News – UK
Companies optimistic on pension inflation [lead]
FTSE350 companies use widely differing inflation assumptions in their pensions accounting, with 65% assuming inflation will be less than that implied by the financial markets, according to pension consultants Hymans Robertson in its annual FTSE 350 Accounting Assumptions Survey. The average variation from market assumptions is just 0.1%, but this achieves an aggregate £7bn saving across the FTSE350 companies. Companies’ assumptions of future consumer price inflation vary between 2.3% and 3.4%. But positions have become more accurate: in 2009, 82% of large companies used inflation assumptions on average 0.2% below market assumptions. The study also found wide variations in assumed life expectancy for scheme members. The Government’s switch from April this year from RPI to CPI to calculate final salary pension scheme inflation has saved FT350 companies up to £25bn. The consultants say that its findings show the need for the issuance of CPI-linked bonds.
Smaller firms to get more public sector audits [lead]
The European Parliament’s Legal Affairs Committee has backed last autumn’s Commission green paper on audit reform. The Commission is expected to finalise new audit reform proposals in November. If these are ratified, public bodies will be expected to more often use firms outside the Big Four, with benchmarked targets for use of medium and small sized firms. At least two firms outside the Big Four would be included in every public sector tendering opportunity. The Commission may conduct an impact assessment to consider mandatory rotation of auditors and voluntary joint audits for private sector clients. But the Conservative Party’s lead negotiator, Dr Syed Kamall MEP, suggested that mandatory audit rotation is now less likely. “Mandatory audit rotation would be expensive for companies as audits are always priciest in the first year,” he said. “Evidence shows that making firms change auditors all the time just creates more concentration in the Big Four.”
Brand leads private sector honours
ACCA chief executive Helen Brand has been made an OBE in the Queen’s Birthday Honours. Several other leading business figures have also been rewarded. Bank of England governor Mervyn King is made a knight, as are Frank Chapman, the chief executive of BG, Brian Soutar, founder of Stagecoach, David Higgins, the former chief executive of the Olympics Delivery Authority, and John Peace, chairman of Standard Chartered. Justin King, CEO of Sainsbury’s, becomes a CBE, as does Penny Hughes of the Advertising Association.
Small firms ‘unaware of tax positions’
A third of UK family businesses are unaware of their capital gains tax and inheritance tax exposures, while two thirds of proprietors are unaware of any international taxes their heirs may incur, a study by PwC has found. The survey interviewed executives in 100 UK small family firms, as part of a sample of 1,600 small and medium sized firms internationally. PwC’s Family Business Survey, Kin in the Game, concluded that UK firms were less prepared than their counterparts in many other countries, including Spain, Brazil and Germany.
Tax agents to register
Tax agents could be required to register by 2015, under proposals published by HMRC. ‘Self-serve’ is a favoured option, under which agents would enrol online, enabling them to provide information for clients more efficiently. At present, agents must comply with the same security checks as individual taxpayers. Registration would enable tax agents to provide more information online, rather than by letters or phone. HMRC’s consultation paper also considers how to improve relationships with tax agents. A further consultation will be launched later this year on how to deal with dishonest tax agents.
IFAC to increase support for SMPs
IFAC is increasing support for small and medium sized accounting practices. IFAC’s SMP committee says that it is providing more input to IFAC’s policy-making processes to ensure that SMP issues are fully considered; that it will help to influence IFRSs to ensure their stability, relevance, and proportionality to SMPs and SMEs; and will communicate the importance of the SME sector and the role SMPs can play in supporting this; and provide practical support to SMPs to enhance their ability to provide high-quality services.
The International Auditing and Assurance Standards Board wants to improve audit reports, making them more useful to a wide range of stakeholders. A consultation has been launched, asking respondents to identify audit report ‘information gaps’, which they would like filled. Options for change are identified, but the IAASB recognises that some of these may require changes to national and international accounting standards and regulators if they are to be achieved.
Thomson Reuters makes acquisition
Thomson Reuters has bought Manatron, a property tax and land registry automated transaction software provider to governments and municipalities internationally. The deal provides Thomson Reuters with an entry into the public sector for its expanding accounting and tax software business, gaining an extra 1,400 clients in over 20 countries. Brian Peccarelli, president of the tax and accounting business of Thomson Reuters, said: “The government tax automation space is a growing segment and a natural fit with our strategy to improve workflow efficiency for our clients through innovative technology.”
Deloitte appoints new chairman
Stephen Almond is Deloitte’s new global chairman, succeeding John Connolly. Almond was previously deputy global chief executive and before that was global managing director, audit, for four years. He has also been seconded to the Bank of England and was a lead auditor for RBS. Pensions consultants PIRC described Almond’s appointment as “disappointing” given his past role on the RBS audit. Almond will continue to be based in London. John Connolly was chairman of the global firm from June 2007. He has now been appointed chairman of construction company AMEC.
BDO senior partner leaves
BDO is appointing a new senior partner, after Simon Bevan stepped down from the role after only 11 months of an intended four year term. A spokesman for BDO said: “Simon decided for personal reasons to take a career break and has retired from the firm. This was unexpected and we are sorry to see him go.” The partners were expected to elect a new senior partner on 20 June, after AB went to press. Bevan joined BDO in 1981 and became a partner in 1988.
‘No appetite for audit/non-audit split’
Businesses do not support moves by regulators to prevent audit firms from also providing non-audit services, according to a survey conducted for Baker Tilly. Only a quarter of the 117 businesses with a turnover above £5m surveyed said they did not value the option to buy consultancy services from their auditors. Some 81% said they like dealing with consultants who already understand their business; 70% said this saved them time; and 48% reported that this saved them money.
‘No consistency’ in service charge accounting
There is no consistency and little transparency in the way property service charges are accounted for, a report from Kingston University and Property Solutions has found. In an analysis of 100 reports, the analysts were able in only three cases to determine whether they were prepared using a cash, transaction, or accruals approach. In 97% of cases, no disclosure was made about the accounting principles used. In practice, says the report, the accounting practice is determined by the particular lease, though the contract wording often makes it unclear which approach is used.
PwC holds audit top spot
PwC has retained its position as the leading auditor to FTSE 100 companies, according to the latest auditor rankings compiled by Hemscott Corporate Advisers. PwC audits 38 of the top 100 companies, while KPMG and Deloitte each audit 22. E&Y has 17 clients, while BDO is the only firm outside the Big Four with a FTSE 100 client. KPMG has the most listed clients at 376, while PwC has 317.
PwC wins new audit clients
PwC has won two significant new audit clients. Newsmith’s three hedge funds – Newsmith UK, Japan and Europe – have switched from Ernst & Young to PwC. And NetDimensions has dropped Nexia in favour of PwC. NetDimensions is an ambitious software company, which indicated its move to a Big Four auditor fitted with its expansion plans.
Disclosures lead to investigations
HMRC has launched 16 criminal investigations off the back of disclosures made in the Offshore Disclosure Facility and the New Disclosure Opportunity. The two schemes led to over 50,000 voluntary disclosures, generating £485m. The Tax Health Plan, aimed at medical practitioners, raised £10m, through 1,500 voluntary disclosures. HMRC is conducting 3,500 enquiries as a result of the three disclosure schemes. The Liechtenstein Disclosure Facility has led to 475 disclosures, yielding £145m.
Baker Tilly partners move to salaries
Several Baker Tilly partners are reported to have transferred from equity to salaried contracts. Jon Newcombe, director of Twenty Recruitment’s professional services practice says: “Sometimes, individuals just don’t want the pressure of an equity partnership. An equity partner has to buy into the partnership and contribute to the capital account – they have to contribute to the pot to take from the pot.” In some cases, says Newcombe, salaried partners may earn more than equity partners. Baker Tilly did not respond to a request to comment.
PCAOB may require audit rotation
The US PCAOB may consider mandatory audit rotation to tackle the lack of auditor independence and scepticism, its chairman James R. Doty has said. “The Board is prepared to consider all possible methods of addressing the problem of audit quality — including whether mandatory audit firm rotation would help address the inherent conflict created because the auditor is paid by the client.” Policy papers addressing audit quality and independence will be issued by PCAOB soon.
News – RoW
Smaller firms to get more public sector audits [lead]
The European Parliament’s Legal Affairs Committee has backed last autumn’s Commission green paper on audit reform. The Commission is expected to finalise new audit reform proposals in November. If these are ratified, public bodies will be expected to more often use firms outside the Big Four, with benchmarked targets for use of medium and small sized firms. At least two firms outside the Big Four would be included in every public sector tendering opportunity. The Commission may conduct an impact assessment to consider mandatory rotation of auditors and voluntary joint audits for private sector clients. But the Conservative Party’s lead negotiator, Dr Syed Kamall MEP, suggested that mandatory audit rotation is now less likely. “Mandatory audit rotation would be expensive for companies as audits are always priciest in the first year,” he said. “Evidence shows that making firms change auditors all the time just creates more concentration in the Big Four.”
Yemen economy hits crisis [lead]
Yemen’s political crisis has generated an economic collapse. President Ali Abdullah Saleh was seriously injured in a rocket attack and left the country for hospital treatment in Saudi Arabia. There have been riots in the capital Sana’a and across the country. Saudi Arabia has donated three million barrels of oil to assist Yemen to survive the economic crisis. Yemeni Oil Minister Amir al-Aidarousas explained: “The donation came to support the Yemeni national economy and to ease the fuel shortage the country is suffering, because the purchase of oil derivatives have been stopped as foreign companies refused to sell on credit, because the Finance Ministry and the Central Bank of Yemen could not afford to pay it.” Prospects for economic recovery look slight until there is clarity about Yemen’s political future. It is unclear whether Saleh will return after surgery, who will win the escalating civil conflict and whether Al Qaeda will strengthen its hold in the country.
EU to cut accounting requirement for micro entities
So-called ‘micro-entities’ will be exempted from some accounting requirements, under new rules approved by EU ministers. Under these simpler rules, member states would be allowed not to require publication of profit and loss accounts and balance sheets. ACCA welcomed the compromise achieved by ministers, which reduced the threshold proposed by the European Parliament. But ACCA is unhappy at the proposed exemption of micro-entities from using accruals accounting. The proposals will only be finalised if approved by the European Parliament. A micro-entity is one that complies with at least two out of three criteria: that its balance sheet total does not exceed €250,000; that its net turnover is not more than €500,000; and that it has no more than an average of 10 employees in the relevant financial year.
Kabul Bank gets ‘super audit’
The UK Government has agreed to spend £7m to pay for a ‘super audit’ of Afghanistan’s Kabul Bank in an attempt to improve confidence in the stricken bank. The crisis in the state of the Kabul Bank – which is reported to have lost vast sums in bad property investment in Dubai – has disrupted aid programmes in the country. Some £85m of UK aid is on hold until the malpractice allegations are resolved.
KPMG challenged over ‘sexism’
KPMG is being sued by a former senior manager over allegations that she lost $20,000 from her salary and was denied a promised promotion after she took maternity leave. Donna Kassman, 54, had worked at KPMG’s New York office for 17 years. She claims that when she challenged the salary cut she was told that she was being paid “too much”. Kassman’s attorney has applied for class action certification and says that KPMG is engaged in systematic discrimination against its female managers. KPMG denies the allegation. “KPMG is recognized as a leader for its strong commitment to supporting women in the workplace,” said KPMG spokesman George Ledwith. “In fact, among the Big Four accounting firms, KPMG is tied with the highest percentage of women partners. We believe this lawsuit is entirely without merit.”
Call for ‘more prudent’ bank accounting
Irish banks could be required to comply with old style UK and Irish GAAP as well as IFRS, if the Central Bank of Ireland finds it has the legal powers to require this. The Central Bank is discussing its options with legal and accountancy advisors. Bank governor Patrick Honohan says that that IFRS does not require financial institutions to adopt a ‘prudent’ approach to financial reporting. He wants more explicit recognition in accounts of likely future losses and write-downs, which, he says, were a feature of GAAP.
IAASB to revamp audit reports
The International Auditing and Assurance Standards Board is seeking improvements to audit reports, to make them more useful to a wide range of stakeholders. A consultation has been launched, asking respondents to identify audit report ‘information gaps’, which they would like filled. Options for change are identified, but the IAASB recognises that some of these may require changes to national and international accounting standards and regulators if they are to be achieved. “The IAASB believes that now is the time for a more fundamental review of auditor reporting to ensure, in the public interest, that it can meet the information needs of financial statement users in a global business environment with increasingly complex financial reporting requirements,~” said IAASB Chairman Prof. Arnold Schilder.
Thomson Reuters makes acquisition
Thomson Reuters has bought Manatron, property tax and land registry automated transaction software providers to governments and municipalities around the world. The deal provides Thomson Reuters with an entry into the public sector for its expanding accounting and tax software business, gaining an extra 1,400 clients in over 20 countries. Brian Peccarelli, president of the Tax & Accounting business of Thomson Reuters, said: “The government tax automation space is a growing segment and a natural fit with our strategy to improve workflow efficiency for our clients through innovative technology.”
BDO sued over Stanford
Investors in the collapsed Stanford Financial Group are suing BDO USA for $10.7bn, alleging that as auditors BDO overlooked signs of potential fraud. “BDO’s cozy relationship with the Stanford Financial Group was steeped in conflicts of interest and required ongoing deception and duplicitous manipulation of the facts to enable the Ponzi scheme to grow exponentially for over a decade,” claimed the investors in a law suit filed in a Dallas federal court. BDO responded: “BDO was never the auditor of Stanford International Bank – the entity where this fraud took place. That very important fact and the timing of this complaint – years after the Stanford fraud came to light and after many other investor complaints were filed – reflects a transparent understanding that these allegations lack merit.”
PCAOB may require audit rotation
PCAOB is concerned about the lack of auditor independence and scepticism and is willing to consider mandatory audit rotation to tackle this, its recently appointed chairman James R. Doty told the annual conference of the SEC and Financial Reporting Institute. “The Board is prepared to consider all possible methods of addressing the problem of audit quality — including whether mandatory audit firm rotation would help address the inherent conflict created because the auditor is paid by the client….I believe it is incumbent on the PCAOB to take up the debate about firm tenure and examine it, with rigorous analysis and the weight of evidence in support and against.” Several policy papers addressing audit quality and independence are to be issued by PCAOB in the coming weeks.
E&Y fails to half inquiry
Ernst & Young has failed in a High Court bid in Dublin to close a regulatory investigation into its audit of the failed Anglo Irish Bank. Ms Justice Mary Irvine ruled that the firm was out of time and had not demonstrated ground to end the investigation, or the report of a forensic investigation being conducted by accountancy firm FTI that could be used to determine disciplinary action, if it is found that there is a prima facie case against E&Y. In a statement, E&Y said it was disappointed by the decision, adding that “We have no issue with active, constructive and comprehensive participation in any investigation of our work as statutory auditors to Anglo Irish Bank.”
US corporations pay nil tax
Twelve major US-based multinational corporations received tax subsidies, despite earning between them $171bn in profits between 2008 and 2010, according to a report from Citizens for Tax Justice. In that period, says the report, American Electric Power, Boeing, Dupont, Exxon Mobil, FedEx, General Electric, Honeywell International, IBM, United Technologies, Verizon Communications, Wells Fargo and Yahoo were given $62.4bn in tax subsidies and obtained a negative tax rate of 1.5%. GE alone obtained $4.7bn in tax subsidy, despite generating a pre-tax profit of $7.7bn in the period.
Countries move to indirect taxation
Governments globally are moving from direct to indirect taxation, under pressure from the recession, according to a report from PwC. The report – Shifting the balance: from direct to indirect taxes – found that VAT has proved increasingly popular with governments, with 156 countries now using some form of VAT. In the most economically developed countries, this trend has been hastened by the financial crisis. Soaring budget deficits have put pressure on many governments – particularly in Europe – to look to raise additional revenues. China and India have also announced their intentions to move towards a single uniform VAT system, while the countries of the Gulf Cooperation Council are working towards a VAT system.
Banker banned
Former National Irish Bank chief executive Jim Lacey has been banned for nine years from being a company director, or being involved in the management of any company. The High Court in Dublin disqualified Lacey at the request of the Director of Corporate Enforcement on the grounds of unfitness. The decision was based on Lacey’s failure to properly manage the company, or to act on reports from the bank’s internal auditor. NIB was fined £42m [€50m?] in 2004 for widespread tax evasion and client overcharging. Lacey ceased to be chief executive of NIB in 1994, after which he was appointed as a director of several state companies.
Deloitte appoints new chairman
Stephen Almond is Deloitte’s new global chairman, succeeding John Connolly. Almond was previously deputy global chief executive and before that was global managing director, audit, for four years. He has also been seconded to the Bank of England and was a lead auditor for RBS. Pensions consultants PIRC described Almond’s appointment as “disappointing” given his past role on the RBS audit. Almond will continue to be based in London. John Connolly was chairman of the global firm from June 2007. He has now been appointed chairman of construction company AMEC.
BDO’s new Lebanon firm
BDO has appointed Semaan, Gholam & Co as its new member firm in Lebanon. Fiduciaire du Moyen Orient – which previously operated as BDO SAL and BDO PCC – has agreed terms for ending its membership of the BDO network. Semaan, Gholam & Co was founded in 1930 and has over 90 partners based in its Beirut office. Most of its work is in audit. BDO has also appointed a new member firm in Tajikistan. The Asian Business Group is now known as BDO Tajikistan and is based in the country’s capital, Dushanbe.
KPMG’s new global chairman
Michael J. Andrew has been appointed KPMG’s new global chairman, replacing Tim Flynn from October this year. Andrew will be based in Hong Kong and is currently chairman both of KPMG Asia Pacific and KPMG Australia. Michael Andrew, who will be based in Hong Kong, is currently Chairman of KPMG Asia Pacific and also of KPMG Australia. He has been with KPMG for 27 years, including working in emerging markets in Eastern Europe and Asia Pacific and has been central to the firm’s strategy that has achieved a fast rate of growth in Australia. Flynn is to retire.
Former BDO partner convicted
BDO’s former managing partner of its Venezuelan firm has pleaded guilty to being involved in a $500m Ponzi fraud and faces a possible 20 year jail term. Juan Carlos Guillen Zerpa was convicted in a Miami court, which heard that he had been the accountant for a hedge fund, Michael Kenwood Capital Management Group, where the fraud took place. Juan Carlos Horna Napolitano, a Venezuelan real estate manager, has also admitted his role in covering up the fraud: he was already wanted in his home country in connection with a 2009 bank fraud. BDO said: “The fraudulent scheme had been run by Connecticut investment adviser Francisco Illarramendi. Neither Illarramendi nor any of his companies were clients of BDO and Mr Guillen acted in this matter in a personal capacity.”
Investors ‘need more protection’
Auditors must provide better quality information to investors to protect them, SEC chairman Mary L. Schapiro has told the dinner of the trustees of the Financial Accounting Foundation. “Lingering results of the financial crises underscore the need to protect investors: with increasingly informative accounting standards; with scrupulous application of all standards, old and new; and with robust auditing that ensures accuracy,” she said. “A global economy in which billions cross borders with a click of a mouse demands accounting standards that cross borders with equal ease.”
Whistleblowers to go straight to SEC
The US Securities and Exchange Commission has adopted rules to encourage whistle-blowers to go straight to the FEC with allegations of financial malpractice. Whistle-blowers who do this will be entitled to receive financial rewards, where their information leads to successful federal court or administrative action and in which the SEC receives over $1m in financial sanctions.
Moody’s warns US of downgrade
The US Federal Government has been warned of a possible credit rating downgrade by Moody’s, because of the failure of the political parties to agree a new budget or to reduce the size of the federal debt. “If the debt limit is raised and default avoided, the Aaa rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody’s to change its outlook to negative on the Aaa rating,” said the agency. It said the prospect of government default was “very small but rising”. Moody’s said it may also downgrade the Bank of America, Citigroup and Wells Fargo.
Politics
Audit goes to Competition Commission
The audit market has been provisionally referred for investigation to the Competition Commission by the Office of Fair Trading. The OFT believes there are competition problems in the market and is likely to seek potential remedies through the assistance of the Commission. The market is highly concentrated in the hands of the large firms, with substantial barriers to entry and switching, said the OFT. Clive Maxwell, OFT Executive Director, said: “We believe that the statutory test for a Competition Commission reference has been met, but are keen to understand more about the remedies available in the market and, consequently, whether or not a reference to the Competition Commission would be an appropriate response to our concerns.” A final decision on whether to refer to the Commission will be taken after consultation later this year with regulators, government, business and the audit industry.
EU cuts small firms’ accounting requirements
So-called ‘micro-entities’ will be exempted from some accounting requirements, under new rules approved by EU ministers. Under these simpler rules, member states would be allowed not to require publication of profit and loss accounts and balance sheets, though in the UK simple balance sheet information will still need to be filed with Companies House. ACCA welcomed the compromise achieved by ministers, which reduced the threshold proposed by the European Parliament. But ACCA is unhappy at the proposed exemption of micro-entities from using accruals accounting. The proposals will only be finalised if approved by the European Parliament. A micro-entity is one that complies with at least two out of three criteria: that its balance sheet total does not exceed €250,000; that its net turnover is not more than €500,000; and that it has no more than an average of 10 employees in the relevant financial year.
Countries move to indirect taxation
Governments globally are moving from direct to indirect taxation under pressure from the recession, according to a report from PwC, Shifting the Balance. PwC found that VAT is increasingly popular with governments, with 156 countries now using some form of it. Soaring budget deficits have put pressure on many governments – particularly in Europe – to look to raise additional revenues, with VAT a preferred option. China and India are also moving towards single uniform VAT systems, while the countries of the Gulf Cooperation Council are working towards a VAT system.
FRC to extend influence
The Financial Reporting Council wants to extend its international influence, chief executive Stephen Haddrill said when launching its plan and budget for 2011/12. “The [recent stakeholder] consultation raised a number of important issues, in particular the need for the FRC to maximise its influence in Brussels and internationally during a period of significant regulatory change,” said Haddrill. The FRC also aims to increase the value of corporate reporting and governance, while cutting its core operating budget of 5% for accounting, audit and corporate governance and by 8% for actuarial standards and regulation.
Northern Ireland claims tax progress
The Northern Ireland Affairs Select Committee has concluded that there is a convincing case for reducing the corporation tax rate in Northern Ireland, assisting it to compete with the Republic of Ireland. TheMPs criticised the Treasury for not knowing how much corporation tax is collected from companies in Northern Ireland, making it difficult to calculate the costs and benefits of a cut in the tax rate.
Public Sector
The future beyond Audit Commission
All local authority audits for 2012/13 are likely to be outsourced to the private sector, local government minister Grant Shapps has announced. This represents the next stage in the winding-down of the Audit Commission, though the decision is subject to final confirmation after consultation. The Audit Commission has been asked to begin preparations for the outsourcing, designing a procurement process that allows a range of firms to bid. Bidders may include an in-house team from the Audit Commission, acting as an employee-owned mutual. Assuming that ministers’ intentions are confirmed, the Audit Commission will be greatly reduced in size by the end of next year, with just a small residual body left to oversee the awarding and implementation of contracts. Subsequently, local public bodies would be enabled to appoint their own auditors. A final decision on the future of the Commission’s in-house practice will be announced soon.
40% of councils have no strategy
Local authorities must make savings averaging 20% by 2014, yet 40% have no strategies to achieve this and a quarter do not believe they will succeed, a study by support services supplier Interserve has found. A third of councils expect to reduce spending by a quarter or more and 10% seek to cut over 30% of costs. The study reports that 84% of councils believe that outsourcing has delivered savings; 58% believe it is essential to achieve savings targets; 44% regard political concerns as a barrier to service outsourcing; and 34% intend to outsource more services by 2014.
Practice
Firms must resubmit iXBRL accounts
One in three businesses that submitted tax returns using iXBRL in April must resubmit their accounts, HRMC has revealed. A total of 66,513 returns were submitted with iXBRL attachments during April, with 22,000 companies required to resubmit. HMRC says that it is “sympathetic” to inaccuracies in the first year of iXBRL. Software providers IRIS Accountancy Solutions describes the rate of rejection as “staggering” and points out that with only 7% of businesses having an April year end, there is likely to a surge of rejected returns as the year continues. Phill Robinson, chief executive of IRIS Accountancy Solutions, said: “For the April 2011 end of year returns, HMRC accepted partly tagged accounts, so most businesses got away with the bare minimum….. Over time, the bar will have to be raised until the point is reached where all accounts are fully tagged and businesses need to be prepared for this.”
HMRC extends tax crackdown
HMRC is to establish a series of task forces to tackle tax evasion, beginning with action focused on restaurants in London. Specialist teams will undertake what HMRC describes as “intensive bursts of compliance activity”. After the action against London restaurants has been completed, teams will target restaurants in Scotland and the North West. A further nine task forces are to be set-up in the current financial year, with more to follow in 2012/13. The groups are being created as part of the £900m government initiative against tax evasion announced in last year’s Comprehensive Spending Review, which aims to raise £7bn a year in additional tax revenues.
Financial Services
RBS accused of distorted accounts
Two leading MPs have asked RBS to prove that its accounts properly present its financial position. Former shadow home secretary David Davis and Steve Baker – who has tabled a Bill seeking banks to produce parallel GAAP and IFRS accounts – have challenged the Government-owned bank. They suggest that the use of IFRS has inflated the capital position of the bank. The two MPs have asked why the Government’s Asset Protection Scheme accounts report an expected loss of £57bn on toxic assets, yet the RBS accounts show its losses at £32bn. The MPs suggest this may have the effect of the bank improving its capital ratio to 5.5%, against 2.75% if the Asset Protection Scheme loss figures were used. It is understood that RBS rejects the MPs’ argument on the basis that its accounts show losses for the last trading period, while the Asset Protection Scheme is predicting potential future losses to 2014. RBS declined to comment officially.
More loans ‘to go troubled’
Banks’ financial troubles are far from over, credit ratings agency Fitch Ratings has argued. It warned that the amount of US bank loans classified as troubled debt restructurings – TDRs – has grown considerably over the last two years. It believes that recent changes in accounting standards guidance ASU 2011-2 and ASU 2010-20, along with increased regulatory scrutiny, will result in even more loans moving into TDR status. The accounting changes will also lead to greater transparency for those loans already classified as TDR. The new accounting standards guidance comes into effect in the second half of this year.
Corporate
Large corporates accused
Large corporates have been accused by the electronic payment agency Bacs of consistent late payment of bills. A survey conducted for Bacs found that a third of SMEs report that big companies do not pay on time, with payments delayed for up to 52 days. By contrast, payment times by the public and third sectors have improved. In total, £24bn is owed to SMEs, mostly from big companies. Firms operating in the manufacturing sector have the biggest problem with large corporations: 41% of SMEs in the sector say that they are not being paid on time by large customers. Bacs is promoting the use of automated payments by large and small businesses to improve payment times. Mike Hutchinson, head of marketing at Bacs, said: “Late payment remains a big problem for British SMEs with billions of pounds overdue against bills, causing small businesses to use up millions of man hours in chasing invoice payment.”
Helphire engages KPMG
KPMG has been engaged by the Helphire Group to assist with a trading restatement. Helphire announced in its interim management statement that there may be a material discrepancy in the carrying amount of its receivables. The company said that difficult trading conditions meant that profits were significantly below market expectations. Several board and management changes were made by the company in recent months, with a new group commercial director and a new insurance relations manager appointed. KPMG has been engaged to assist the group in identifying the cause of the material discrepancy and its precise impact.
RoW sections
Corporate
Essex Crane to restate accounts
US based Essex Crane will restate its financial results for 2010 after its auditor found a discrepancy in its tax reporting. The company was reported as explaining: “The Audit Committee of the board of directors, based on the recommendation of management and following discussions with the Company’s independent registered public accounting firm, concluded that the financial statements for the year ended December 31, 2010, included in its annual report on form 10-K should no longer be relied upon as a result of an error relating to the understatement of the company’s estimate of net deferred state tax liabilities resulting from the acquisition of Coast Crane and an overstatement of valuation allowances related to state net operating losses.” The restatement is believed to cause a $1.8m increase in deferred state liabilities, an increase in tax expense a rise in net loss by the same amount for the 2010 period. Enquiries to Essex Crane went unanswered.
Mixed progress in role separation
There has been a rapid separation of the chief executive and chairman roles on corporate boards in the United States, a global study by Deloitte has found. In the US, some 40% of major corporations studied now separate the two roles. While the vast majority of the UK’s largest companies separate the roles, the trend is now in reverse: 97% split the responsibilities in 2009, falling to 94% in 2010. In France, there was a decline in the separation of roles from 58% to 55% and in Canada from 87% to 85% in the same period.
Financial services
US banks attack standards changes
Citibank has led an attack by the major US banks on proposals from the FASB and IASB to report their exposure to derivatives, removing their existing capacity to offset derivatives’ exposures. “The flawed offsetting model in the exposure draft will either obscure or create nonexistent risks which will ultimately mislead financial statement users,” said Robert Traficanti, deputy controller at Citigroup. A report produced by Credit Suisse said that the impact of the ending of offsetting could cause an additional $7 trillion of derivatives exposure on the balance sheet of US banks – almost all of it affecting just five banks: Citigroup, Bank of America, JP Morgan Chase, Goldman Sachs and Morgan Stanley. The banks have written to the FASB saying that the proposed change would exaggerate risk exposure, as in practice they have legal agreements in place that confirm their offsetting positions.
More loans ‘to go troubled’
Banks’ financial troubles are far from over, credit ratings agency Fitch Ratings has argued. It warned that the amount of US bank loans classified as troubled debt restructurings – TDRs – has grown considerably over the last two years. It believes that recent changes in accounting standards guidance ASU 2011-2 and ASU 2010-20, along with increased regulatory scrutiny, will result in even more loans moving into TDR status. The accounting changes will also lead to greater transparency for those loans already classified as TDR. The new accounting standards guidance comes into effect in the second half of this year.
Practice
IFAC to increase support for SMPs
IFAC has pledged to increase its support for small and medium sized accounting practices. IFAC’s SMP committee says that it is providing more input to IFAC’s policy-making processes to ensure that SMP and SME issues are fully considered; helping to shape the form and content of international standards to ensure their stability, relevance, and proportionality to SMEs and SMPs; communicating the importance of the SME sector and the role SMPs can play in supporting this crucial sector to enhance the visibility, voice, and recognition of SMPs; and providing practical support to SMPs to enhance their ability to provide high-quality and relevant professional services. “Put simply, we recognize that SMPs help support the health and prosperity of the small and medium-sized entity sector, a sector that in most countries around the world accounts for the majority of private sector employment and Gross Domestic Product,” said Sylvie Voghel, chair of the IFAC SMP Committee.
A third of small firms unaware of tax positions
Small family businesses in Spain, Brazil and Germany are much more aware of their potential tax exposures on capital gains and inheritance tax and estate duties after the death of the proprietor than are their counterparts in France, Denmark and the UK, a study by PwC has found. Mary Monfries, tax partner at PwC said: “Where a family firm is active internationally, owners can find themselves having to navigate a number of complex overseas tax regimes.” PwC says that more family firms need to ensure they are aware of potential tax liabilities, to prevent this damaging their future investments in their businesses.