Accountancy news – October 2011: Accounting & Business

Posted on October 1, 2011 · Posted in Accounting & Business

A&B – October 2011

UK News

[lead] integrated reporting

A more integrated reporting model is required that brings together financial, social and environmental reporting, along with the economic context within which an organization operates. The reform call is made by the International Integrated Reporting Committee – which is backed by IFAC and ACCA – in a discussion paper, Towards Integrated Reporting – Communicating Value in the 21st Century. Sir Michael Peat, chairman of the IIRC, explains: “The world has changed – reporting must too. All matters which are important in assessing an organization’s performance and position, past and prospective, need to be reported…. The information needs to be provided clearly and concisely with the connections between financial, environmental and social impacts demonstrated and the clutter removed.” IIRC deputy chairman, Professor Mervyn King, adds: “The IIRC’s approach is one that will present a globally co-ordinated solution to reporting, avoiding the current problems with reporting requirements in different jurisdictions developing in different directions and at different speeds.”

[lead] Swiss and UK reach tax deal

The UK and Swiss government have reached agreement for the exchange of bank account information to reduce offshore tax evasion. The Treasury estimates the deal will recover several billion pounds in unpaid tax. Existing funds held by UK taxpayers in Switzerland will be subject to a one-off charge of 19% to 34% to settle past tax liabilities. Swiss banks will make an up-front goodwill payment of CHF500m (£358m) to the UK Exchequer. From 2013, a new withholding tax of 48% on investment income and 27% on gains will be imposed on UK residents’ Swiss bank accounts. Stephen Camm, tax partner at PwC responded: “We conclude that the Lichtenstein Disclosure Facility is a better deal for UK taxpayers coming clean than the UK/Swiss treaty is likely to be, although taxpayers have to give up secrecy under LDF, which they are not required to do under the UK/Swiss deal.”

PwC grows 6%

PwC’s UK revenues grew by 6% in the year ending June, rising to £2.5bn. The audit practice grew by 6%, the advisory business by 8% and the tax practice by 2%. The firm recruited an additional 3,200 people and accepted 81 new partners in the year. Average profit per partner rose from £759,000 to £763,000: the staff bonus pool rose by 10% to £89m. Ian Powell, UK chairman, said: “While the short-term economic outlook remains uncertain, we see excellent long-term growth prospects, particularly in our consulting, human resource services and risk assurance businesses and in the financial services sector. We also see strong growth potential in serving the needs of entrepreneurs, mid-cap and private companies and in the Middle East.”

KPMG confirms top audit spot

KPMG has strengthened its position as the top audit firm in the latest Hemscott rankings. After winning an additional four clients, it now has 380 listed clients. PwC is second, with 368 listed clients, having won four new audit accounts. Deloitte is third, with 309 listed clients, followed by Ernst & Young (275), Grant Thornton (260) and BDO (173). Crowe Clark Whitehill moved into the top ten audit firms, ninth with 30 listed clients, while Mazars dropped from 10th to 11th position, after losing five clients, taking its total of listed clients to 23.

Skilled accountants ‘hard to find’

Two thirds of finance leaders report difficulty in recruiting skilled accountants and other finance professionals, according to the annual Robert Half Global Financial Employment Monitor. More than half are also concerned about holding onto their best finance staff. Phil Sheridan, managing director of Robert Half UK said: “It’s clear that the accounting and finance employment market is in a state of transition, with reported difficulties finding skilled staff and a growing concern among senior executives of how best to hold on to their star performers.”

IASB attacks banks’ accounting

European banks are distorting their accounts by not writing-down Greek sovereign debt holdings to current market values, the IASB said in a letter to the European Securities and Markets Authority. “There have been indications in the market that some European companies are applying the accounting requirements for fair value measurement and impairment losses in a way that seems to differ from the objective of IAS 39 Financial Instruments: Recognition and Measurement,” wrote IASB chair, Hans Hoogervorst. He added: “It is hard to imagine that there are buyers willing to buy those bonds at the prices indicated by the valuation models being used.”

SFO to demand tax calculations

Companies under investigation for paying foreign bribes may be required to present their tax calculations, the Serious Fraud Office has announced. Businesses that deducted corrupt payments from tax liabilities may be prosecuted for false accounting as well as bribery. “We want to see what evidence there is of the identification of bribes,” said Richard Alderman, the SFO’s director.

Accounting ‘a factor in pension decline’

The way accounting treatment of defined benefit pensions been a factor in their decline, a report conducted by Leeds University for the National Association of Pension Funds has concluded. IAS19’s use of a hybrid model using accrual methods to determine discount rates to calculate liabilities, but market prices when reporting asset values, “has been detrimental to the sustainability of the defined benefit pension scheme”, says the report. Most private sector defined benefit schemes are now closed to new entrants.

ICM warns on accounts exemptions

Government proposals to simplify reporting obligations for small businesses will cause problems for small firms in opening credit accounts, threatening the economic recovery, warns the Institute of Credit Management. Philip King, ICM chief executive, argues that the proposals are inconsistent. “On the one hand, they talk about the current regimes as being ‘burdensome, costly, and adding little value’ and on the other that SMEs could make ‘an increased contribution to the economy if they had better financial information available to them’”, he says.

PwC faces JP Morgan sanctions

PwC is subject to a disciplinary complaint regarding reports it submitted to the FSA on its client, JP Morgan. An investigation by the Accountancy and Actuarial Discipline Board has been completed and the results passed to an independent disciplinary tribunal for possible sanction. JP Morgan was fined £33m for breaching FSA Client Asset Rules by not segregating client funds at all times. PwC has admitted the complaint. A spokesman for PwC said “it was a matter of regret that…. we did not meet our normal high standards”.

Investment exemption

Investment entities will be exempted from IFRS10 requirements to produce consolidated financial statements under IASB proposals. Previous proposals would have required consolidation if an investment entity controls an entity it is investing in.  But investors complained this would not provide the information needed to assess investment values.  The FASB is considering similar proposals, but may extend the exemption where the investment entity is owned by a larger group that is not itself an investment entity.

Luminar chooses KPMG

KPMG has been chosen as auditor of leisure group Luminar, replacing PwC. Luminar said: “With PwC having been group auditor since 2003, the board decided that a fresh audit relationship would benefit the Luminar group moving forward. Following discussions by the board and having considered the alternative options, it was decided (on the recommendation of the audit committee) that KPMG Audit Plc would be the most appropriate replacement.”

£27bn in tax ‘written-off’

Tax debts of £27.4bn have been written-off by HMRC in the last five years as uncollectable, according to a report produced by the Institute of Directors and the TaxPayers’ Alliance. The report argues that if tax codings were simplified, high cost errors would not be made, more tax debt would be collected and the UK fiscal deficit could be reduced quicker. The annual loss from uncollectable debt has risen by 52% in four years.

One in six ‘in difficulty’

One in six SMEs in the construction sector will have difficulty paying their bills, analysis by Baker Tilly and Company Watch suggests. Returns filed with Companies House show that more than a quarter of construction firms have lost 20% or more from turnover, while one in six have an asset to liability ratio below one. Despite this, the research suggests that construction sector liquidity is better than average.

Cost of country-by-country reporting

EFRAG – the European Financial Reporting Advisory Group – has reported to the European Commission on the costs of implementing country-by-country reporting. Four different types of European companies operating internationally were consulted. The additional costs of general disclosures were 4%, 22%, 27% and 43%. Extra audit costs for the four companies were 13%, 15%, 17% and 35%. Costs would also increase for training, systems initialization and internal audit. The report encountered difficulties in assessing likely costs because of the lack of clarity in existing proposals for country-by-country reporting.

Deloitte clears Iris Robinson

A Deloitte investigation has found no evidence that Iris Robinson – wife of Northern Ireland first minister Peter Robinson – was guilty of wrongdoing in the awarding by Castlereagh Council of a café lease to a then lover. The investigation was commissioned by the council following allegations broadcast by the BBC against Mrs Robinson, who was then a Castlereagh councillor. Deloitte suggested improvements to council procedures.

RoW News

Integrated reporting [lead]

Organizations must move to a more integrated reporting model, bringing together financial, social and environmental reporting, along with the economic context within which the organization operates. The reform call is made by the International Integrated Reporting Committee – which is backed by ACCA – in a discussion paper, Towards Integrated Reporting – Communicating Value in the 21st Century. Sir Michael Peat, chairman of the IIRC, explains: “The world has changed – reporting must too. All matters which are important in assessing an organization’s performance and position, past and prospective, need to be reported…. The information needs to be provided clearly and concisely with the connections between financial, environmental and social impacts demonstrated and the clutter removed.” IIRC deputy chairman, Professor Mervyn King, adds: “The IIRC’s approach is one that will present a globally co-ordinated solution to reporting, avoiding the current problems with reporting requirements in different jurisdictions developing in different directions and at different speeds.”

Japan steps back from IFRS [lead]

Japan has delayed IFRS implementation, minister for financial services Shozaburo Jimi has announced. It will now be two to four years before IFRS is adopted, with another five to seven years after that before IFRS becomes mandatory. March’s earthquake and tsunami were blamed for damaging the economy, with reconstruction the current priority. Several large Japanese companies had criticized the move to IFRS. In May, 22 Japanese companies – including Mitsubishi, Nippon and Toyota – wrote to the country’s Financial Services Authority requesting a delay in IFRS adoption. They expressed strong concern about the scale of the task involved in revaluing fixed assets. Specified types of Japanese companies will now be permitted to continue use of US GAAP beyond the previously announced end date of March 2016. No new date has been specified for the replacement of US GAAP.

IASB attacks banks’ accounting

European banks are distorting their accounts by not writing-down Greek sovereign debt holdings to current market values, the IASB said in a letter to the European Securities and Markets Authority. “There have been indications in the market that some European companies are applying the accounting requirements for fair value measurement and impairment losses in a way that seems to differ from the objective of IAS 39 Financial Instruments: Recognition and Measurement,” wrote IASB chair, Hans Hoogervorst. He added: “It is hard to imagine that there are buyers willing to buy those bonds at the prices indicated by the valuation models being used.”

ACCA opposes mandatory rotation

ACCA has opposed proposals from PCAOB for the mandatory rotation of auditors. In a statement, ACCA said: “It is a given that independence, scepticism and objectivity are fundamental to audit quality. It is therefore right that performance in relation to these issues should be exposed to regular review. But it would be simplistic to argue that the quality of audit work can be enhanced simply by setting arbitrary limits to the duration of a professional relationship.” Shareholders should be free to decide “which auditor they wish to appoint and on what terms”, ACCA added.

Sino-Forest accused

The Ontario Securities Commission has accused Sino-Forest of accounting fraud and is conducting an investigation of the company. The company’s shares have been suspended. The Sino-Forest Corporation is a major global operator of sustainable forestry and producer of wood products, based in Hong Kong and Toronto, with shares traded on the Toronto Stock Exchange. Following the action by OSC, Allen Chan has resigned as Sino-Forest’s chairman, CEO and director, pending completion of an independent review of allegations made by Muddy Waters, a research house that investigates Chinese companies.

ACCA calls for immediate IFRS option

US issuers should be permitted to use IFRS immediately, ACCA has argued in a letter to the US Securities and Exchange Commission. The adoption of common accounting standards is in line with the trend of globalisation in business and commerce, and will facilitate international trade and the transfer of skills, wrote ACCA’s head of financial reporting, Richard Martin. The letter was sent in response to an SEC Staff Paper that proposed an extended period for the convergence of IFRS and US GAAP.

Deloitte subpoenad

Deloitte has been subpoenad by the US Securities and Exchange Commission to provide documents related to a fraud investigation into client Longtop Financial Technologies Limited. The original subpoena was issued by the SEC in May, but Deloitte in Shanghai – where Lontop is based – has not responded. The SEC is now taking enforcement action against Deloitte. The SEC said: “the Commission is unable to gain access to information that is critical to an investigation that has been authorized for the protection of public investors.” Deloitte did not respond to a request for comment.

German banks’ Greek write-downs

German banks have been advised by the Accounting Standards Board of Germany (DRSC) to write-down the value of their holdings of Greek sovereign debt. The proposed initial write-down is at 21% on Greek bond values, in line with financial restructuring arrangements negotiated by the Institute of International Finance. It is reported that not all Germany banks – or state sponsored bank rescue vehicles – have yet complied with the advice.

US and China disagree on audit

Attempts at resolving differences between the US and China in audit standards have broken down, but efforts will continue. The US Public Company Accounting Oversight Board and the US Securities and Exchange Commission met in Beijing with officials from the China Securities Regulatory Commission and the Chinese Ministry of Finance in July, but only issued a statement on the meeting a month later. The statement referred to future meetings and a shared objective of achieving mutual trust and respect.

Investment exemption

Investment entities will be exempted from IFRS10 requirements to produce consolidated financial statements under IASB proposals. Previous proposals would have required consolidation if an investment entity controls an entity it is investing in.  But investors complained this would not provide the information needed to assess investment values.  The FASB is considering similar proposals, but may extend the exemption where the investment entity is owned by a larger group that is not itself an investment entity.

Cost of country-by-country reporting

EFRAG – the European Financial Reporting Advisory Group – has reported to the European Commission on the costs of implementing country-by-country reporting. Four different types of European companies operating internationally were consulted. The additional costs of general disclosures were 4%, 22%, 27% and 43%. Extra audit costs for the four companies were 13%, 15%, 17% and 35%. Costs would also increase for training, systems initialization and internal audit. The report encountered difficulties in assessing likely costs because of the lack of clarity in existing proposals for country-by-country reporting.

CAPA calls for accounting consistency

There should be consistency in financial reporting standards across the public sector and between the private and public sectors, the Confederation of Asian and Pacific Accountants has said. “Just about all countries globally have or are about to introduce IFRS for companies, but the adoption and implementation of IPSAS by governments is not as far advanced,” explains CAPA president, Professor In-Ki Joo. CAPA argues that the sovereign debt crisis highlights the inadequacies of public sector reporting standards in many countries and the lack of transparency in their national accounts.

Switzerland agrees tax deal with Germany

Switzerland has reached a tax agreement with Germany to prevent tax evasion. Germans with Swiss bank accounts will be required to pay a withholding tax of between 19% and 34% of the balance held: the exact amount depends on the length of time an account has been open. The assessment period will be backdated to 2000. Swiss banks will make an advance payment of €1.77bn to the German exchequer. Simplified detection rules have also been agreed, to make it easier for German tax officials to identify and prosecute holders of undeclared assets. A similar settlement has been reached by the Swiss and UK governments.

PwC and Crowe Horwath sued

PwC and Crowe Horwath are being sued over their audits of failed US bank, Colonial Bancgroup. The investors’ complaint alleges that the two firms were guilty of accounting malpractice and professional negligence for not catching a $1.8bn fraud that led to the bank’s collapse. PwC is also accused of breach of contract, as the complaint alleges that the bank’s accounts did not conform to GAAP. Neither PwC nor Crowe Horwath responded to requests for comment.

MYOB bought by Bain Capital

Accounting software provider MYOB has been bought by private equity firm Bain Capital. A rival bid by Sage was rejected. MYOB is the largest Australian based accounting software provider. The financial terms were not disclosed, but it is thought that Bain Capital paid about AUS$1bn, in a deal backed by Archer Capital and HarbourVest Partners.

Ireland government account standards revised

New audit standards for Irish government accounts have been issued by the Auditing Practices Board, with involvement from staff of Ireland’s Office of the Comptroller and Auditor General. The revised standards apply to audits of financial statements for periods ending on or after 15 December 2010 and are based on an exposure draft issued in March.

KPMG pays $37m in Wachovia settlement

KPMG has agreed to pay $37m to settle claims form shareholders in the former Wachovia bank, related to allegations that the firm misrepresented Wachovia’s exposure to subprime securities. Co-defendents – officials at the bank and Wells Fargo, which took over the failed bank – will pay $590m. The settlement has been described by lawyers in the case as the largest of its kind. A spokesman for KPMG said:We agreed to settle to avoid the cost of litigation and to put this matter behind us.”

Irish audit exemption raised

Ireland has raised the threshold requiring SMEs to be externally audited. The balance sheet threshold of €3.65m has increased to €4.4m, while the turnover threshold has risen from €7.3m to €8.8m. The measure affects companies with less than 51 staff. Enterprise minister Richard Bruton said the change would save SMEs up to €5m a year. He also promised to cut red tape imposed by Government on business by 25% by the end of next year, cutting business costs by €500m annually.

Politics

PFI ‘of doubtful value’

The Government’s Private Finance Initiative does not provide good value for money, the House of Commons Treasury Select Committee has concluded. Public investment using PFI pays twice the rate of interest available to the Government through gilts, said the MPs. Paying-off £1bn of PFI debt costs the same amount as direct government debt of £1.7bn, the committee calculated. The report suggests that all PFI expenditure be accounted for ‘on-balance sheet’, to prevent accounting distortions being used to rig decisions in favour of PFI. Value for money assessments on PFI projects should be subject to NAO scrutiny, to ensure they are objective and the Treasury should review the identification of risk transfer in projects. Chairman of the Treasury Select Committee, Andrew Tyrie MP, said: “We can’t carry on as we are, expecting the next generation of taxpayers to pick up the tab. PFI should only be used where we can show clear benefits for the taxpayer.”

PFI providers using tax havens

The Private Finance Initiative represents a better deal for contractors than for taxpayers, the House of Commons Public Accounts Committee has concluded. MPs were strongly critical of the Treasury for not evaluating the widespread use of tax havens by PFI providers and for using flawed evaluations of the costs and benefits of PFI schemes by wrongly assuming that successful contractors would pay tax in the UK. “Government has treated PFI as the ‘only game in town’, but the use of this form of financing has been based on inadequate comparisons with conventional procurement which have not been sufficiently challenged,” said PAC chair, Margaret Hodge.

ACCA opposes mandatory rotation

ACCA has opposed proposals from PCAOB for the mandatory rotation of auditors. In a statement, ACCA said: “It is a given that independence, scepticism and objectivity are fundamental to audit quality. It is therefore right that performance in relation to these issues should be exposed to regular review. But it would be simplistic to argue that the quality of audit work can be enhanced simply by setting arbitrary limits to the duration of a professional relationship.” Shareholders should be free to decide “which auditor they wish to appoint and on what terms”, ACCA added.

FRC demands greater transparency

Companies’ financial reports should be more transparent, with clear information on the key strategic risks facing the business, the Financial Reporting Council has demanded. Too often, says the FRC, company narrative reports produce “indiscriminate lists of risks that all companies face”, instead of analyzing specific risks threatening their own business. The Corporate Governance Code may be amended to address this weakness. The FRC is also considering requiring companies to put audits out to tender at least once every ten years, or to explain why they have not done so, and amending auditing standards to require auditors to report on the whole annual report.

Govt considers reduced reporting requirement for small firms

The Government and the FRC have published joint proposals to reduce small firms’ financial reporting requirements. The paper proposes allowing micro-entities to file simplified trading statements in place of the profit and loss account; a simplified statement of position; and a simplified annual return. The paper also proposes an integrated software package to help small businesses prepare financial information. Micro-entities are defined as companies with a turnover of less than £440,000, with net assets of less than £220,000 and employing fewer than 10 people.

Public sector

CAPA calls for accounting consistency

There should be consistency in financial reporting standards across the private and public sectors, the Confederation of Asian and Pacific Accountants has said. CAPA president, Professor In-Ki Joo, explained: “Just about all countries globally have or are about to introduce IFRS for companies, but the adoption and implementation of IPSAS by governments is not as far advanced.” CAPA argues that the sovereign debt crisis has highlighted inadequacies in public sector reporting standards in many countries and the lack of transparency in national accounts. A CAPA statement added: “If the public are entitled to high quality, transparent financial information from companies, upon which to base investment decisions and hold them to account, then so too they are entitled to the same standard from governments and public sector organisations entrusted with public monies and similarly offering securities for investment.”

Public audit out for tender

Bids are being sought by the Audit Commission for the provision of audits for local public bodies. Contracts will be grouped into four English regions with several contracts awarded in each region. No contractor may win more than one contract per region. The total value of the public audit contracts will be around £89.4m. Some key Audit Commission officials have been given leave to develop plans for the Commission’s own staff to form mutuals to bid for the contracts. A notice for the work has been placed in the Official Journal of the European Union and bidders have been asked to explain how they would achieve savings on existing audit arrangements.

Practice

Lenders to access HMRC records

Mortgage lenders will obtain access to HMRC’s database, under an arrangement with the Council of Mortgage Lenders and the Building Societies Association. The scheme has been under development for over a year and is designed to combat mortgage fraud, estimated at £1bn a year. Where there are suspicions that applications are fraudulent, or where lenders feel that would-be borrowers have supplied inadequate financial information, lenders will be permitted to provide application details to HMRC through a secure electronic platform. HMRC will then confirm or deny the supplied information. HMRC will use the information as a means of checking whether mortgage applicants are understating tax liabilities. Colin Barclay, assistant director, HMRC Risk and Intelligence Service, said: “HMRC is determined to tackle fraud wherever we can. The Mortgage Verification Scheme is an unprecedented opportunity for HMRC and lenders to work together to combat fraud in the mortgage industry.”

Private tutors and e-traders face tax investigations

HMRC has announced that private tutors and people trading on electronic market places are in line for future special investigations. Some 600 plumbers are under civil investigation by HMRC following the special investigation into the trade, with five plumbers arrested for underpaying tax by as much as £150,000. A briefing by Baker Tilly warned: “According to the HMRC timetable private tutors are next to be targeted, starting in autumn 2011. In 2012 HMRC plan to look into those using the internet to buy and sell goods before having another campaign aimed at other trades people.”

Menzies’ business recovery acquisition [spare]

Menzies has acquired the London office of insolvency specialist Benedict McQueen – a representative of Benedict Mackenzie – enabling it to launch its own business recovery arm. Simon Underwood and Laurence Pagden from Benedict McQueen join the newly established Menzies Business Recovery LLP as partners. Their support and administrative team at Benedict McQueen move with them. Benedict Mackenzie’s other offices are unaffected by the move. The team will move into Menzies’ London office, working on insolvency and recovery work for SMEs as well as forensic investigation and litigation support. Menzies said the acquisition is part of its strategy to develop its brand as a specialist service provider to owner-managed businesses.

Corporate

Reward clawback ‘in contracts’

Companies are increasingly imposing contract provisions for pay clawback where senior executives underperform, according to a survey of senior reward professionals in 76 large companies conducted by PwC. Boards will also be able to recover deferred share options and other long term incentives. PwC says that conditions attached to bonuses are becoming much tougher, under pressure from Government and investors. The vast majority of companies – 85% said they will not be increasing bonuses – and one in five said they had frozen the pay of senior executives. Where salaries are rising, increases will be between 2% and 4%. Sean O’Hare, reward partner at PwC, commented: “One of the biggest causes of shareholder concern has been bonuses paying out even when company performance has been disappointing, as was sometimes the case in 2010. Toughening up executives’ targets and ensuring they reflect business strategy has become a major focus.”

Douglas appointed Cosalt CFO

Former Ernst & Young partner Dolores Douglas has been appointed CFO at marine safety and workwear providers Cosalt. She was previously finance director at food and drink company Big Thoughts Ltd. Prior to this, Douglas spent 10 years in E&Y’s corporate finance practice and has also been closely involved in litigation work, supporting fraud and valuation cases for international companies. Douglas will not initially join the Cosalt board. Trevor Sands has been appointed CEO at Cosalt, joining from Emerson Electric. His previous roles included being president of Daniel Measurement and Controls, corporate controller at Invensys, group financial controller at Unitech and before that he was with Arthur Andersen.

RoW sections

Corporate

‘More paid to bosses than in tax’

Many major US companies pay more to their executives than they do in taxes, according to a report examining the annual financial statements of 100 major corporations. A quarter of the corporations pay more to their executives than to the federal government. The Institute for Policy Studies Executive Excess report found that chief executive pay has risen during the recession, in contrast to average pay, which declined. In 2009 the ratio of CEO remuneration to average pay was 263 to one; in 2010 it had jumped to 325 to one. Average CEO pay last year was $10,762,304, up 3.3% over the previous year. The report claims that two of the largest banks bailed out by the US Government are heavily engaged in using tax havens to reduce federal tax bills: Citigroup has 427 subsidiaries in tax havens, claims the report, while Bank of America has 115.

Douglas appointed Cosalt CFO

Former Ernst & Young partner Dolores Douglas has been appointed CFO at marine safety and workwear providers Cosalt. She was previously finance director at food and drink company Big Thoughts Ltd. Prior to this, Douglas spent 10 years in E&Y’s corporate finance practice and has also been closely involved in litigation work, supporting fraud and valuation cases for international companies. Douglas will not initially join the Cosalt board. Trevor Sands has been appointed CEO at Cosalt, joining from Emerson Electric. His previous roles included being president of Daniel Measurement and Controls, corporate controller at Invensys, group financial controller at Unitech and before that he was with Arthur Andersen.

Practice

McGladrey reintegrates

McGladrey & Pullen has reached agreement to acquire RSM McGladrey from H&R Block Inc for $610m. The transaction will reintegrate the two McGladrey firms’ assurance tax and consulting practices. Since 1999, RSM McGladrey has operated independently from McGladrey & Pullen, with the latter providing public accounting services and RSM McGladrey providing non-public accounting services, including tax and consulting. Both firms are members of the RSM International network and together rank as the fifth largest US assurance, tax and consulting firm with 7,000 professionals in over 80 offices. Joe Adams, managing partner of McGladrey & Pullen, said: “Our relationship with H&R Block has served us very well, but we both agree that it is time to move on.” H&R Block Inc is the US’s largest tax services provider. Bill Cobb, its president and CEO, said: “This transaction is an important step in refocusing the company on growing clients and market share in our core tax business and improving our margins.”

KPMG advises Toronto on cuts

KPMG has been engaged by the Mayor of Toronto, Rob Ford, to advise on public service cuts, conducting a ‘core service review’ for the city. Mayor Ford says the cuts are needed because of a CA$774m deficit, though union critics say the figure is actually CA$440m. The review has recommended the adoption of a range of shared service centres to reduce overheads. Major savings opportunities identified by the review include the contracting-out of child care centers and social housing and the winding-down of child care subsidies.

Financial services

Euro banks ‘need €200bn’

European banks require an extra €200bn in capitalization to withstand potential losses from the sovereign debt crisis, papers leaked from the IMF reveal. The IMF’s concern was stressed in a speech by its new managing director, Christine Lagarde, who said: “[European] banks need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis.” European governments must ensure that sovereign finances are sustainable and they must work together to create a common vision for their future, she said. Ms Lagarde added: “without a credible financing path, fiscal adjustment will be doomed to fail…. The current economic turmoil has exposed some serious flaws in the architecture of the eurozone, flaws that threaten the sustainability of the entire project.”

Russia worries about capital

Russia’s Central Bank is considering mitigating the impact on banks’ reported profits and declared capital levels from the adoption of IFRS from January next year. It fears that banks’ revaluation of non-core real estate at fair value will potentially inflate capitalization declarations. One measure being considered is to exclude real estate revaluation gains from profits that can be used as retained capital, or else to counterbalance it by the mandatory creation of reserves to cover any subsequent reduction in value. The bank fears that real estate valuations might be manipulated to meet tougher capitalization requirements.