AB – Jan 2011

UK News

Accountants scoop £1.3bn bonus

Accountants working in the UK were awarded £1.3bn in bonuses at Christmas, according to research from recruitment consultancy Ambition. This equates to 10.8% of basic salary – up from the average bonus payment of 8.7% of salary. Some 60% of businesses employing accountants responded that they were awarding bonuses, while 20% did not expect to award any form of performance related pay or salary increase. Employers expect to make average salary increases this year of 2.6%, though finance staff themselves predicted they would be given pay rises of 5%. Tim Gilbert, managing director of Ambition, said: “There may be some disappointment from finance teams about the level of salaries next year but it’s important to remember that many staff will have had their pay frozen over the last two years. It’s understandable that staff now want to get their pay back in line, but the fact that businesses will be paying higher bonuses than expected will go some way to appeasing any disappointment.”

FAST FACTS

Average accountant’s salary £42,000

Average bonus in 2010 £4,536

Total bonus pot for accountants £1.3bn

Government promises CT reform

New Controlled Foreign Company rules are to be introduced by the Government to improve the competitiveness of the UK’s corporation tax regime. Subject to the approval of new legislation, there will be an opt-in exemption for profits earned in foreign branches of UK companies from 2011, so that UK companies will no longer be subject to UK corporation tax on their foreign branch profits. The Government will also from April 2013 introduce a Patent Box: a 10% CT rate on profits from patents. Earlier this year the Government announced it would cut CT rates, which will fall to 24% over the next four years, while the small profits rate will reduce from 21% to 20% from April 2011. Ireland is keeping its CT rate at 12.5%, despite pressure from European Union partner countries to raise it as a condition for bail-out aid.

FSA and SEC charge Deloitte partner

A joint investigation by the Financial Services Authority, the US Securities and Exchange Commission and the US Department of Justice, backed by the FBI, has led to the charging of a former Deloitte partner and his wife. Arnold McClellan and his wife Annabel, of San Francisco, California were charged by the SEC with repeatedly leaking confidential merger and acquisition information to family members overseas in a multi-million dollar insider trading scheme. Deloitte said: “We are shocked and saddened by these allegations against our former tax partner and members of his family…… The SEC does not allege any wrongdoing by Deloitte in this unfortunate matter.”

EU consults on country-by-country reporting

The European Union is consulting on a possible requirement on EU companies to adopt country-by-country reporting practices, requiring multinationals to disclose financial information on their operations in overseas countries in their annual financial statements. In September the European Commission and the European Parliament evaluated the feasibility of requiring listed companies to prepare consolidated accounts that include key financial information regarding their activities in third countries. The intention is to increase information on the national activities of multinational companies and improve transparency on capital flows, assisting tax authorities to determine whether transfer pricing is taking place.

FRRP announces 2011/12 priorities

The Financial Reporting Review Panel will prioritise the commercial property, insurance, support service and travel sectors in its reviews in 2011/12. The Panel announced that it will take a particular interest in companies operating in niche markets, or which are outside the FTSE 350, because these are seen as facing more risks in the current economic climate than larger, more diversified companies. In the support services sector, the FRRP will focus on those companies with significant exposure to public spending cuts. Reports and accounts will continue to be selected from across the full range of companies within the Panel’s remit, including large private companies, and reports will also be selected for review on the basis of company specific factors and complaints.

Begbies makes new acquisition

Begbies Traynor has acquired Walletts Insolvency Services, the insolvency division of Stoke accountancy firm Walletts Chartered Certified Accountants. Walletts Insolvency Services provides specialist financial advisory services, primarily corporate recovery and insolvency, for small and medium sized businesses. The business will be integrated into the Begbies Traynor Group’s existing insolvency operations in Stoke-on-Trent. The purchase follows recent acquisitions of Hamiltons and Tomlinsons and is part of the PLC’s declared growth strategy.

ACCA publishes research report on accounting for carbon

Accounting practices for revealing the main emitting companies’ overall positions on emissions allowances vary substantially, according to research from ACCA. Almost half of surveyed companies (11 of 26 companies) treat emission allowances as intangible assets, so their allowances are measured in company accounts ‘at cost’. Consequently, allowances obtained free are shown as having nil value, while those that have been purchased are valued at cost price. Only 15% (four companies) are accounting for emission allowances initially at fair value, with the difference between fair value and cost recognised as a governmental grant and presented as deferred income on the balance sheet. Most of the companies do not disclose any information on amortisation/depreciation.

Grant Thornton grows profits

Grant Thornton’s pre-tax profits in the UK grew by 40.2% to £77.6 million in the financial year ended June. This was despite revenues falling both in assurance, by 6.2%, and in tax, by 4.8%. Revenues in the advisory practice grew by 11.1%, to pounds 151.2m. During the year, advisory overtook assurance to become the largest part of the firm’s operations by revenue. The firm said it had benefited from growth in its corporate finance work, including from private equity houses and businesses learning to be more realistic on sale valuations.

Wales auditor general jailed

The former Auditor General of Wales, Jeremy Colman, has been imprisoned for eight months for possessing and making indecent images of boys. Some of the images were ‘level four’ and must have required serious abuse of the children. Colman, who is 62, will have to sign the sex offenders register for ten years and is subject to a restraining order on his use of the internet. Prior to being appointed as Welsh Auditor General, Colman was assistant auditor general of the National Audit Office, had been a senior civil servant and was previously a partner at Price Waterhouse.

Queen opens KPMG hq

KPMG’s new London headquarters in Canary Wharf have been opened by the Queen, who unveiled a plaque marking the completion of the construction project. Some 4,000 KPMG workers are now based in the new building. The Canary Wharf premises are constructed to high standards of energy efficiency and sustainability: 20% of building materials have been recycled; there is a grass roof to assist with building cooling; sink and shower water is reused; heating and energy systems are low carbon; and the construction was awarded an ‘excellent’ environmental assessment rating.

ASB moves to end GAAP

The Accounting Standards Board has published proposals to replace GAAP by July 2013. SMEs would use a simplified version of IFRS, while small companies would continue to use FRSSE – a simplified version of UK accounting standards. Quoted companies would be unaffected, continuing to use IFRS. Other companies whose debt is traded on public markets or which hold deposits, or manage other people’s money, would move to IFRS. The ASB accepts that the current 2,000 page book on GAAP is too unwieldy and incoherent: SMEs new codified standards, FRSME, will be contained in about 400 pages.

Mango revises Guide to Financial Management

Mango has published a revised and updated its Guide to Financial Management for NGOs, with financial backing from Barclays Bank. The revised version is intended to be easier to use, contains a free training course handbook and a simple Excel-based accounting system. Over 14,000 people a year – operating from 194 countries – have downloaded the Mango guide since it was first published in 2005. The latest guide can be downloaded free at www.mango.org.uk/Guide.

AADB investigates

The Accountancy and Actuarial Discipline Board is investigating PwC, KPMG, Baker Tilly and RSM Robson Rhodes. PwC is being investigated regarding its audit of collapsed social housing company Connaught. The KPMG investigation relates to its audits of BAE Systems and commissions that may have been paid by BAE and related companies. The investigation into Baker Tilly regards its audit of the Tanfield Group and the recording of impairments. Robson Rhodes and its partner Glyn Williams are being investigated regarding revenue recognised in the accounts of iSOFT Group PLC between 2003 and 2005.

HMRC wins Airtours case

Companies seeking to recover the VAT element of the costs of strategic reviews may find their claims rejected, following a reversal of the Airtours decision by an HMRC tribunal.

HMRC’s Upper Tribunal has overturned a decision of the First-tier tribunal that the VAT element of Airtours’ costs for obtaining a strategic review of business and restructuring proposals from PwC was refundable. The Upper Tribunal decided that although Airtours (previously known as MyTravel) paid for the PwC report and received a copy of it, it was conducted for the benefit of the banks and creditors, not for Airtours and the company was therefore not entitled to recover the VAT element.

KPMG appoints non-execs

KPMG Europe has appointed three independent non-executives to form a ‘public interest committee’ that will consider how to improve governance and transparency, strengthen confidence in audit quality and improve stakeholder communications. The non-executives are Sir Steve Robson, a former permanent secretary at the Treasury, who is also a member of the Financial Reporting Council and a former non-executive director of RBS; Tom de Swaan, a director at Zurich Financial Services and former non-executive member of the Financial Services Authority; and Dr Alfred Tacke, a member of the advisory committee of the Deutschland Fund in Germany’s Ministry of Economics.

MacIntyre Hudson forms MHA

MacIntyre Hudson is leading a new association of medium sized and small accountancy firms. The association comprises six firms – Broomfield & Alexander, Carpenter Box, Henderson Loggie, Larking Gowen, Moore and Smalley and MacIntyre Hudson – which will each remain independent and with a local brand identity, but will operate collaboratively. Together the six firms have annual turnover of almost £80m. Each member will lead the association within a nominated UK region.

Carbon entrepreneurship MBA launched

The London School of Business & Finance is to run the first MBA in carbon entrepreneurship. It will also be the first MBA that is available free of charge online, with over 100 hours of video, coaching sessions and formal lessons accessible via a Facebook platform. The course is accredited by the University of Wales. LSBF head of technical research, Steve Priddy, said: “the MBA programme will be about bringing the next generation of business leaders up to date, and equipped to manage the future – a future that will be carbon constrained, resource constrained, water constrained and fiscally constrained.”

‘Internal auditors worried by fraud’

While boards have increasingly considered the risk of fraud in recent months, companies have failed to respond by sufficiently increasing the resources allocated to combat it, according to a survey on internal audit conducted by Deloitte. Internal auditors indicated their companies are vulnerable to fraud and that the potential impact to businesses of fraud has been increased by the lack of internal controls. While the role of internal audit in addressing the fraud risk has been strengthened in most organizations, the internal audit function remains under resourced.

FSA and SEC discuss regulation

The UK’s Financial Services Authority and the US Securities and Exchange Commission have met to discuss how to improve trans-Atlantic financial regulation. Topics discussed by Lord Turner of the FSA and Chairman Mary Schapiro of the SEC include oversight of over-the-counter derivatives trading, high-frequency trading, recent regulatory initiatives regarding credit rating agencies and cross-border enforcement information-sharing. The two agencies confirmed their commitment to working together to improve regulation and oversight of their securities markets, particularly with regard to globally active regulated firms with a presence in both countries.

NAO reports on benefits errors

The Department of Work and Pension has failed to reduce the financial cost of its mistakes in administering benefits, an investigation by the National Audit Office has concluded. In 2009-10, it overpaid clients by an estimated £1.1 billion and made underpayments of £500 million. The CBI responded by claiming that improvements in debt recovery and benefit and tax fraud could save £20bn for the public purse. According to a press report, ministers intend to allow HMRC access to information held in bank accounts of benefits claimants and taxpayers to reduce losses from fraud and error in the payment of benefits and tax credits.

RoW News

Ireland saves low CT rate

Ireland has retained its ability to undercut other corporation tax rates in the European Union and is holding its tax rate at 12.5%. Both France and Germany had pressed Ireland to raise its CT rate as a condition of the €83bn rescue funds from the EU and the International Monetary Fund. Other conditions were imposed, including an obligation on Ireland to produce regular accounts on income and expenditure and to report on the financial position of state-rescued Irish banks. The American Chamber of Commerce in Ireland – representing major investors in the country – welcomed the safeguarding of the low CT rate and the publication of a four year austerity plan designed to strengthen the country’s fiscal position. This provided reassurance to corporations intending to invest in Ireland, said Joanne Richardson, chief executive of the Chamber. She added: “It is estimated that global FDI will grow by 30% in 2012 and with the existing strong base of multinational companies here, this offers Ireland significant new investment opportunities.”

FAST FACTS

Corporation tax rates

Republic of Ireland 12.5%

United Kingdom 28%

Germany 30%

France 33.3%

United States 39.1%

EU consults on country-by-country reporting

The European Union is consulting on a possible requirement on EU companies to adopt country-by-country reporting practices. This would require multinational companies to disclose financial information on their operations in overseas countries in their annual financial statements. The consultation follows agreement in September by the European Commission and the European Parliament to evaluate the feasibility of requiring listed companies to prepare consolidated accounts that include key financial information regarding their activities in third countries. The intention is to increase information on the various national activities of multinational companies and to enhance transparency on capital flows, which would assist tax authorities to determine whether transfer pricing is taking place. The World Bank and the OECD have both this year indicated support for country-by-country reporting, encouraging the IASB to amend accounting standards. A report published last year by Christian Aid estimated that developing nations lose about $160bn a year through multinationals’ manipulation of transfer pricing arrangements.

FSA and SEC charge Deloitte partner

A joint investigation by the US Securities and Exchange Commission and the US Department of Justice, backed by the FBI, and the UK’s Financial Services Authority has led to the charging of a former Deloitte partner and his wife. Arnold McClellan and his wife Annabel, of San Francisco, California were charged by the SEC with leaking confidential merger and acquisition information in a multi-million dollar insider trading scheme. A statement from Deloitte said: “We are shocked and saddened by these allegations against our former tax partner and members of his family…… The SEC does not allege any wrongdoing by Deloitte in this unfortunate matter.”

US collects more offshore tax

The Internal Revenue Service has increased its surveillance of US residents’ use of foreign jurisdictions to hide assets, achieving a four-fold increase in its collection of tax penalties. Recently approved legislation requires US citizens and residents and US companies to report when they have a financial interest in a foreign financial account exceeding $10,000. They must include information on balances of over $50,000 in foreign financial assets in their tax returns.

BDO acquires largest Belarus audit firm

The largest accountancy firm in Belarus, previously part of the KPMG network, has joined BDO as BDO Belarus. The firm is based in Minsk and has 65 partners. The former ORFICO accountancy firm in Algeria has also joined the network, as BDO Algeria. It has three partners and 20 staff. “These are significant additions that further the strategic growth plans of BDO in these regions,” said Jeremy Newman, CEO of BDO International Limited. “Given its well earned reputation, it is not surprising that BDO Belarus is now the largest accounting firm in Belarus. The addition of BDO Algeria allows us to expand our presence in Africa, a continent that is becoming increasingly important to clients of our members firms.”

Comverse CEO settles case for $54m

The former CEO and co-founder of Comverse has agreed to pay $53.6m to the US Securities and Exchange Commission to settle charges against him. Jacob ‘Kobi’ Alexander is permanently barred from serving as an officer or director of a public company. The charges related to allegations of backdated options. The settlement is one of the largest of its kind and comprises $47.6m in disgorgement, plus interest and a further $6m in penalties. Alexander fled to Namibia when the SEC made its charges and is currently fighting extradition to the US to face criminal charges.

Russians face jail for false accounting

Detailed proposals are being drawn up by Russian criminal authorities and financial regulators to increase criminal sanctions on accountants and bankers for false accounting. New sanctions are expected to be introduced from 2012, amending Russia’s criminal code and making it specifically illegal to knowingly provide false or incomplete data with the intention of hiding a real financial position. This is intended to increase protection of creditors and deposit holders. The Central Bank also intends to improve bankruptcy procedures.

ACCA publishes research report on accounting for carbon

Accounting practices reporting the main emitting companies’ overall positions on emissions allowances vary substantially, according to ACCA research. Almost half of surveyed companies (11 out of 26) treat emission allowances as intangible assets, with allowances measured in company accounts ‘at cost’. Allowances obtained free are shown at nil value with those purchased valued at cost price. Only 15% (four companies) account for emission allowances at fair value, with the difference between fair value and cost recognised as a governmental grant and presented as deferred income on the balance sheet. Most of the companies do not disclose any information on amortisation/depreciation.

US standards to be reviewed

The Financial Accounting Foundation is to conduct a review of financial accounting and reporting standards issued by the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). The FAF is the oversight body for the US’s FASB and GASB and is designed to be independent from the standard setting processes of the two boards. The FAF review staff will study significant accounting standards to assess whether the intended financial reporting objectives underlying those standards are being met.

IIA Forms Global Internal Audit Oversight Group

The Institute of Internal Auditors has formed a global internal oversight body, the IPPF Oversight Council. This will develop guidance within the International Professional Practices Framework for internal audit professionals. The Oversight Council will also evaluate the IIA’s standard- setting processes. Organizations represented on the Oversight Council include the International Federation of Accountants, the International Organization of Supreme Audit Institutions, the World Bank, the OECD and the National Association of Corporate Directors.

Irish property market ‘in worst shape’

Ireland and Japan are suffering from severe debt funding gaps on real estate, according to a research report from property consultants DTZ. Japan has the largest absolute debt funding gap at US$70bn, followed by the UK (US$54bn), the US (US$49bn) and Spain (US$33bn). Ireland has the largest funding gap relative to the size of its property values at $6.5bn, or 16% of the value of commercial real estate value. Europe is the region with the biggest gap. While sufficient new equity capital has been raised to bridge the global debt funding gap, obstacles have prevented the refinancing being completed.

E&Y hires former Spanish minister

Ernst & Young has appointed former Spanish industry minister Juan Costa Climent as its global leader for Climate Change and Sustainability Services. Climent has previously worked for E&Y as its tax leader in Spain. Since ceasing to be a government minister, Climent has become an acknowledged expert on sustainable development and is author of the book “An Unstoppable Revolution”. He will be based in E&Y’s London office and will lead a team of 700 climate change and sustainability specialists who will support the firm’s activity across its core services.

Vodafone faces big Indian tax bill

India’s tax authorities are examining several multi-billion dollar mergers and acquisitions cases, following their success in obtaining a legal judgement in their favour, seeking $2.52bn from Vodafone. Vodafone claimed that as a transaction between it and Hutchison had taken place outside India and did not involve an Indian company, no tax was due to India on the transaction. Subsequently, the Dutch authorities have claimed that the Indian court’s decision was in breach of international agreements. The legal ruling is being appealed at India’s Supreme Court.

German banks attack regulators

Deutsche Bank chief executive Josef Ackerman and other sector leaders have attacked Germany’s politicians, suggesting they will over-regulating banking and hold back recovery. BDB, which represents German banks, said the country’s lawmakers are moving further than their international counterparts in preventing risky activities and in levying new taxes on banking transactions. The BDB suggested excess German regulation could cut banks’ profits by half.

Mango revises Guide to Financial Management

ACCA says audit opinions must be forward looking

Auditors must enhance the role of audit by making audit opinions more forward looking, focusing especially on risk, governance and the sustainability of the client’s business model, argues a report from ACCA. The report – Reshaping the audit for the new global economy – calls for audits to incorporate statements of responsibility for reviewing risk management and governance arrangements. Audits should also report on the assumptions underlying the business model and whether these seem reasonable or optimistic. ACCA suggests that auditors do more to communicate their audit findings to investors and other stakeholders, with clearer ‘red flags’ issued where auditors become aware of problems.

Norway and Saudi join KPMG Europe

KPMG’s partners in Norway and Saudi Arabia have agreed to join KPMG Europe, increasing the size of the European firm to 16 countries. The combined firm will have over 30,000 partners and staff working from over 120 offices – with revenues of €4.7bn. The two joining firms have strong energy and natural resources and public sector practices and will significantly extend the firm’s capabilities and depth of resource in these key areas, says the firm.

Carbon entrepreneurship MBA launched

The London School of Business & Finance is to run the first MBA in carbon entrepreneurship. It will also be the first MBA available free of charge online, with over 100 hours of video, coaching sessions and formal lessons accessible via a Facebook platform. The course is accredited by the University of Wales. LSBF head of technical research, Steve Priddy, said: “the MBA programme will be about bringing the next generation of business leaders up to date, and equipped to manage the future – a future that will be carbon constrained, resource constrained, water constrained and fiscally constrained.”

SEC and FSA discuss regulation

The US Securities and Exchange Commission and the UK’s Financial Services Authority have met to discuss how to improve trans-Atlantic financial regulation. Topics discussed by Chairman Mary Schapiro of the SEC and Lord Turner of the FSA include oversight of over-the-counter derivatives trading, high-frequency trading, recent regulatory initiatives regarding credit rating agencies and cross-border enforcement information-sharing. The two agencies confirmed their commitment to working together to improve regulation and oversight of their securities markets, particularly with regard to globally active regulated firms with a presence in both countries.

Politics

ACCA says audit opinions must be forward looking

Auditors must enhance the role of audit by making their audit opinions more forward looking, focusing especially on risk, governance and the sustainability of the client’s business model, argues a report from ACCA. The report – Reshaping the audit for the new global economy – is the result of discussions held in the UK, Poland, Singapore, Ukraine, Brussels, Zambia, and Malaysia. The report argues for a broader canvas for audits, incorporating statements of responsibility for reviewing risk management and governance arrangements. Audits should also report on the assumptions underlying the business model and whether these seem reasonable or optimistic. ACCA suggests that auditors do more to communicate their audit findings to investors and other stakeholders, with clearer ‘red flags’ issued where auditors become aware of problems. A two-page ‘binary’ audit report is not sufficient. The report adds that the auditor liability issue cannot be avoided.

MPs to enquire into Audit Commission abolition

The House of Commons Communities and Local Government Select Committee is to conduct an enquiry into the auditing and inspection of local authorities. The investigation follows the decision of the Government to abolish the Audit Commission, which has responsibility for the auditing of local public bodies, including councils. MPs will consider future arrangements for local government auditing that were previously conducted by the Audit Commission, including the audit of local authority expenditure; oversight and inspection of councils’ performance; and the undertaking of value for money studies.

IFS calls for major tax reform

The UK’s tax system is seriously flawed, an Institute for Fiscal Studies’ report concludes. The tax and benefits regime creates disincentives to work for many and is over-complex. The lack of integration of different parts of the tax system – such as income tax and National Insurance – creates further complexities and inconsistencies. There is also a lack of coherence between personal and corporate taxes. Treatment of savings and wealth transfers is inconsistent and inequitable, discouraging saving. Environmental taxation is not coherent, failing to discourage carbon use and congestion. The corporate tax structure favours debt finance over equity finance and discourages investment. Taxation of land and property is treated differently and is inefficient and inequitable. Too often tax policy is regressive, inefficient and inconsistent: for example, zero and reduced rate VAT is not targeted at people with low incomes.

Bank of England will work closely with auditors

The Bank of England wants to work more closely with banks’ auditors than the Financial Services Authority did, its governor, Mervyn King, told the House of Lords Economic Committee’s enquiry into the audit profession. He told the committee “the way we want to conduct supervision will certainly involve conversations with the auditors and they will therefore be responsible for providing us with accurate and good judgements about what they have seen and their impression of the institution”. King added that he did not believe that auditors should be blamed too much for the collapse of banks. “I suspect that it wasn’t just auditors, it was many other people, including the financial press, that lauded the success of these institutions, only to discover that they failed a few months later on,” he said. King criticised reliance on mark-to-market valuations where these did not reflect future realisable profits or losses.

Public sector

Scotland and Wales announce Budgets

Scotland and Wales have published their Budgets, which include major spending reductions. Wales’ business and budget minister Jane Hutt said that the province’s budget would be reduced by £860m in 2011/12 and by £1.8bn by 2014/15. Protection would be given to health, social services, schools and skills. Funding for NHS Delivery will rise for the new financial year; funds for social services will increase by 3% by 2013-14; and the budget for schools and skills will rise by 6.5% over three years. Scotland’s finance secretary John Swinney reported that there was a cut of £1.3bn in funds from Westminster. Priorities for future spending include protecting spending on health services, abolishing remaining prescription charges and a £2.5bn infrastructure investment programme. There will be a pay freeze imposed on higher paid Scottish public sector staff and those earning less than £21,000 a year receiving a minimum increase of £250.

PFI to be cut back

The Government is scaling-back its use of the controversial Private Finance Initiative. Following a review of housing PFI schemes for which financial support had been promised by the last government. The Department for Communities and Local Government has decided not to proceed with £1.9bn worth of schemes that were in pre-contract stages. Major regeneration projects in the London boroughs of Camden and Southwark and in Manchester and Stoke will not now go-ahead. Meanwhile, Conservative back-bench MP Jesse Norman has launched the PFI Rebate Campaign, with backing from 50 colleagues, which seeks to obtain a refund of 0.05% on contract payments as a contribution towards tackling the fiscal deficit.

Financial services

Executives warn that regulation will stymie banking recovery

Banking executives have warned that regulatory reform will stymie economic recovery, without preventing further recessions and trading risks. Some 97% of executives in the financial services sector questioned said that risk exposure would not be prevented by Basel III and other regulatory reforms and less than half believe it will even mitigate the effects of future crises. Some 39 % of respondents, and 54% of those in the US, said that regulatory reform will have a negative impact on their organizations’ recovery from the global financial crisis: a mere 9% of all respondents expect regulatory reform to assist recovery. Most said that regulation is more influential than law in determining how the sector operates. More than a hundred senior executives in the UK and the US finance industry were asked their opinions by internal audit and business consulting firm Protiviti.

Mutual funds ‘used to boost share price’

Banks have used mutual funds to support their share prices, a study by IMDEA Social Science Institute suggests. “We show that affiliated mutual funds tend to increase the holdings of the parent bank stock following a large drop in the stock price of the bank,” concludes the study. “Further, we provide evidence that these patterns of trading are not consistent with portfolio rebalancing into the banking sector, contrarian trading or timing skills. We also provide evidence that the patterns of trading are not information-driven. This leads us to conclude that affiliated mutual funds follow this strategy to support the price of the parent bank.”

Practice

No legal privilege for tax advisors

Tax advisors cannot benefit from the same legal professional privilege (LPP) as lawyers, the Court of Appeal has ruled. The appeal had been lodged by Prudential, which sought to determine that details of a PwC tax scheme did not need to be advised to HMRC. The Chartered Institute of Taxation supported Prudential, but concluded after the judgement that it was unlikely that a further appeal to the Supreme Court would be successful and that any change in the legal position would require legislation. “The Institute’s position on LPP is based on the principle of the level playing-field: there should be a common standard of privilege across all properly-qualified professionals able to advise on tax matters,” said the CIoT in a statement. “Taxpayers should be able to go to the adviser best qualified to give the advice sought, without being influenced by the availability or otherwise of LPP.”

Taxpayers warned

Taxpayers obtaining agreement from HMRC for a time to pay arrangement under the Business Payment Support Service or directly with an HMRC collection office must make sure the agreement is confirmed by HMRC, preferably in writing, says Baker Tilly. A recent First Tier Tribunal case found in favour of HMRC for imposing a surcharge on late paid tax, despite the taxpayer insisting he had reached a verbal agreement with an HMRC office that he would make the payment as soon as he was able. The taxpayer was unable to prove the phone call had taken place and HMRC said it had no record of the conversation having happened.

Corporate

KPMG’s Brendan Nelson joins BP

Former KPMG senior partner Brendan Nelson has joined BP as a non-executive director and will also chair its audit committee. Nelson was KPMG vice chairman until his retirement in 2010 and had also been global chairman for financial services at KPMG International. He is a director of the Financial Services Skills Council and a former member of the Financial Services Practitioner Panel. Nelson remains a non-executive director of the Royal Bank of Scotland Group and chairman of its audit committee. He replaces Douglas Flint as audit committee chairman: Flint was recently appointed chairman of HSBC. Frank L. “Skip” Bowman, a former head of the US Nuclear Navy, was also appointed to BP’s board: Bowman was a member of the Baker Panel that reviewed BP’s safety standards.

Deloitte to review Mouchel

Creditors of leading UK public sector outsourcing contractor Mouchel have called in Deloitte to conduct a financial review of the company. Mouchel reported a 15% drop in revenues, a 13% fall in profits and 28% fall in adjusted earnings per share in the year ending July. The largest factor in the fall in revenues was from activities in the regulated industries sector, where revenues collapsed by 52% from £181m to £88m. The company blamed the fall on the Dubai property crash and a substantive withdrawal from the rail sector. Mouchel issued a profit warning in advance of publishing its full year results, following an audit by PwC which advised a downward revaluation of company expectations on profits arising from public sector projects.

RoW

Corporate

KPMG’s Brendan Nelson joins BP

Tui restates accounts

Tui Travel – which merged with First Choice and Thomson Travel in 2007 – has restated its 2009 results, reducing its profits by £42m. Chief financial officer Paul Bowtell has now resigned and will leave his post at the end of the year. The group wrote-off £29m in August and then another £88m in October. Failure to integrate financial reporting from two separate computer systems – one used by tour operators for travel bookings and the other used by Tui’s own retail chain – were blamed for the error. Discounts and refunds were recorded on one computer system, but not on the other. The errors were discovered in the company’s audit, but had also occurred in 2007 and 2008 without being noticed. The company described the error as having been caused by “an inherent weakness in the system”.

Practice

Top Irish auditor may be struck-off

Patrick McCann, a well known auditor in Ireland, looks set to be disqualified following a ruling by the Irish Supreme Court. McCann was caught up in allegations against former Taoiseach (prime minister) Charlie Haughey as auditor of Kentford Securities Ltd, a company allegedly used by Haughey for tax evasion. The High Court had refused to disqualify McCann, but the Director of Corporate Enforcement successfully appealed. McCann is accused of failing to properly uphold his role as auditor of Kentford. The Moriarty Tribunal – which investigated suggestions of impropriety by Haughey – heard allegations that McCann was involved in conducting transactions through a series of company accounts that made it difficult to trace the provenance of money that was eventually received by Haughey. Kentford Securities was used by Haughey’s former accountant Des Traynor to repatriate funds held in offshore accounts. Haughey told the Moriarty Tribunal that Traynor had used private means to finance Haughey’s personal spending, to the tune of ten times’ the salary he earned as Taoiseach.

KPMG appoints non-execs

Fin services

Executives warn that regulation will stymie banking recovery

Banking executives have warned that regulatory reform will stymie economic recovery, without preventing further recessions and trading risks. Some 97% of executives in the financial services sector questioned said that risk exposure would not be prevented by Basel III and other regulatory reforms and less than half believe it will even mitigate the effects of future crises. Some 39 % of respondents, and 54% of those in the US, said that regulatory reform will have a negative impact on their organizations’ recovery from the global financial crisis: a mere 9% of all respondents expect regulatory reform to assist recovery. Most said that regulation is more influential than law in determining how the sector operates. More than a hundred senior executives in the US and the UK finance industry were asked their opinions by internal audit and business consulting firm Protiviti.

Mutual funds ‘used to boost share price’

Accountancy news – January 2011: Accounting & Business

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