Accounting & Business – news September 2010

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

Auditors face tougher regime

An investigation by the Financial Reporting Council into the role of auditors in the global financial crisis could lead to tougher demands and sanctions on accountants.  An FRC study will consider what lessons can be learnt from the crisis, with the results to be published in the autumn.  Stephen Haddrill, Chief Executive of the FRC, said: “I am delighted that senior individuals from business and the accountancy profession have agreed to serve on this advisory group to help the FRC to identify key lessons from the financial crisis and the way markets are now developing.  Our aim is to apply these lessons to the issues within the FRC’s remit and to consult on proposals for reform. It is time to get into the detail of the auditing, accounting and corporate reporting practices that need to be changed to enhance the relevance and value of information provided to the capital markets and the assurance given by audit”.

 

FAST FACTS

 

£2.9m – fines plus costs imposed by JDS on E&Y for Equitable Life audit failings

 

£1.65m – fines plus costs imposed by JDS on KPMG and a partner for Independent Insurance audit failings

 

£1.5m – fines plus costs imposed by JDS on PwC and a partner for TransTec audit failings

 

Integrated reporting

 

Financial and sustainability reporting should be brought together using a clear and agreed framework, according to a powerful new body, the International Integrated Reporting Committee (IIRC).  ACCA chief executive Helen Brand is a member of the steering committee: others include IFAC chief executive Ian Ball, FASB chairman Robert H. Herz and IASB chairman Sir David Tweedie.  Brand said: “ACCA is passionate about ensuring that the accountancy profession plays a key role in this vital area. We have long called for the need for a clear and consistent method for businesses to report on their impacts on society and the environment, including carbon emissions. The IIRC represents a considerable force for change.”  The project is led by the Global Reporting Initiative and the Prince of Wales’ Accounting for Sustainability Project.  Prince Charles’ principal private secretary Sir Michael Peat will chair the steering committee. 

 

Shilder reappointed

 

Arnold Schilder has been reappointed by the board of IFAC to chair the International Auditing and Assurance Standards Board (IAASB) for a second three year term, ending in 2014.  Professor Schilder initially took on the role in early 2009 and will continue to lead the IAASB in its work to set high-quality auditing and assurance standards and facilitate convergence to international standards.  He said: “I look forward to continuing the board’s work to achieve global adoption of the clarified ISAs and to helping practitioners around the world successfully implement these high-quality international auditing standards.”  The reappointment was welcomed by ACCA.

 

Narrative reporting ‘must improve’

 

The Government has launched a consultation aimed at improving corporative narrative reporting.  The consultation invites views on all options, non-regulatory and regulatory, to improve narrative reporting and will consider whether there is sufficient disclosure of directors’ pay.   Business minister Edward Davey said: “I want corporate narrative reporting to tell the company’s story in a balanced and coherent way. It should give shareholders the information they need, so they can hold directors to account and be effective stewards for the business.”

 

Future of assurance

 

Auditors and audit committees should be more willing to provide information to investors, Steve Maslin, chair of the Partnership Oversight Board at Grant Thornton, has told an ICAS conference on the Future of Assurance.  The greater transparency should include clearer disclosures about business models, related risks and management judgement and estimates.  “The reporting model should provide the clearer disclosures that investors need, and the role of external auditors should broaden to provide investors and others with further value from their independent examination,” said Maslin.

 

Office of Tax Simplification

 

The Treasury has established an Office of Tax Simplification, with former PwC tax partner John Whiting appointed as tax director and former Financial Secretary to the Treasury Michael Jack as chairman.  Whiting said: “I’ve long argued that we need a simpler tax system in the UK, so I’m delighted to be given the opportunity to take forward the Government’s commitment in that direction.”  The first two taxation reviews will examine tax reliefs and small business tax – including the controversial IR35.  The creation of the OTS was welcomed by ACCA. 

 

Environmental reporting strengthens

 

The Government is considering requiring large companies to report carbon emissions in annual reports and accounts from 2011.  A green paper says “Carbon disclosure by the UK ‘s largest companies would act as a significant driver of emissions reduction and create a competitive advantage in the corporate sector by establishing a level playing field, allowing consumers and investors to make meaningful comparisons.”

Bribery Act on hold

 

Implementation of the Bribery Act has been delayed, allowing more time for companies and government to prepare for its application.  Justice secretary Ken Clarke – designated by prime minister David Cameron as UK anti-corruption champion – said: “I will be working closely with colleagues across departments, devolved administrations, law enforcement, prosecution authorities and regulatory agencies to ensure a coherent and joined-up approach to combat international corruption.  The champion role sends out a clear message that the UK coalition government will not tolerate bribery or corruption and that we will work together to stamp out these practices across the board.” 

 

Accountants ‘need new skills’

 

New skills will be needed by accountants to work in a tougher operating environment, according to a study published by Grant Thornton in the US.  Expectations on accountants have risen, with growing pressure to understand constantly changing accountancy standards and regulations, as well as tougher demands to improve the communication of financial data, understand risk management and drive down costs.  The study – The evolving accounting talent profile – suggests that it will prove increasingly difficult to recruit and retain the best accountants. 

 

Chris Dickson leaves JDS

 

Chris Dickson has left his role as castigator for the Joint Disciplinary Scheme.  He has joined Grant Thornton as a consultant, working across the firm in the UK to advise on auditor practice protection policies.  Dickson left the JDS after he completed its proceedings against Ernst & Young relating to its audit of Equitable Life.  He had been JDS executive counsel since 1998.

 

Vantis goes

 

Listed accountancy firm Vantis has gone into administration, as a result of a severe cash flow crisis caused by its role as receiver of the Stanford group.  RSM Tenon and Begbies Traynor have acquired some parts of the firm, while Vantis partners have formed FRP Advisory and Evolution LLP to take over other operations.  RSM Tenon paid £6.8m to acquire the main bulk of the accountancy operations and tax and business advice functions, plus the IFA role and business restructuring services.  It absorbs 300 Vantis staff under the deal.

 

PwC and E&Y expand

 

PwC admitted 38 new partners in July, in addition to 19 admitted earlier in the year.  The promotions reflect PwC’s determination to continue expanding.  Ernst & Young also announced that it had admitted new partners, with 10 joining its advisory practice in the UK and Ireland over the last year.

 

Insolvency sector faces reform

 

Insolvency practitioners face tougher regulations, following the completion of an investigation by the Office of Fair Trading.  The OFT market study concluded that while the market often works well, it may not work in the best interests of all creditors in over a third of administrations and creditors’ voluntary liquidations procedures – which together account for 75% of income earned by practitioners.  The study concluded that banks and other secured creditors get a better deal from insolvencies, than do unsecured creditors.  Practitiones earn £1bn a year from corporate insolvencies, realising about £5bn from the assets of insolvent businesses. 

 

AADB investigates E&Y over Lehman

 

The Accountancy and Actuarial Discipline Board is investigating Ernst & Young over its audit of Lehman Brothers International Europe.  The investigation is concentrating on the preparation of Lehman’s accounts and their audits, including of the UK operations of Lehman Brothers Holding Inc, and the use of the ‘Repo’ accounting treatment of some transactions.

 

PAYE review

 

HMRC has launched a review of the operations of PAYE, saying that its processes have been unchanged in 66 years.  The review proposes that a system of real time information is introduced, designed to improve the accuracy of the tax and welfare systems.  This could enable employees to have the correct tax deducted when they move jobs and potentially remove the need for the P45/P46 procedures.  It should also make employer and HMRC administrations less costly, simplify end of year reconciliations and improve the processing of tax credits. 

 

E&Y brings in non-execs

 

Ernst & Young is implementing the UK Audit Firm Governance Code across its global network, including the adoption of non-executive board members.  Non-executive appointees will join E&Y’s Global Advisory Council.  Jim Turley, global chairman and chief executive, said: “Although the code technically applies only to our UK business, as a globally integrated organization, we believe it is most appropriate for us to implement the code’s provisions on a global basis also.”  The non-executives will come from high level professional backgrounds, including from the regulatory, business, academic and public sectors.

Corporates move out

 

William Hill’s online operations are to relocate to Gibralter and its UK telephone betting subsidiary will close.  The company said it was impossible for phone and online betting operations to be profitable when competing against businesses based offshore.   JP Morgan is also conducting a partial relocation, moving its head of international business from London to New York, because of the high rates of personal tax on top earners.  Zurich Financial’s new CEO of global life emerging markets will be located in Dublin, not London.

 

RoW News

 

Billions of Iraq oil money missing

 

Weak financial systems in the US Department of Defense have left it unable to account for $8.7bn of expenditure out of a total $9.1bn spent on reconstruction in Iraq.  DoD failed to comply with Treasury guidelines for the accounting of funds, with the result that accounts were not established by DoD’s agencies for 96% of spending – meaning they were “vulnerable to inappropriate uses and undetected loss”.  An audit from the Special Inspector General for Iraq Reconstruction said it “could not determine why the guidance was not followed”.  Expenditure records were often incomplete and there is no documentation available to show how $2.6bn was spent.  Failures by defence forces to comply with proper contracting procedures meant that some contracts could not be terminated when the Iraqi government instructed the DoD to do so and to transfer outstanding reconstruction funds to the government.  The audit noted that proper reporting and accounting procedures were still not in place for future contingency operations.

 

FAST FACTS

 

$9.1bn – funds provided for Iraq reconstruction from oil revenues

$0.4bn – spending properly accounted for

$2.6bn – spending for which there are no records

 

Integrated reporting [lead]

 

Financial and sustainability reporting should be brought together using a clear and agreed framework, according to a powerful new body, the International Integrated Reporting Committee (IIRC).  ACCA chief executive Helen Brand is a member of the steering committee: others include IFAC chief executive Ian Ball, FASB chairman Robert H. Herz and IASB chairman Sir David Tweedie.  Brand said: “ACCA is passionate about ensuring that the accountancy profession plays a key role in this vital area. We have long called for the need for a clear and consistent method for businesses to report on their impacts on society and the environment, including carbon emissions. The IIRC represents a considerable force for change.”  The project is led by the Global Reporting Initiative and the Prince of Wales’ Accounting for Sustainability Project.  Prince Charles’ principal private secretary Sir Michael Peat will chair the steering committee. 

 

Accountants ‘need new skills’

 

New skills will be needed by accountants to work in a tougher operating environment, according to a study published by Grant Thornton in the US.  Expectations on accountants have risen, with growing pressure to understand constantly changing accountancy standards and regulations, as well as tougher demands to improve the communication of financial data, understand risk management and drive down costs.  The study – The evolving accounting talent profile – suggests that it will prove increasingly difficult to recruit and retain the best accountants. 

 

Australia and NZ harmonise

 

The Australian and New Zealand accounting boards have announced they are closer to achieving standards harmonisation, following the release of a batch of jointly agreed exposure drafts.  These propose to eliminate many IFRS-related differences between the two countries and represent the first phase of a longer-term project to harmonise accounting requirements in Australia and New Zealand.  Governments in the two countries last year issued a joint statement of intent to enable companies operating in the two territories to produce only one set of financial statements.

 

E&Y to bring in non-execs

 

Ernst & Young is implementing the UK Audit Firm Governance Code across its global network, including the adoption of non-executive board members.  Non-executive appointees will join E&Y’s Global Advisory Council.  Jim Turley, global chairman and chief executive, said: “Although the code technically applies only to our UK business, as a globally integrated organization, we believe it is most appropriate for us to implement the code’s provisions on a global basis also.”  The non-executives will come from high level professional backgrounds, including from the regulatory, business, academic and public sectors.

 

Former KPMG principal guilty

 

A former KPMG tax consultant has pleaded guilty to not filing a tax return for six years.  John Venuti worked for KPMG in Maryland from 2002 until earlier this year and previously worked for the IRS.  Venuti owed $790,000 in tax arrears.  Sentencing was deferred, but he could be imprisoned for one year.

 

Former Deloitte partner charged

 

A former Deloitte partner and his son have been charged by the US Securities and Exchange Commission with insider trading, regarding the securities of several Deloitte audit and consulting clients.   Thomas P. Flanagan and Patrick T. Flanagan paid over $1.1m to settle the charges on the basis of neither admitting nor denying the charges.  The SEC alleges that Thomas P. Flanagan provided privileged information about clients’ advance earning results and other data to his son, to enable him to trade in the securities of Best Buy, Sears, Walgreens and Motorola. 

 

SA municipalities avoid audits

Thirty six of South Africa’s 277 municipalities were not audited in 2008/9 because they failed to provide financial statements to the country’s auditor general, Terence Nombembe.  The annual report by Nombembe recorded “fruitless and wasteful” spending by municipalities of R117m  (£10m), irregular spending of R2.3bn (£201m) and losses of R5bn (£437m) on municipality provided services, including electricity and water.  Municipalities spent over R200m (£17m) to buy-in accountancy support, because they did not have the expertise internally to prepare their annual accounts.  The number of qualified audits fell by 39%.

Abu Dhabi ‘not auditing ministries’

Abu Dhabi’s ministry of finance has been accused of not auditing other ministries and publicly funded bodies and failing to prevent “repeated violations” of public spending rules. The comments were made by members of the Federal National Council.  Obaid Humaid Al Tayer, minister of state for financial affairs, accepted that violations were being committed, but said these were of administrative procedure, not misappropriation.  A report from an FNC committee warned that emirates other than Abu Dhabi and Dubai are not contributing to the Federal budget.  Abu Dhabi expects to record a budget deficit this year of 84.9bn dirham ($23.1bn).

KPMG expands

 

KPMG has acquired Grant Thornton’s Supply Chain Advisory Services practice in the US, expanding KPMG’s restructuring operations.  The arrangement will increase its capacity to support restructures in the financial, supply chain, supplier services, technology and performance improvement sectors.  The transaction also includes Grant Thornton LLP’s Vontik software system; 23 Grant Thornton staff transfer to KPMG.

 

Bond’s bond

 

Sean Connery may be questioned by a Spanish judge as part of a tax investigation relating to properties he formerly owned in Malaga and Marbella.  A court is considering whether several million euro in tax has not been paid on profits on disposals and if all appropriate planning consents were complied with.  Connery is reported to have had to deposit €3m in court as a guarantee or ‘Bond’.

 

Russia recovers

 

Russia’s economy is recovering quickly, according to the latest ACCA global economic conditions survey – which includes the country for the first time.  The report says that conditions in Russia are improving because of its limited size of sovereign debt, high commodity prices and liberalised financial policy.  Three quarters of ACCA members who are Russian specialists believe that the economy either already is improving, or is about to improve.   But the report indicates that doubts persist about the global economy.

 

Audit standards get tougher

 

PCAOB has proposed tougher audit standards relating to the confirmation process.  The proposed standard recognises the importance of audit evidence obtained from independent third parties and strengthens and extends the requirements for using confirmations in the audit process.  “The proposal would modernize the confirmation standard and strengthen its requirements to better protect investors,” said PCAOB acting chairman Daniel L. Goelzer.  “The proposed new standard would also more explicitly incorporate consideration of the risk of material misstatement due to error or fraud into the selection, design, and performance of confirmation procedures.”

 

Poor reporters pay price

 

Substantial penalties have been paid to the US Securities and Exchange Commission by corporations charged with breaches of reporting and other standards.  Goldman Sachs will pay $550m while not admitting or denying that it made mis-statements and omissions regarding its disclosures on collateralized debt obligations: $250m will go to investors.  Dell paid a $100m penalty for breaches of disclosure requirements.  Citigroup will pay $75m to settle allegations that it misled investors regarding its exposure to sub-prime mortgages.  General Electric will pay $23.4m to settle allegations that it paid bribes to win Iraqi government contracts.

 

Former Deloitte partner to review standards

 

Recently retired Deloitte senior partner Mark Schroeder has been appointed by the Financial Accounting Foundation  as post-implementation review leader.   He will monitor how US accounting standards are implemented, developed and managed.  The FAF has responsibility for the oversight, administration, and finances of the Financial Accounting Standards Board and the Governmental Accounting Standards Board. The Foundation also selects the members of both boards and their advisory councils.

European tax rates above those in US or Japan

 

Tax rates in the EU are above those in the US or Japan, according to analysis conducted by Eurostat.  Tax to GDP ratios for 2008 were 26.9% in the US, 28.3% in Japan and 39.3% in the EU.  The lowest rate in the EU was in Romania, where it was 28%, and the highest rate was in Denmark, at 48.2%.  The biggest fall in recent years was in Slovakia, where it dropped from 34.1% in 2000 to 29.1% in 2008.  The largest increase was in Cyprus, where it jumped from 30% in 2000 to 39.2% in 2008. 

 

Shilder reappointed to lead IAASB

 

Arnold Schilder has been reappointed by the board of IFAC to chair the International Auditing and Assurance Standards Board (IAASB) for a second three year term, ending in 2014.  Professor Schilder initially took on the role in early 2009 and will continue to lead the IAASB in its work to set high-quality auditing and assurance standards and facilitate convergence to international standards.  He said: “I look forward to continuing the board’s work to achieve global adoption of the clarified ISAs and to helping practitioners around the world successfully implement these high-quality international auditing standards.”  The reappointment was welcomed by ACCA.

 

Politics

 

FRC faces merger with FSA

 

The Financial Reporting Council could merge with the securities regulator, the UK Listing Authority (part of the Financial Services Authority), under proposals from the Government.  The combined UKLA/FRC might be located within the Department for Business, Innovation and Skills, or the markets division of the new Consumer Protection and Markets Authority (CPMA), which takes on much of the FSA’s work.  Other FSA operations will transfer to the Prudential Regulation Authority, which will oversee all deposit-taking institutions.  The PRA’s board will be chaired by the Governor of the Bank of England, while its chief executive will be the newly created Deputy Governor for prudential regulation. 

 

FRC and FSA consider role of auditors

 

The FRC and the FSA have jointly issued a discussion paper considering how auditors could contribute more effectively towards the regulation of financial services firms.  The paper considers how the FSA, the FRC and auditors might work more closely together and questions whether auditors have been sufficiently sceptical and if they had paid sufficient attention to indicators of management bias.  The FSA expressed concern about auditors’ work on client assets and how auditors fulfil their legal obligations to report to the FSA. 

 

‘Accounts signed-off too soon’

 

The FRC has suggested that audit firms may be too keen to sign-off accounts, before audit team meetings properly consider findings.  The criticism is contained in a report on the need for scepticism published by the FRC’s Auditing Practices Board.  Other concerns include whether auditors are too concerned about the risk of losing clients to express appropriate scepticism; whether the exercise of scepticism might delay completion of an audit beyond the agreed date for publishing results; and whether delays could cause an auditor’s costs to exceed the agreed fee.

 

ACCA makes case for auditors

 

The role of auditors is essential, but needs to be enhanced, says ACCA in its submission to the FRC’s review of the role of audit.  The profession needs to maintain and enhance the value of audit by expanding its scope, with risk management, corporate governance arrangements and financial assumptions underlying the business model all brought within the scope of audit.  The work involved in audit reports needs to be better communicated to stakeholders, it adds.  ACCA head of policy Ian Welch said: ‘Auditors largely escaped attention in the first phase of the credit crunch and its aftermath. This respite is now over and the profession is facing searching questions from regulators and commentators. ACCA still believes that qualified auditors, whose training engenders qualities of professional scepticism and independence of thought, have a key role to play in instilling confidence in business.”

 

Lords investigate audit market

 

The House of Lords Economic Affairs Committee is to investigate whether the audit market is sufficiently competitive and whether lack of competition contributed to the banking crisis.  The committee will also consider whether auditors should have done more ahead of the banking crisis to alert investors.  Former Conservative minister Lord MacGregor, chairman of the committee, said: “Auditing is a very high profile issue following the financial crises and we will seek to establish whether the market dominance by a small number of auditors contributed to a failure to pick up on unsustainable risks being taken on by international banks.”

 

Public sector

 

PFI costs rose by £1bn

 

Public bodies had to pay an extra 6% to 7% for PFI financing costs during the credit crunch, at a total cost of an additional £500m to £1bn, analysis by the National Audit Office has concluded.  However, this extra cost has been partially offset by the public sector being able to increase its share of the benefits of private sector refinancing of loans once a contract is underway.  The NAO concluded the creation of the Infrastructure Financing Unit by the Treasury helped reactivate the lending market for PFI schemes, with many projects previously in doubt because of the global financial crisis.  The extra PFI costs represented value for money in the short term as a contribution towards stimulating the economy, said the NAO, but this does not mean that continued use of private finance at these rates of interest would be value for money.

 

LGPS ‘must be reformed’

 

The Local Government Pension Scheme must be reformed, concludes an Audit Commission study.  The review is a contribution to a wider study into public sector pension schemes being conducted by former Labour minister John Hutton at the request of the Government.  The Audit Commission suggests that options for reform include increasing employee contributions; raising the retirement age; allowing local pension funds greater discretion in adjusting benefits; and stronger control by employers on wage costs. The LGPS is the largest UK public sector pension scheme in terms of total membership and is the only large public sector scheme that is funded. 

 

Corporate

 

Northern Rock FD banned by FSA

 

Northern Rock’s former finance director David Jones has been banned from performing any function related to regulated activities and fined £320,000.  He was found by the FSA to have misreported mortgage arrears figures.  Jones, along with Northern Rock’s former deputy chief executive David Baker, allowed false mortgage arrears figures to be used in explanatory text in the bank’s annual accounts for 2006.  The correct figures would have increased arrears by 50%, or possessions by 300%.  There was continued misreporting for nearly a year to Northern Rock’s assets and liabilities committee and to the Council of Mortgage Lenders.  Baker was banned in April 2010, as was former credit director Richard Barclay.  FSA enforcement director Margaret Cole said that while others had been involved in the misrepresentation “as a senior director himself and as an FSA authorised person, Jones had a duty to reveal the true position to the public and to important internal committees. He had numerous opportunities to put things right, but failed to do so.”

 

Poynter takes on BAT role

 

Former PwC chairman and senior partner Kieran Poynter has become a non-executive director of British American Tobacco.  Nicandro Durante becomes chief executive in place of the retiring Paul Adams.  Finance director Ben Stevens takes on the additional role of chief information officer.  BAT describes Stevens’ advancement as of “key importance in transforming the group as it becomes a more integrated global business”.  BAT chairman Richard Burrows, welcomed Kieran Poynter to the board.  “His deep knowledge of the City will bring additional strength to the board,” said Burrows.

 

Practice

 

HMRC slated by NAO

 

Seven million cases of potentially overpaid or underpaid tax dating from the 2007/8 tax year have still not been processed, the National Audit Office has disclosed in its report on HMRC’s accounts for 2009/10.  An estimated £3bn of tax due was uncollected and about £1.4bn in due tax refunds were unpaid at March 2010 from a total of 18.2 million cases awaiting action at that date.  The total of tax credits overpaid and uncollected increased by £100m to £4.5bn in the year.  Total revenues from taxes and duties fell in 2009/10 by £5.9bn to £435.1bn: HMRC improved its debt collection, with amounts due from taxpayers but not yet paid decreasing by £1.6bn to £26.1bn.  In a separate report, the NAO found that HMRC fails to demonstrate that it provides value for money for the £350m a year it spends on National Insurance administration.

 

HMRC calls in debt collectors

 

Commercial debt collectors have been engaged by HMRC to improve collection of tax arrears, aiming to collect an extra £140m of tax debt.  Four agencies have been chosen – Commercial Collection Services Ltd, Credit Solutions Ltd, Fairfax Solicitors Ltd and iQor Recovery Services Ltd – following an initial pilot exercise.  Before the debt is referred to a collection agency, HMRC will write to a debtor providing a final opportunity to pay or reach an agreement with the department.  The agencies will operate under industry guidelines and will be used to pursue lower value debts.  Nick Lodge, HMRC director for debt management and banking, said:  “DCAs give HMRC vital additional capacity, strengthening our ability to pursue the debts of those who decline to pay.”

 

Enterprise

 

Green paper published on business finance

 

The Government has published a green paper considering the financing of businesses, accepting that SMEs and growing firms are not being adequately served.  ‘Financing a Private Sector Recovery’ sets out finance options for different sized businesses, considering market gaps and possible government interventions.  The paper addresses the success of existing government schemes, such as the Enterprise Finance Guarantee, and whether they should be improved or extended.  Business secretary Vince Cable said:  “If we don’t anticipate and tackle finance barriers now we could face a big problem in the future.”  Julian Rose, of the Finance and Leasing Association, said his association was pleased that asset finance was one option considered by the paper.  “But the market is constrained by the current tax and accounting regulation,” he argued. “We will be explaining to the Government the positive difference which relatively small changes to those regulations could make, including for investment in low-carbon equipment.”

 

Government promises to cut regulation

 

Business secretary Vince Cable has announced measures to reduce the red tape burden on enterprise.  The measures will change how regulations are drawn up, introduced and implemented, with a ‘one in, one out’ system operating from September.  A more far reaching review of existing regulations is to follow, intended to reduce the total number of regulations.  Stronger principles will also be adopted to assess the impact of new regulations.  The Government promises to engage at an earlier stage in the EU regulation making process to reduce the negative impact of EU regulation and to avoid ‘gold plating’ EU legislation.

 

Financial Services

 

FSA amends remuneration code

 

The FSA has revised its remuneration code, extending the scope to cover many more financial services firms and strengthening it to limit bonus payments.  Firms will be required to defer at least 40% of any bonus payments to staff covered by the code for a period of three years or more.  Staff paid a bonus over £500,000 must have at least 60% deferred.  Half of any variable remuneration component, or more, must be paid in shares, share-linked instruments or other equivalent non-cash instruments of the firm.  Firms must not offer guaranteed bonuses of more than one year.  In addition, firms have a responsibility to ensure that bonus remunerations do not limit their ability to strengthen their capital base – and variable remuneration must be reduced where a firm’s financial performance is poor.  The rules will be applied from January, but the proposals are subject to consultation.

 

APB changes banking audits

 

New guidance for the audits of banks and building societies has been proposed by the Auditing Practices Board.  Richard Fleck, chairman of the APB, said:  “Following the publication of the clarified ISAs in October, there is a need to update the APB’s related Practice Notes. The APB considers this an opportune time to enhance the guidance in relation to areas that were identified as being of particular interest in the credit crisis.”  The APB is consulting on the draft guidance and will also consider responses to the FSA and FRD joint discussion paper on the auditor’s role in prudential regulation.

 

RoW sectors

 

Practice

 

PCAOB warns about non-US auditors

 

Auditors of US companies have been warned about relying on local auditors in other territories who may not be properly applying standards set by the Public Company Accounting Oversight Board.  PCAOB has published a Staff Audit Practice Alert warning in particular about the audits of US shell companies that have been used to engineer reverse takeovers of companies operating in other countries.  These firms are reporting in the US, though the majority of activities take place in the home territory and most of the audit is conducted by a non-US firm.  “Investors are put at risk when the firm issuing the audit report has performed none of the procedures itself, or cannot effectively communicate with those conducting significant audit procedures because of language barriers,” said George Diacont, director PCAOB’s Division of Registration and Inspections.

 

Greece hits at tax cheats

 

Greek tax authorities are adopting unconventional approaches to collecting billions of euro in avoided and evaded tax.  These include using Google Earth and police helicopters flying over homes to check which properties have swimming pools – which are supposed to be declared on tax returns.  The checks revealed 16,974 pools in Athens’ suburbs, compared to just 324 that had been declared.  Visits to car parks at expensive night clubs found 6,000 vehicles worth over €100,000, owned by people who declared annual incomes of less than €10,000.  A new financial crimes authority, SDOE, was given the target of collecting an addition €1.2bn in tax this year: it actually raised €1.8bn in its first six months.

 

Corporate

 

German companies delist from US

 

Daimler and Deutsche Telekom have both delisted from the New York Stock Exchange.  Deutsche Telekom had traded in New York for 14 years and Daimler for 17 years.  The only German companies still listed in New York are Deutsche Bank, Fresenius, SAP and Siemens.  At one point 11 German companies had listings in both Frankfurt and New York.  Allianz withdrew last year and other German companies are expected to follow.  In the case of Daimler, its demerger from Chrysler is one factor, along with the fact that it no longer needs to raise funds in the US.   But the main reasons for the German corporations delisting are the cost of reporting and regulation, especially since the passing of the Sarbanes-Oxley Act.  Deutsche Telekom is in the process of delisting from all stock exchanges around the world, apart from Frankfurt.

 

Poynter takes on BAT role

 

Former PwC chairman and senior partner Kieran Poynter has become a non-executive director of British American Tobacco.  Nicandro Durante becomes chief executive in place of the retiring Paul Adams.  Durante has dual Brazilian and Italian nationalities, has been chief operating officer for BAT since 2008 and previously headed the corporation’s African and Middle East operations and its Brazilian unit.   Finance director Ben Stevens takes on the additional role of chief information officer.  BAT describes Stevens’ advancement as of “key importance in transforming the group as it becomes a more integrated global business”.  BAT chairman Richard Burrows, welcomed Kieran Poynter to the board.  “His deep knowledge of the City will bring additional strength to the board,” he said.

 

 

Enterprise

 

The IFRS Foundation, which oversees the operations of the International Accounting Standards Board, has created an SME Implementation Group to support the international adoption of the IFRS for Small and Medium-sized Entities (IFRS for SMEs) and to monitor its implementation.  The group will develop non-mandatory guidance for implementing the IFRS for SMEs in the form of questions and answers and will make recommendations to the IASB on possible amendments to the IFRS for SMEs.   The initial 21 members of the group have been appointed for their detailed knowledge of SMEs’ financial reporting and include Professor Robin Jarvis, head of SMEs at ACCA.  Other members include partners from around the world from Ernst & Young, PwC and KPMG, a representative of the World Bank and Ying Wei, Deputy Director-General of the Accounting Regulatory Department in China’s Ministry of Finance.  Representatives of the European Commission and the European Financial Reporting Advisory Group (EFRAG) will participate in the work of the group as observers.

Latin American economy surges

 

The Latin American economy is predicted by the World Bank to grow by 4.5% this year, in contrast to most developed economies.  Brazil grew by 9% in the first quarter of this year and the national central bank predicts 7.3% annual growth in 2010.  Economic activity has been spurred by high demand for metal commodities from Asia.  Growth rates are strong elsewhere in Latin America: in Peru it approached 10% in some months and in Mexico it exceeded 5% in the first quarter of this year.