group of economists has warned that major banks are putting the global economy at risk by continuing with high risk activities.  The report, commissioned by the Roosevelt Institute, argues that banks are paying large shareholder dividends and staff bonuses through the use of borrowed funds.   The authors – who include Rob Johnson of the United Nations Commission of Experts on Finance, and Elizabeth Warren, chair of the Congressional Oversight Panel – are calling for stronger regulation and oversight of the banks.  Asking what will happen without that, they say, “We may be nearing the stage where the answer will be — just as it was in the Great Depression — a calamitous global collapse.”

Turner declares reform agenda

 

The Financial Stability Board’s Standing Committee on Regulatory and Supervisory Cooperation will make recommendations on further banking reform in time for the G20 summit in Seoul in November, its chair, Lord Turner, has told the House of Commons Treasury Select Committee.  Turner told the MPs that options under consideration include raising the equity capital requirements for the largest banks; greater legal separation of banking activities, either by geography or function, to reduce systemic risk; and restrictions on the scope of activities which different types of banks can perform.

 

PwC argues change in retirement age now necessary

 

PwC argues that the size of the fiscal deficit means that reforms to the state pension age must be faster and go further than was previously intended.  Its report, ‘Working longer, living better: A Fiscal and Social imperative’, proposes raising the state pension age to 67 by 2030 and to 70 by 2046.  In addition, says PwC, the default retirement age for employees should be scrapped.  Existing planned changes to the state pension age would see retirement pensions begin at 65 in 2020, at 66 by 2026, 67 by 2036 and 68 by 2046.  The report estimates that PwC’s proposed changes would cover around 60% of the projected rise in state pension spending between 2010 and 2046.  A higher state pension age would assist paying for a more generous state pension.

 

Ashcroft admits he is a non-dom

 

Conservative Party deputy chairman and leading donor Lord Ashcroft has admitted his is non-domiciled in the UK, despite previously promising the party that he would take-up permanent UK residence if made a peer.  It also emerged that Labour Party donors Lord Paul, a privy councillor, and Sir Ronald Cohen are also non-doms, as are Liberal Democrat donors Bhanu, Sudhir and Dhruv Choudhrie.  Lord Ashcroft said: “David Cameron has said that anyone sitting in the legislature – Lords or Commons – must be treated as resident and domiciled in the UK for tax purposes. I agree with this change and expect to be sitting in the House of Lords for many years to come.”

 

Public Sector

 

Audit Commission warns councils unprepared for IFRS

 

Local authorities are not sufficiently prepared for the introduction of IFRS for 2010/11, warns the Audit Commission.  Auditors report that only one in seven authorities is ‘on track’, with one in five having serious difficulties with implementation timetables. A failure to achieve successful transition to IFRS would cause significant reputational damage to individual local authorities and the local government sector as a whole, says the Commission. Poor preparation will heighten the risk that accounts will not meet requirements and attract a qualified auditor’s opinion or be published late.  There is also a risk that extra and unnecessary costs will be incurred.  The Commission told councils they need to develop and maintain a detailed project plan, including a budget and resource plan; conduct a detailed impact assessment; engage the wider organisation, because IFRS is not just a finance issue; ensure that their audit committees are aware of the implications of IFRS; and begin a dialogue with their external auditor on the authority’s plans and progress, and the issues arising.

 

PCAOB proposes new accounting standards for PPPs

New accounting standards have been proposed for Public Private Partnerships (PPPs).  The International Public Sector Accounting Standards Board (IPSASB) has published an exposure designed to provide consistency in the way PPPs are accounted for by both parties to PPPs, or service concession arrangements as they are termed by IPSASB.  The ED, Service Concession Arrangements: Grantor, provides requirements and guidance to grantors that is consistent with IFRIC 12, Service Concession Arrangements, which at present only applies to contract operators.

 

Practice

 

HMRC consults on ‘working with tax agents’

 

HMRC will have new powers to tackle tax agents guilty of deliberate wrongdoing, including gaining access to working papers of those accused of deliberate wrongdoing, or of causing HMRC a loss of tax.  The increased powers are contained in draft legislation that describes the purpose of the law change as “to ensure the highest standards of performance by those working as tax agents, whether or not they are affiliated to a professional body” and for more tax returns and claims to be correct when submitted.  HMRC invites views on the draft legislation and on proposals to publish the names of tax agents penalized for deliberate wrongdoing.  Additional powers are being considered against tax agents who submit a high volume of wrong claims.  It is also planned to introduce revised procedures for disclosure to professional bodies in the case of misconduct, but no new legislation is required to implement this.

 

Online ‘blind dating’ for advisors

 

A new website has been established to allow potential clients and advisors to be matched, without clients initially disclosing their identity.  Companies and individuals can request expressions of interest from advisors and will only provide their details after contact has been established.  Advisors must agree to provide an initially free service, guaranteeing a one hour, face to face consultation without charge.  Professional advisors will pay £15 per response.   The service has been established by Bob Edwards, an FCCA who has been in general practice for many years.  Further information is available from the website, www.k-nect.biz, or by email bob@k-nect.biz.co.uk.

 

Financial services

 

BBA criticises cost of accounting standards changes

 

Proposals from the IASB requiring banks to move to an ‘expected loss’ model for reporting loans losses would cost the major banks £225m a year, introduce greater complexity, take years to complete and will not prevent a future banking sector crisis, claims the British Bankers’ Association.  Under the changes, banks would be required to conduct regular reassessments of outstanding loans, making provision for bad debts where reassessments suggest loans may not be fully repaid.  At present, banks are only required to make provisions for bad debts where there has been a specific ‘trigger’ – such as a loan repayment default.  Under the expected loss model, banks would make one-year loss forecasts.  The BBA predicts that the new measures will require banks to reform internal structures, including in some cases the merger of accounting and credit risk functions.  The BBA believes the changes will cost large banks between £25m and £38m each.

 

 

FSA publishes new penalty policy

 

Financial services firms penalised by the FSA face a trebling of fines.  Stronger measures proposed by the FSA offer “a consistent and more transparent framework for the calculation of financial penalties”, it says.  Under the new framework, fines will be linked more closely to income.  The calculation of fines will use a metric of up to 20% of a firm’s revenue from the product or business area where there was a breach; up to 40% of an individual’s salary, plus benefits, in the business area concerned; and at least £100,000 for individuals where there was serious market abuse.

 

Corporate

 

Deloitte surveys PLC reports

Nearly three quarters of large PLCs surveyed by Deloitte have changed accounting policies in 2009/10.  Deloitte analysed the half yearly reports of 100 companies and 30 investment trusts.   The most common reason for change was the adoption of the new accounting standard on segmental reporting.  Isobel Sharp, audit partner at Deloitte, said: “The status quo is not an option. In 2010, companies making acquisitions will be required to apply IFRS 3 (2008) with its increased disclosure in both annual and half-yearly financial reports.  Going concern and liquidity risk continue to be issues for many companies in these uncertain times.  Previously, there has been limited explicit guidance on how this should be dealt with in half-yearly financial reports.  The FRC guidance published in October 2009 offers clear pointers to directors in both assessing going concern at interim reporting dates and making appropriate disclosures in half-yearly financial reports.  This will be of interest to many preparers of half-yearly reports in 2010.”

 

Tax framework for business published

The Government has published its draft ‘Tax Framework for Business’, developed in discussion with the Business-Government Forum on Tax and Globalisation.  The document is intended to provide greater certainty for large businesses about the Government’s approach to the development of tax policy. The draft sets out key principles underpinning the development of tax policy – including securing fairness, competitiveness and stability for the UK, and ensuring new burdens and complexities are not created for UK business.  It pledges the Government to consult before changing tax policy “wherever possible”.

Enterprise

 

 

Business closures stabilising

 

Business closures are reducing, according to credit information providers Equifax.  There was a 9.2% decrease in the number of company failures in January, compared to December.  In Scotland, there was a 53.9% decline; in London a 19% drop; and in the West Midlands a 17% fall.  Business closures rose by 15.4% in the South West; by 12.3% in the East Midlands and by 4.5% in Wales.  There was a 15.3% decline business failures in the services sector, but an 8.2% rise in the manufacturing sector and a 3.9% rise in wholesaling.  Equifax says the reversal of the business closure trend began in the middle of last year and has continued since.  Neil Munroe of Equifax commented: “Clearly the UK economy is not out of the woods.  So the businesses that have survived so far must continue to be very careful about how they manage their customer and supplier relationships to ensure they get paid on time and don’t get caught out by bad debt or failure.  But businesses right across the UK and across every sector should take real encouragement from this latest data.”

 

Tax complexity deters business growth

 

Tax complexity is holding back the ability of small firms to expand, according to a survey conducted by the Federation of Small Businesses and ICM.  Three quarters of businesses said they would grow their business if the tax regime were easier to understand. Over a third of businesses said they found income tax the most difficult issue to deal with, while 52% cited taxable allowances. Over half said VAT is the easiest type of taxation to understand.

 

 

+ RoW sectors

 

 

Corporate

 

‘Insurers recovering faster than banks’

European insurers are recovering from the financial crisis quicker and better than are banks, according to an Ernst & Young review of the insurance sector.  Insurers have, though, made substantial investment losses that will undermine their capacity to finance operations this year and cause them difficulties in recapitalizing insurance reserves.  Insurers also face challenges with the implementation of new accounting standards and the European Union’s Solvency II rules.  E&Y says insurers should concentrate on recovering their capital positions, strengthen risk management and adapt their businesses to the regulatory changes. The firm says insurers also need to evaluate growth opportunities, consider asset acquisitions made possible by the strength of the euro and create new insurance instruments, while ceasing to underwrite low income and low margin activities.  E&Y suggests that insurers achieve a more effective distribution of capital between product lines and business departments.   New opportunities exist because of the number of financial services companies leaving the insurance sector.

SEC imposes short selling controls

The US Securities and Exchange Commission is imposing new restrictions on short selling of stocks experiencing downward price pressure. The SEC described the measure as “intended to promote market stability and preserve investor confidence”.  The controls will be triggered where stocks have dropped by more than 10% in one day.  Long sellers will be enabled to sell shares before short sellers can push prices down further.  “It is important for the Commission and the markets to have in place a measure that creates certainty about how trading restrictions will operate during periods of stress and volatility,” said SEC chairman Mary L. Schapiro.

Practice

 

International Standards Crucial to Investor confidence

 

The latest IFAC Global Leadership Survey has found that accountancy leaders want IFAC to increase pressure for the adoption, implementation, and enforcement of converged standards.   Investors and other users of financial information deserve clear, reliable, and consistent information, they said.  Some 157 leaders of accountancy organizations in 123 countries were surveyed.  The presidents and chief executives responding to the survey said that IFAC needs to continue to lead the convergence of standards developed by independent standard-setting boards, relating to auditing and assurance, education, ethics and public sector accounting, and support the implementation of those standards.  Top priorities of the profession include raising confidence in international standards for accounting and auditing in both the private and public sectors; adopting and implementing international standards, including principles of good corporate governance; and urging the G20 to not place unreasonable burdens on small and medium-sized enterprises through tougher regulation.

 

IIA shows thought leadership

 

The Institute of Internal Auditors has published two new thought leadership reports that seek to demonstrate the central importance of internal audit in corporate governance.  Chief audit executives are advised to demonstrate this in the context of new US Securities and Exchange Commission Proxy Disclosure Rules.  A report – Flash Alert: New SEC Proxy Disclosure Rules – lists 10 key actions for CAEs that back this up.  A second report – Knowledge Alert: Emerging Trends in Fraud Risk – summarises the results of an IIA survey on the state of internal audit reports related to fraud risk.