News (May 2013)

Posted on May 1, 2013 · Posted in AB Public

UK

KPMG hit by auditor’s leak [lead]

KPMG has resigned as auditor of both Herbalife and Skechers after it emerged that a partner had supplied confidential market sensitive information to a golf partner for use in share trading.  Scott London was lead audit partner for the companies and managed KPMG’s Los Angeles business unit.  KPMG withdrew its audit reports for Herbalife for the 2010, 2011 and 2012 years and audit reports for Skechers for the 2011 and 2012 years, though there is no suggestion that the financial reports will need to be restated.  Scott London has admitted he supplied the information for cash and Rolex watches.  KPMG’s chairman and CEO for the United States, John Veihmeyer, said: “We unequivocally condemn his actions, and deeply regret the impact that his violations of trust and the law have had on our clients and our people. KPMG will be bringing legal actions against London in the near future.”

 

KPMG under attack over HBOS audit [lead]

KPMG’s audit of HBOS may be investigated by the Financial Reporting Council, following a damning report on the bank’s collapse from the Parliamentary Commission on Banking Standards.  The report found that directors of HBOS were guilty of “a lack of corporate self-knowledge” which enabled them to believe they were operating conservative banking practices, while actually exposing the bank to excessive risks.  The FRC said it will consider the report, but will decide whether to launch an investigation into the bank’s financial statements after a further report on the bank’s collapse is published in the near future by the new Prudential Regulation Authority.  Pension fund advisors PIRC publicly called for independent investigations into KPMG’s audits of the bank and to consider the implications of the bank’s collapse for accounting standard setting.  A spokesman for KPMG said: “We stand by the quality of our audit work at HBOS.”

 

Integrated reporting draft published

The draft International Integrated Reporting Framework has been published.   The Framework provides the foundations for the new reporting model that offers a more concise and consistent method for communicating the creation of value over time.   Paul Druckman, CEO of the IIRC, said: “Over the last three years, the IIRC has built consensus around the idea that the current corporate reporting model must change to meet the needs of today’s business and investment environment.”  Coca-Cola, Unilever, Goldman Sachs and Deutsche Bank have been involved along with other leading corporations in developing and testing the framework.

 

RSA facing audit criticism

RSA has come under fire from some shareholders after its financial report revealed that it had paid outgoing auditor Deloitte more than £10m for consultancy and other non-audit work.  RSA said that it had engaged Deloitte to undertake additional non-audit work because it was unhappy with a previous consultant.  But RSA’s appointment of KPMG as replacement auditor was also criticised because the chairman of RSA’s audit committee, Alastair Barbour, only recently retired as a KPMG senior partner.

 

Banks’ financial reporting ‘a joke’

European banks’ accounting and disclosure practices have been described by Moody’s former vice chairman as “a joke”.  “There is little relationship between a European bank’s creditworthiness and its financial reporting,” wrote Christopher T. Mahoney on the analytical website Project Syndicate.  He was responding to the rescue of insolvent Cypriot banks.  “Both dead Cyprus banks were solvent according to their latest financials, and both passed the European Banking Authority’s 2011 stress test,” Mahoney pointed out.  He argued that the rescue’s raid on deposits puts the onus on bank clients to assess the creditworthiness of their financial institution, but this is in practice impossible because of the misleading character of banks’ financial reports.

 

GAAP’s “fundamental modernisation”

FRS 102 provides a “fundamental modernisation of UK and Irish accounting standards”, says the Financial Reporting Council.  It replaces most existing standards with one succinct new standard, replacing nearly 3000 pages of current standards with about 350 pages.  FRS 102 will be applicable to entities that are neither required to prepare group accounts in accordance with IFRS, nor apply the FRSSE.  FRS 102 will put the UK “at the leading edge of financial reporting”, says the FRC.  Roger Marshall, chairman of the FRC’s Accounting Council said: “FRS 102 brings a distinctly British flavour to the international standard for small and medium sized businesses.”

 

Lloyds of London audit goes to tender

Lloyds of London is putting its audit out to tender.  The current auditor is Ernst & Young, which was reappointed in 2001 after a competitive tendering exercise.  Lloyds’ audit committee chairwoman Claire Ighodaro said: “as a matter of good governance the audit committee considers that external audit should be subject to a competitive tender during 2013”.  Lloyds limits the level of non-audit work that can be carried out by the auditor and the lead audit partner must be rotated every five years.

 

Slimmed down reporting warning

Standard setters and regulators have been warned against excessive slimming down of reporting requirements for SMEs.  The concerns are raised in an ACCA report Protecting Stakeholder Interests in SME companies which stresses the need for SMEs to continue to meet effective reporting requirements.  John Davies, ACCA’s head of technical, said: “This process of re-evaluating the costs and benefits of statutory accounting and audit rules is something that is going on in many countries.”  When Singapore and Australia adopted simpler reporting obligations, compensatory measures were introduced to protect shareholders’ interests.

 

RTI goes live

Real Time Information on went live without serious problems, according to HMRC.  But transition was assisted by the last minute approval of a six month delay in adopting RTI for organisations with less than 50 staff.  ACCA warned that the full impact of RTI will only be felt on businesses when the new Universal Credit system is introduced in October.  It predicts employers will be forced to make a significant number of additional filings outside of the normal PAYE filing when employee circumstances change and called for changes to the Universal Credit regulations to ease the burden on employers.

 

PwC regains Schroders audit

Schroders has reappointed PwC as auditor, despite previously replacing the firm – which has been its auditor for more than half a century.  KPMG was to have taken over from PwC, but subsequently told Schroders it was unable to take on the role because it “did not meet the regulatory requirements for independence for all relevant Group companies”.  Following a competitive tender exercise, PwC has also won the audit of Cairn Energy, which was previously audited by Ernst & Young.

 

10% pay rise for tax accountants

Average pay for tax accountants has risen by more than 10% in the last year, increasing to £79,670.  Two thirds of tax accountants received a bonus worth an extra 17% of their salary, worth £11,000.   Tax accountants received 7% more than the average for other accountants, according to the research produced by specialist recruitment agency Marks Sattin.  It suggested the above average pay for tax accountants reflects the complexity and constant change in tax law.

 

BVI tax evasion revealed

A Central European prime minister, a former Western European government minister and industry magnates are among the thousands of people named by the Washington-based International Consortium of Investigative Journalists as using the British Virgin Islands to conceal their wealth.  It is alleged that the secrecy is enabling tax evasion and hiding sanctions busting and drugs trading from enforcement authorities.   The campaigning group of journalists were anonymously sent a computer hard drive holding 200 gigabytes of leaked files.

 

Mid level managers ‘can’t deal with data’

Mid level executives in the financial services sector are having difficulty in processing and understanding the data they are presented with, according to a report by software company ClusterSeven.  The company says that the results reveal “dangerously poor attitudes to business critical data” where these are managed in spreadsheets and large databases.  Nine out of ten mid tier managers say that they have to use manual processes to maintain data integrity.  Only one in ten reports a clear audit trail for the use and control of data.

 

Accountants given ‘cloud’ warnings

Accountants are being warned about storing sensitive information in ‘cloud’ systems.  “The accountancy sector is currently undergoing a large scale transition from locally stored IT data into the virtual cloud format,” says Gary David Smith, co-founder of Prism Total IT Solutions.  He fears that accountants and clients will migrate to cloud storage without having the quality of staff, IT systems and broadband to manage the migration and data access properly.  Apple co-founder Steve Wozniak last year warned that cloud computing could lead to “horrible problems” regarding ownership of stored data.

 

Credit managers’ confidence falls

Credit managers’ confidence fell further in the last quarter of 2012, according to the latest Credit Managers’ Index.  However, credit managers report that companies are improving their debt collection performance.  Philip King, chief executive of the ICM, says: “This [improvement] is especially interesting given the current debate around the Prompt Payment Code, and the imminent arrival of the EU Directive on late payment.”  Confidence is continuing to fall in the manufacturing sector, but rising amongst service businesses.

 

IFAC advises on business reporting

An IFAC report stresses the business model must be at the heart of Integrated Reporting.  The lack of consistency in how business models are defined and disclosed highlights the need for a consistent definition, says the report, Business Model.   Ian Ball, IFAC principal advisor and chair of the IIRC Working Group, says: “Being able to communicate effectively on an organization’s capitals, business activities, products and services, and the outcomes they generate is essential if a company is to communicate how it creates value over time.”

 

New managing partner at Scott Moncrieff

Stewart MacDonald has been elected as the new managing partner of Scott-Moncrieff. He has been with Scott-Moncrieff since 1999 and is based in the firm’s Glasgow office, but will now split his time between Glasgow and Edinburgh.  Robert Mackenzie takes over as chairman.  The former managing partner Nick Bennett will continue on the board.

 

Accountant jailed for 3 years

Malcolm Maclean, a director of County Durham accountancy firm Maclean Fisher Tait Accounting & Taxation Ltd, has been jailed for three years for falsifying documents, tax evasion and fraud, which cost HMRC £358,000. Fellow directors Aiden Tait and David Fisher received suspended sentences.  The men set up Workforce and MFT Utilities Ltd to act as building contractors, sub contracting the work to local self employed tradesmen who were clients of the firm.  The three directors falsified tax returns to pay less to HMRC than they collected in tax.

 

Use of capitals in Integrated Reporting

The application of capitals in Integrated Reporting are explained in a report prepared for the International Integrated Reporting Council by a group led by ACCA and the Netherlands Institute of Chartered Accountants.  The Background Paper for IR explores the multiple capitals that are recognised as a fundamental concept for IR. The IIRC has identified capitals as financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital, and natural capital, which together represent an important picture of an organization’s value creation. “Reporting on them is therefore a crucial element in future corporate reporting and will be necessary to meet stakeholders’ expectations,” said Rachel Jackson, head of sustainability at ACCA.

 

RoW

Banks’ financial reporting ‘a joke’ [lead]

European banks’ accounting and disclosure practices have been described by Moody’s former vice chairman as “a joke”.  “There is little relationship between a European bank’s creditworthiness and its financial reporting,” wrote Christopher T. Mahoney on the analytical website Project Syndicate.  He was responding to the measures adopted by the European Union, the European Central Bank and the IMF to rescue insolvent Cypriot banks.  “Both dead Cyprus banks were solvent according to their latest financials, and both passed the European Banking Authority’s 2011 stress test,” he argued.  Mahoney said that the raid on deposits put the onus on bank clients to assess the creditworthiness of their financial institution – but that this was in practice impossible because of the misleading character of banks’ financial reports.  He added that bank customers cannot use credit ratings as most banks do not use Moody’s or their competitors – and the agencies rely on the same inadequate information.

 

ACCA affiliate is Young Accountant of the Year [lead]

ACCA affiliate Masuzyo Mulenga of Zambia has won the International Accounting Bulletin’s Young Accountant of the Year award.  The award was recognition of her excellent financial reporting standards knowledge.  The 25-year-old is an audit and assurance manager at HLB Reliance, the Zambian member firm of the HLB International network. She was recently appointed by the company to help develop strategic growth and leadership both for her firm and for HLB International in Southern and Eastern Africa.  Masuzyo said: ‘I am greatly honoured and humbled by this award. Many thanks to International Accounting Bulletin and to HLB International for honouring me in this great way.”   Masuzyo was recognised Best Student in Zambia award as an ACCA student in the CAT paper 3 programme in 2006.  Mukaba Mukaba, head of ACCA Zambia, said: “This is a great achievement for Masuzyo and we are very pleased at ACCA that she has been given this award – she truly deserves it.”

 

KPMG hit by auditor’s leak [alternative lead]

KPMG has resigned as auditor of both Herbalife and Skechers after it emerged that a partner had supplied confidential market sensitive information to a golf partner for use in share trading.  Scott London was lead audit partner for the companies and managed KPMG’s Los Angeles business unit.  KPMG withdrew its audit reports for Herbalife for the 2010, 2011 and 2012 years and audit reports for Skechers for the 2011 and 2012 years, though there is no suggestion that the financial reports will need to be restated.  Scott London has admitted he supplied the information for cash and Rolex watches.  KPMG’s chairman and CEO for the United States, John Veihmeyer, said: “We unequivocally condemn his actions, and deeply regret the impact that his violations of trust and the law have had on our clients and our people. KPMG will be bringing legal actions against London in the near future.”

 

Integrated reporting draft published

The draft International Integrated Reporting Framework has been published.   The Framework provides the foundations for the new reporting model that offers a more concise and consistent method for communicating the creation of value over time.   Paul Druckman, CEO of the IIRC, said: “Over the last three years, the IIRC has built consensus around the idea that the current corporate reporting model must change to meet the needs of today’s business and investment environment.”  Coca-Cola, China Light and Power, Goldman Sachs and National Australia Bank have been involved along with other leading corporations in developing and testing the framework.

 

Accounting outsource market ‘to exceed $25bn’

The market for outsourcing accounting and finance functions will exceed $25bn this year, according to KPMG.  More than 100 major contracts will be signed this year, predicts the firm’s report, “Finance and Accounting BPO Market Landscape, 2013: Market Evaluation, Forecast and Competitive Analysis”. Corporations are under pressure to cut costs and standardise processes.  To date, outsourcing has typically reduced costs and met performance targets. The move towards outsourcing has slowed under the pressure of the recession, but corporations are increasingly now planning for growth.

 

Corruption falls as austerity bites

Corruption is falling victim to austerity programmes, according to a report presented to the European Parliament by the Hertie School of Governance, based in Berlin.  The report, The Good, the Bad and the Ugly: Controlling Corruption in the European Union, found that bribery has fallen in countries bailed-out in the euro crisis, including Italy, Spain and Portugal, and they have now introduced tighter spending controls.  The report warned that controls remain insufficient in some EU countries, including Slovenia and Slovakia, and that cuts to wages for judges and police officers could generate new incentives for corruption.

 

IFAC advises on business reporting

An IFAC report stresses the business model must be at the heart of Integrated Reporting.  The lack of consistency in how business models are defined and disclosed highlights the need for a consistent definition, says the report, Business Model.   Ian Ball, IFAC principal advisor and chair of the IIRC Working Group, says: “Being able to communicate effectively on an organization’s capitals, business activities, products and services, and the outcomes they generate is essential if a company is to communicate how it creates value over time.”

 

Multinationals concerned about intangibles

Multinational corporations expect tax authorities to pay increased attention to the reporting treatment of patents, licences, trademarks, copyright and other intangible assets.  Tighter control of the tax treatment of intangibles offers one of the few remaining opportunities for governments to generate additional tax revenues, says Taxand, a network of tax advisors.  Some 63% of corporates expect an increased focus on intangibles, but 70% admitted they did not have a clear view of their intangible assets.  Corporations are worried that the increased attention to the tax treatment of intangibles will lead to brand damage.

 

Tax hedging warning

The OECD has warned that aggressive tax planning schemes based on after-tax hedging pose a threat to countries’ tax revenues.  Hundreds of millions of dollars are at risk, calculates the OECD.  The banking sector is blamed by the OECD for the origination of the hedging products, but their use has spread to other sectors and now beyond corporations to mid-sized businesses.   Any country that taxes the results of a hedging instrument differently from the results of the hedged transaction or risk is potentially exposed to such schemes, warns the OECD.

 

FASB standard ‘will cut bank reserves’

US banks’ capital positions and profit levels will be damaged if the FASB’s proposed impairment standard takes effect, Fitch Ratings has warned.  The FASB has proposed that loan losses are recognised at an early stage, whereas the IASB proposes a different expected credit loss model.  It said that the different approaches adopted by the FASB and IASB “could derail the process of international accounting convergence on credit losses and lead to less clarity in comparing bank balance sheets and income statements around the world”.  Ernst & Young said that the IASB’s proposals would also lead to earlier recognition of credit losses and greater provisioning.

 

Slimmed down reporting warning

Standard setters and regulators have been warned against excessive slimming down of reporting requirements for SMEs.  The concerns are raised in an ACCA report Protecting Stakeholder Interests in SME companies which stresses the need for SMEs to continue to meet effective reporting requirements.  John Davies, ACCA’s head of technical, said: “This process of re-evaluating the costs and benefits of statutory accounting and audit rules is something that is going on in many countries.”  When Singapore and Australia adopted simpler reporting obligations, compensatory measures were introduced to protect shareholders’ interests.

 

Chinese banks ‘fake lending to small firms’

Chinese banks are failing to meet government targets for lending to small firms because they require unachievable collateral requirements, according to a study for the government from the Development Research Center.  Banks’ misleading reports to government make it appear as if lending targets have been met.  Some 60% of Chinese firms are unable to raise finance from banks, says the report.  The report suggests that banks should accept orders, warehouse warrants, equity and intellectual assets as collateral, not just property.

 

VAT preferred to CT

Middle East countries are increasingly looking to adopt VAT to enable them to cut Corporation Tax rates to attract inward investment, according to a presentation by Ernst & Young to its Middle East and North Africa (MENA) Tax Conference.  The Gulf States have been particularly successful in attracting FDI based on low Corporation Tax rates, says E&Y.  Sherif El-Kilany, MENA tax leader at E&Y, said: “GCC countries are collectively studying the possibility of VAT implementation by 2015 and this determination will influence the tax landscape of the entire region.”

 

White sworn in as SEC chair

Mary Jo White has been sworn in as the chair of US Securities and Exchange Commission.  She was nominated by President Obama in February and confirmed by the Senate in April.  White is an experienced prosecutor of complex securities and financial institution frauds.  She also prosecuted high profile terrorism cases when she was a New York attorney, gaining convictions against those responsible for the attacks on the World Trade Center.

 

BRICS bank ‘to be big’

A new development bank has been established by the BRICS nations, which is predicted to be as influential as the World Bank.  The announcement was made in Durban after a meeting of the leaders of Brazil, Russia, India, China and South Africa.  The bank is expected to help meet an estimated $4.5trn need for new infrastructure in the signatory countries over the next five years.

“The potential of Brics development is infinite,” said Chinese president Xi Jinping. “The real potential of Brics co-operation is yet to be realised.”

 

Discontinued operations

The FASB has proposed a new standard to improve financial reporting on discontinued operations of major business lines.  Discontinued operations have been redefined and organizations will be required to provide additional disclosures on these, including operating, investing and financing cash flows.   “Investors have raised concerns that for certain industries too many disposals of assets qualify for discontinued operations presentation under current standards, resulting in financial statements that are less relevant and more costly to prepare,” said FASB Chairman Leslie F. Seidman.

 

Consolidation of audit standards

The US Public Company Accounting Oversight Board has proposed the reorganization of auditing standards.  This would create a framework for PCAOB-issued standards, using a single integrated numbering system adopting an order that follows the flow of the audit process.  “This proposed reorganization is intended to help users navigate the standards more easily,” said PCAOB Chairman James R. Doty.  He added that this is the first step of a process to make the use of audit standards easier.

 

China stays top for FDI

China remains the top destination for foreign direct investment (FDI) according to a global survey conducted by PwC and the China Development Research Foundation.  More than half of CEOs surveyed chose China above other major and emerging economies, including Brazil, Russia, India and the US. CEOs referred to China’s expanding consumer markets, skilled talent pool and government incentives.  “In 2012, China attracted US$111.7 bn of global FDI, said Dennis Nally, chairman of PwC International.

 

BVI tax evasion revealed

A Central European prime minister, a former Western European government minister and industry magnates are among the thousands of people named by the Washington-based International Consortium of Investigative Journalists as using the British Virgin Islands to conceal their wealth.  It is alleged that the secrecy is enabling tax evasion and hiding sanctions busting and drugs trading from enforcement authorities.   The campaigning group of journalists were anonymously sent a computer hard drive holding 200 gigabytes of leaked files.

 

Use of capitals in Integrated Reporting

The application of capitals in Integrated Reporting are explained in a report prepared for the International Integrated Reporting Council by a group led by ACCA and the Netherlands Institute of Chartered Accountants.  The Background Paper for IR explores the multiple capitals that are recognised as a fundamental concept for IR. The IIRC has identified capitals as financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital, and natural capital, which together represent an important picture of an organization’s value creation. “Reporting on them is therefore a crucial element in future corporate reporting and will be necessary to meet stakeholders’ expectations,” said Rachel Jackson, head of sustainability at ACCA.

 

Politics

Tax exchange takes off

A pilot tax information exchange has been agreed between the largest five EU states: the UK, Germany, France, Italy and Spain.  If successful, this will be rolled out across the rest of the EU and may be the basis for other international agreements.  The new exchange model is based on existing arrangements for implementation of the US Foreign Account Tax Compliance Act.  The agreement on the exchange follows a rapid period of bilateral tax exchanges negotiated by the UK with Guernsey, Jersey and the Isle of Man.  Luxembourg has also agreed to drop its commitment to banking secrecy by entering into information sharing agreements with the rest of the EU.  The UK is negotiating further information sharing agreements with the Cayman Islands and the British Virgin Islands.

 

Homer’s competence attacked

HMRC chief executive Lin Homer has been strongly criticised by the House of Commons Home Affairs Select Committee for having “repeatedly misled the Committee over the size of the asylum backlog”.  Although the criticisms relate to Homer’s time as chief executive of the UK Border Agency, doubts have been expressed as to whether she can keep her job at HMRC.  The committee’s chairman, Keith Vaz MP, said: “For six years the Committee was misled by UKBA chiefs about the agency’s unacceptable performance.”

 

Offshore employment intermediaries tackled

The Treasury has announced that it will block tax avoidance enabled by staff payments being made through offshore employment intermediaries.  The agencies are often based in tax havens and used to avoid employment taxes.  The Treasury says the agencies present a growing problem, with HMRC estimating that at least 100,000 workers are now being paid through offshore intermediaries.  In many cases, employees are unaware that they are employed through an offshore payroll and that tax is being avoided.  “The Government will therefore give HMRC the powers it needs to collect full employment taxes for UK workers,” said the Treasury. “Employment taxes will be payable for all employees in the UK, irrespective of where their payroll is located. Cracking down on this avoidance will benefit the Exchequer by almost £100m a year.”

 

Accountants want to protect environment

Accountants are clear that businesses have a responsibility to protect the natural environment, according to an ACCA survey.  Some 81% of those surveyed believe that the private sector should protect the environment, says the study, Natural Capital – what do accountants think?.  The five main commercial risks posed by environmental damage are regarded as business reputation, operational disruption, scarcity and cost of resources, supply chain risks and financing risk.    Gordon Hewitt, sustainability advisor at ACCA and author of the report, said: “The loss of natural capital exposes companies to a range of new risks and opportunities that can impact profit, asset value and cashflow.”

 

Tax hedging warning

The OECD has warned that aggressive tax planning schemes based on after-tax hedging pose a threat to countries’ tax revenues.  Hundreds of millions of dollars are at risk, calculates the OECD.  The banking sector is blamed by the OECD for the origination of the hedging products, but their use has spread to other sectors and now beyond corporations to mid-sized businesses.   Any country that taxes the results of a hedging instrument differently from the results of the hedged transaction or risk is potentially exposed to such schemes, warns the OECD.

 

Public sector

Northern Ireland CT decision deferred

The Prime Minister has ruled out making a decision on the possible devolution of Corporation Tax setting powers for Northern Ireland until after the Scottish referendum in September next year.  David Cameron told Northern Ireland’s First Minister Peter Robinson and Deputy First Minister Martin McGuinness of the delay in a personal meeting in Downing Street.  Although the UK is committed to reducing its Corporation Tax rate to 20% by 2015 from the current 23%, this still creates a disincentive for foreign direct investment in Northern Ireland given that the standard Corporation Tax rate in the Irish Republic is 12.5%.  The CBI’s Northern Ireland office said that a cut in the rate in Northern Ireland was necessary given its high unemployment level and difficulty in competing with the Republic, which is attracting high levels of FDI.

 

Audit Commission retenders audits

Local public sector audit contracts worth over £25m a year are being retendered by the Audit Commission.  The contracts currently held by audit firms were initially awarded in 2006 and 2007 and extended in 2010.  The retenders represent about 30% of the total local audit work carried out in England – the other 70% was outsourced in 2012 having previously been conducted by the Commission’s in-house audit practice.  The Commission says that last year’s outsourcing exercise cut audit fees by up to 40% and will save £250m over five years. The latest decision means that existing contracts will now be terminated and retendered in an attempt to reduce previously agreed fees.  The new audit contracts will operate from the 2015/16 year.

 

Corporate

Financial reports ‘less useful’

Financial reports have become less useful to investors and analysts over the last five years.  The claim was made by business analysts Metapraxis, which has examined the quality of information from FTSE 100 companies contained in their financial reports.  It says that despite efforts to improve company transparency, there has been a reduction of 7% in financial data contained in reports, with forward looking financial data falling by 8%.  This suggests, says Metapraxis, that boards are also making decisions based on reduced information.  Companies operating in the technology and utilities sectors have particularly reduced their disclosures of past financial data, while healthcare and telecoms companies have cut the most from forward looking data.  Only technology companies produced no forward looking financial data. Simon Bittlestone, managing director of Metapraxis, said: “If companies are not providing their shareholders with forward looking, quantified information, it is most likely that they are not comfortable with the way that they forecast and plan scenarios internally.”

 

Mike Rake to become CBI President

Former KPMG International chairman Sir Mike Rake is to take over as President of the CBI in June, replacing Sir Roger Carr.   “Sir Mike will be a great addition to the CBI team,” said Sir Roger. “His extensive international business experience across a wide variety of sectors will be hugely valuable and make him an excellent choice for the role of President.  I am confident that Director-General John Cridland and Sir Mike will work well together and that the voice of business will continue to be both authoritative and clear.”  Sir Mike is chairman of the BT Group, but is standing down this year as chairman of easyJet.  He remains deputy chairman of Barclays and a director of McGraw-Hill.

 

Practice

FRC urges more scepticism

BDO and Grant Thornton should exercise greater levels of professional scepticism, the Financial Reporting Council has concluded in its biennial review of the two firms’ audits.  The FRC said that BDO should pay particular attention to implementing changes quickly to address identified weaknesses, with individual audit partners demonstrating their commitment to audit quality by being more receptive to dealing with identified deficiencies.  BDO’s audit strategy needs to be reviewed to remove references that appear to promote the cross-selling of non-audit services, said the FRC.  BDO also needs to “address the significant deficiencies identified in the firm’s ethical processes”.  Grant Thornton were told to ensure that the firm’s growth strategy does not reduce audit quality and to improve centralised monitoring of the firm’s processes.  The firm’s internal quality reviews should be reported more robustly.  The FRC added: “The number of issues identified by internal and external quality reviews remains high.”

 

BDO and PKF complete merger

BDO and PKF have completed their merger and now operate under the BDO brand name as part of the BDO International network.  The merged firm will have revenues of around £400m in the UK, with 24 offices and employ 3,500 people, including 300 partners.  Simon Michaels, BDO’s managing partner, said: “Merging with a firm of the quality and size of PKF has created one of the strongest firms focused on the mid-market, with the breadth and depth to work with ambitious businesses that want exceptional service and access to impressive UK and worldwide networks.”  He added that the enlarged firm now wants to win more audit engagements from FTSE100 companies.

 

RoW

Corporate

Business transformations raise risk

Organizational change and restructuring are generating new risks, warns a report from PwC.  However, a major global economic downturn remains the most serious risk facing major corporates, says the survey, ‘Risk in Review’.  More than 800 executives and risk managers in businesses worldwide were surveyed.  The report found that more than two-thirds of companies have undergone a major transformation in the past 18 months, with another 10% planning to do so over the next 18 to 24 months.  Corporates are having to adjust to changing markets while building new business models, respond to the need to develop digital channels and expand into new geographical markets.  At the same time, they must rethink their supply chains and facility locations as part of their evolving globalisation strategies.   Dean Simone, leader of PwC’s US risk assurance practice, says: “Changes in business direction have exposed companies to new risks, and the interplay of market and business transformation is creating complex risk linkages that can be fragile and difficult to predict.”

 

Weak succession planning in ME

Succession planning is not being addressed adequately by Middle East businesses, says a Deloitte report, ‘Director 360: Degrees of Progress’.  In a survey, 67% of CEOs in Middle East businesses said they do not believe their boards are considering succession planning sufficiently.  The report also concluded that there is inadequate attention to business practice sustainability in the Middle East, that further attention needs to be paid to the design of remuneration packages to take into account risk exposure and that the evaluation of board performance is not regarded as a priority.

 

Practice

Deloitte expands in Zambia

Zambia has been recognised by Deloitte as an important developing economic centre because of its mining and agricultural sectors.  Deloitte Southern Africa has now opened expanded offices in the country’s capital, Lusaka.  “The main driver behind the office move was a desire to provide superior service to clients through being better positioned and in closer proximity,” says Chisanga Chungu, managing partner of Deloitte Zambia, who leads the practice.  The new offices are in Thabo Mbeki Road, five kilometres from the central business district where major development is currently taking place.  Deloitte Zambia also an office in Kitwe.  Lwazi Bam, CEO of Deloitte Southern Africa, says the company sees East and Southern Africa as key drivers of growth on the continent.  The completion of major projects at the Kansanshi, Lumwana and Konkola mines will make the country an influential producer of copper, cobalt, nickel, gold and uranium.  Deloitte expects Zambian GDP to grow at 6.9% this year and accelerate to a rate of 8% from 2014 to 2016.

 

EY opens in South Sudan

Ernst & Young has opened an office in Juba in South Sudan.  Patrick Kamau, its country managing partner, said: “East Africa is one of the most exciting and rapidly growing regions in the world.  The five countries – Burundi, Kenya, Rwanda, Tanzania and Uganda – that currently form part of the East African community alone form a common market of 130 million people. Given the unexploited mineral wealth, mainly in oil extraction, South Sudan has the potential to be a substantial market in the next few years.”