UK News
HMRC taking hard line on ‘time to pay’ [lead with photo]
Companies that reached ‘time to pay’ agreements with HMRC face tough enforcement action, says Baker Tilly. “Taxpayers who have agreed arrangements with HMRC for paying tax are receiving letters threatening the confiscation of their assets,” warns the firm. “HMRC are not only flouting the agreements they have made, but causing unnecessary distress and threatening the livelihood of business owners.” Simon Plant, a partner at insolvency specialists SFP adds: “‘Time to pay’ is the ticking time bomb that no one wants to mention. But with HMRC now quite literally ‘calling in their debts’, those that have failed to accrue for those debts or naively believe they will be given more time are in for a rude awakening.” An HMRC spokesman responded: “Each time to pay arrangement exists for a specific debt or debts, so debts not covered by the arrangement may be sent for recovery. If, exceptionally, a customer believes that a debt included in an arrangement has been referred for recovery they should contact us immediately.”
FAST FACTS
£6.5m – turnover of TWC Joinery & Shopfitting
£400,000 – debt to HMRC that led to business failure
40 – jobs lost in closure
Law Society opposes privilege for accountants [lead with photo]
The Law Society is to intervene in a court case to argue against legal professional privilege being extended to accountants. The Supreme Court has granted life insurer Prudential permission to appeal the Court of Appeal’s judgment of October 2010, which rejected Prudential’s argument that accountants should be recognised as having legal professional privilege when giving tax advice, alongside solicitors and barristers. Law Society President Linda Lee says: “Legal professional privilege is a fundamental human right long established in the common law. It is a necessary corollary of the right of any person to obtain skilled advice about the law. It is a right that belongs to the client and one that lawyers will protect on their behalf. The Society will intervene to ensure that the scope of LPP remains clear and certain so that it remains an important safeguard for clients who seek and obtain legal advice.”
IFRS/GAAP convergence called for
Most UK accountants want UK GAAP to converge with IFRS, according to an ACCA survey of nearly 700 finance professionals. Some 93% of respondents support convergence, with 84% calling for the FRSSE (the Financial Reporting Standard for Smaller Entities) to be replaced with IFRS for SMEs (FRSME). A survey conducted by Ernst & Young of 290 accounts preparers reached a similar conclusion, with two thirds endorsing a move to the two IFRS-based frameworks for the UK without delay. Just 27% want to delay IFRS beyond 2014 and only 6% oppose IFRS / FRSME altogether.
IASB and FASB delay convergence
The IASB and the US Financial Accounting Standards Board have agreed to slow down the timetable for convergence of US GAAP with IFRS. The boards have now agreed to extend the timetable for the remaining priority convergence projects beyond June 2011 to ensure full consultation with stakeholders. Convergence projects are now targeted for completion in the second half of this year, with the exception of the US insurance standard, which is targeted for the first half of next year.
PwC appoints head of reputation
PwC has appointed Richard Sexton as its first ever director responsible for reputation and policy. Sexton, an existing senior partner, takes up his role in July, when he also becomes the firm’s deputy global assurance leader. PwC said: “The newly created board role of reputation and policy is recognition of the fact that the debate on reputation and regulation of the profession is likely to be one of the most significant challenges PwC faces.”
FRRP appoints new deputy chair
Former KPMG partner Joanna Osborne has been appointed deputy chair of the Financial Reporting Review Panel (FRRP). While a KPMG partner she was seconded to its International Financial Reporting Group. FRC Chairman Baroness Hogg said: “Joanna’s understanding of how global business works will be of great value in supporting the FRRP’s aim of improving the quality of company reports and accounts.” The Financial Reporting Council has appointed accountant, actuary and barrister Paul Kennedy as its acting director of the Board for Actuarial Standards. He is a former principal at Coopers & Lybrand and is currently head of actuarial oversight at the FRC.
Deloitte investment advice practice bought-out
Deloitte’s investment and pensions consulting practice, part of its private client service, has been sold to a management buy-out, backed by private equity firm LJ Athene. The unit employs 14 people and the sale follows a strategic review conducted by the firm. Andrew Hodge, managing partner for Deloitte’s tax practice, said: “We concluded that, whilst we are actively growing the private client services practice across the UK, it was becoming difficult to grow the IPC business within Deloitte given the increasing regulatory restrictions being placed on this business.”
IFRS Foundation publishes preliminary conclusions of strategy review
The IFRS Foundation’s trustees have published their preliminary conclusions of a strategy review intended to set the direction of the IASB in its second decade of existence. The Foundation said it was essential that the IASB be politically independent, adding that the existing three-tier structure of monitoring board, trustees and IASB remains appropriate, but that relations and procedures between the three bodies should be enhanced. The Foundation stressed that it must remain committed to “global adoption, in their entirety and without modification, of IFRSs”, supported by mechanisms to highlight where jurisdictions only partially adopt IFRS.
‘Over 15,500 firms in distress’
Over 15,500 professional services firms – including accountancy and legal firms – are in financial distress as a result of the recession, according to business recovery specialists Begbies Traynor. The rate at which professional firms are hitting financial trouble is accelerating, with an 87% increase in the last quarter. Begbies Traynor partner Nick Hood said: “Downward pressure on fees remains a problem for many firms, as well as increasing difficulty in supporting partner drawing requirements out of shrinking profits. Working capital and other funding facilities are hard to renew at previous levels and costs, producing a simultaneous squeeze on both cash and profitability.”
ASB to extend consultation on FRSME
The Accounting Standards Board is to extend the consultation on the introduction of IFRS for SMEs (FRSME), because anxieties about the impact of the proposals on housing associations have not been adequately reflected in representations to the ASB. Roger Marshall, chairman of the ASB and a former housing association treasurer, says he will meet with housing association representatives, despite the consultation period having closed. Associations are concerned that moving to requirements for not-for-profit organisations to hold assets at cost, rather than booking them at current market value, would cause many to breach existing banking covenants.
IFRS Taxonomy to be improved
Supplementary tags for IFRS taxonomy are to be published by the IFRS Foundation, to reflect commonly reported disclosures in their financial statements. This will be the first step in providing additional elements in XBRL (eXtensible Business Reporting Language) to bring it into line with commonly used accounting practices. It will allow entities to create IFRS financial statements in XBRL with fewer entity-specific taxonomy tags, thereby improving the comparability of information.
IAESB proposes revised professional standard
A revised standard for accountants’ ethical principles has been proposed by the International Accounting Education Standards Board (IAESB). IES (International Education Standard) 6, Assessment of Professional Competence, is a principles-based approach, which specifies the assessment of professional competence at Initial Professional Development (IPD) and Continuing Professional Development (CPD) stages for a professional accountant. IFAC member bodies must undertake formal evaluation of the adequacy of competence of aspiring professional accountants prior to their admission to the profession, verifying whether they meet CPD requirements.
IFAC emphasizes predictive analytics
Accountants need to be skilled in predictive business analytics to assist them anticipate future events, forecast possible outcomes and select actions and decisions to raise corporate performance, says the Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC). The committee has issued a proposed good practice guide on predictive analytics to be applied across the private, public and not for profit sectors. The guidance is intended to help accountants deal with rising expectations to provide higher quality information.
Accountancy Age goes online only
Accountancy Age has ended publication of its print edition, becoming an online only publication. The publishers, Incisive Media, said the decision followed careful consideration of changing reader habits, the growth in use of its website and rising subscription rates for its emailed newswires. Incisive explained that the website was being enhanced, with a new recruitment portal introduced this year and new services starting soon offering briefing papers and online education and training.
Demand for accountants ‘rising’
The demand for accountants is increasing, according to the latest ‘Professional Talent Spotlight’ from recruitment consultancy Badenoch & Clark. Factors leading the increased demand include IFRS conversion, restructuring, mergers and acquisition, cost reduction programmes and specific sectoral needs in pharmaceuticals, manufacturing, energy and retail. Higher demand is leading to a greater willingness by employers to offer more attractive remuneration deals, says the firm. B&C also reports that central government has become more willing to bring in corporate finance skills to improve engagement with the private sector and is increasing recruitment of people with relevant skills as non-executive directors.
Gender diversity consultation
The Financial Reporting Council is consulting on whether to amend the UK Corporate Governance Code to require listed companies to report their gender diversity in the boardroom polices and practices. The Code may also be amended to identify key issues that boards should consider when carrying out effectiveness reviews. FRC Chairman Baroness Hogg said: “Board diversity and effectiveness are closely linked. Diversity widens the perspectives brought to bear on decision-making, avoids too great a similarity of attitude and helps companies understand their customers and workforces. A board with too few women on it risks a weakness in at least one of these respects.”
PwC reported over ‘compromised audit’
The Financial Reporting Council has been asked by Jim Shannon MP to investigate a PwC report regarding Magellan Aerospace Corporation. A spokesman for PwC responded: “We refute entirely the suggestion that a change to a PwC report was made in order to render some advantage, or favour, to Magellan Aerospace Corporation or that such was made to the detriment of any individual….. PwC’s client was the Audit Committee of Magellan, by whom we were engaged to prepare a confidential report in relation to certain specific accounting matters.” The complaint relates to a paragraph removed at the request of Magellan’s audit committee, but these did not concern accounting matters and were covered in an accompanying letter, said PwC.
RoW News
IASB and FASB delay convergence [lead with photo]
The IASB and the US Financial Accounting Standards Board have agreed to slow down the timetable for convergence of US GAAP with IFRS. The boards have now agreed to extend the deadline for the remaining priority convergence projects beyond June 2011 to ensure full consultation with stakeholders. Convergence projects are now targeted for completion in the second half of this year, with the exception of the U.S. insurance standard, which is targeted for the first half of next year. The US Securities and Exchange Commission is meanwhile sponsoring a roundtable in July to discuss the benefits and challenges in adopting IFRS. It will involve three panels representing investors, smaller public companies, and regulators, which will consider investor understanding of IFRS and the impact on smaller public companies and on the regulatory environment of incorporating IFRS. “We must carefully consider and deliberate whether incorporating IFRS into our financial reporting system is in the best interest of US investors and markets,” said SEC Chief Accountant James Kroeker.
Russian tackles offshore tax avoidance [lead with photo and fast facts]
Russia plans to impose stricter tax residency rules, intended to boost domestic tax receipts. One of the aims is to reduce the use of companies based in tax havens to avoid tax liabilities. Russian residents investing in businesses via offshore zones will in future have to pay taxes in Russia on their gains where the business is controlled in Russia. The measures have been tabled as amendments to proposals that increase the ability of foreign citizens to invest in Russian strategic industries: Russian companies that own subsidiaries registered offshore will be allowed to purchase other Russian businesses in future without having to obtain specific permission from a prime ministerial committee. Foreigners are also to be allowed to acquire up to a quarter of a strategic Russian company without obtaining permission from the prime minister’s committee. Tax residents of Russia must reside in the country for at least six months a year.
FAST FACTS
$230m – value of tax evasion Russian authorities claim was made by one fund (which denies wrongdoing)
$5bn – value of tax avoidance by Rusal, according to state auditor
Gulf economic union ‘by 2015’
The planned single economic market for the Gulf States will be operational from January 2015, Abu Dhabi’s finance minister, Obaid Humaid Al Tayer, has announced. Outstanding issues to be resolved include agreeing basic principles for a common VAT system, finalising arrangements for a Customs Information Centre, establishing a development programme for the Gulf States and considering the impact on the natural gas market. Al Tayer said: “By the end of 2014 we should be able to address all pending issues related to the GCC customs union in order to ensure its implementation.”
Lebanon plans exit tax
The Lebanese government aims to generate $15m a year in revenues by imposing an exit tax on visitors. The money would be allocated to tourism promotion, in an effort to overcome declining visitor numbers. Tensions in Syria and other Middle East countries, exacerbated by the death of Osama bin Laden, are blamed for a recent fall in tourism and its likely continued decline this year. Tourism contributes 22% of Lebanon’s GDP.
‘SarbOx should stay’
Sarbanes-Oxley auditor attestation requirements for larger companies should be retained, a study by the US Securities and Exchange Commission has concluded. The SEC reports that investors generally view the auditor‘s attestation on internal control over financial reporting (ICFR) as beneficial and that financial reporting is more reliable when the auditor is involved with ICFR assessments. The measures relate to companies with an IPO value of between $75m and $250m – smaller companies having been exempted from the requirements under the Dodd-Frank Act.
PwC settles PCAOB action on Satyam
Penalties totaling $7.5m have been agreed by two PricewaterhouseCoopers International firms in India, settling actions by the US Public Company Accounting Oversight Board and Securities and Exchange Commission. PCAOB also imposed restrictions on the firms’ future audit activities. The settlements relate to violations by the firms of PCAOB and SEC rules relating to the audit of Satyam Computer Services. Dennis Nally, chairman of PricewaterhouseCoopers International, said that PwC remains committed to building its Indian presence, with quality at the centre of its activities. “The last two years have been challenging for PW India, but I believe that PW India has learned the lessons of Satyam, made the right changes and is on a sound footing to move forward, dedicated to quality work,” he added.
IFAC launches African Federation
The Pan-African Federation of Accountants has been launched by the International Federation of Accountants (IFAC). The PAFA brings together professional accountancy bodies from across 35 African countries. PAFA President, Major General Sebastian Owuama, said: “As the economies of African countries continue to grow, the contribution of the accountancy profession to sound corporate and public sector financial reporting and good governance is now more important than ever. PAFA will accelerate the development of the profession and strengthen the voice of the profession within Africa and worldwide.”
FASB tackles repo agreements
The US Financial Accounting Standards Board has published an accounting standards update to improve financial reporting of repurchase agreements, similar to those used by Lehman Brothers that disguised its true financial position. “The new guidance improves transparency by eliminating consideration of the transferor’s ability to fulfill its contractual rights and obligations from the criteria in determining effective control,” said FASB Chairman Leslie F. Seidman.
IFRS Foundation publishes preliminary conclusions of strategy review
The IFRS Foundation’s trustees have published their preliminary conclusions of a strategy review intended to set the direction of the IASB in its second decade of existence. The Foundation said it was essential that the IASB be politically independent, adding that the existing three-tier structure of monitoring board, trustees and IASB remains appropriate, but that relations and procedures between the three bodies should be enhanced. The Foundation stressed that it must remain committed to “global adoption, in their entirety and without modification, of IFRSs”, supported by mechanisms to highlight where jurisdictions only partially adopt IFRS.
PwC reported over ‘compromised audit’
The UK’s Financial Reporting Council has been asked by MP Jim Shannon to investigate a PwC report regarding Canada’s Magellan Aerospace Corporation. A spokesman for PwC responded: “We refute entirely the suggestion that a change to a PwC report was made in order to render some advantage, or favour, to Magellan Aerospace Corporation or that such was made to the detriment of any individual….. PwC’s client was the Audit Committee of Magellan, by whom we were engaged to prepare a confidential report in relation to certain specific accounting matters.” The complaint relates to a paragraph removed at the request of Magellan’s audit committee, but these did not relate to those accounting matters and were covered in an accompanying letter, said PwC.
IFRS Taxonomy to be improved
Supplementary tags for IFRS taxonomy are to be published by the IFRS Foundation, to reflect commonly reported disclosures in their financial statements. This will be the first step in providing additional elements in XBRL (eXtensible Business Reporting Language) to bring it into line with commonly used accounting practices. It will allow entities to create IFRS financial statements in XBRL with fewer entity-specific taxonomy tags, thereby improving the comparability of information.
FASB revises goodwill impairment standards
Goodwill impairment tests have been simplified under a proposed accounting standards update published by the US Financial Accounting Standards Board. The amendments would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. “Non-public companies have expressed concerns to the Board about the cost and complexity of performing the goodwill impairment test,” states FASB member Daryl Buck. “The proposals contained in this Update are intended to address those concerns and to simplify and improve the process for public and nonpublic entities alike.”
US plans tougher audit rules
Audit reports are to be made more relevant and clearer and auditors will become more publicly accountable, under suggestions aired by incoming US Public Company Accounting Oversight Board chairman James Doty. But Doty rejected proposals to reduce the size of the Big Four, or to require contingency plans in case any of the major firms collapse. “Initiatives to shrink the global audit firms would likely weaken their ability to audit large, multinational companies that may be systemically important,” said Doty. “To protect investors, governments should regulate such firms, not cripple them.” Doty called for greater disclosure of PCAOB disciplinary action against firms.
Tougher action on auditors in Russia fails
The Audit Chamber of Russia has failed in its attempt to expel an audit firm for allegedly knowingly filing a false auditor report regarding a company that later collapsed. While the ACR has responsibility for the audit profession, registration with it is voluntary. The firm evaded discipline by deregistering. Three courts all concluded that the firm was guilty of impropriety.
Australian accountants may gain privilege
Accountants in Australia may be given legal privilege for tax advice similar to that of the legal profession, after a consultation process was launched by assistant treasurer Bill Shorten. It follows a proposal from the Law Reform Commission. “The discussion paper investigates the pros and cons of giving clients of professional tax advisers privilege for tax advice documents prepared for them, which currently have to be disclosed to the Tax Office,” Mr Shorten said. “While the Government has yet to make a decision on this issue, thousands of taxpayer use the services of accountants when preparing their tax returns, so it makes sense for the Government to consider it.”
US and Swiss agree oversight
The US Public Company Accounting Oversight Board and Switzerland’s Federal Audit Oversight Authority and Financial Market Supervisory Authority have agreed a cooperative framework for supervisory oversight of auditors that practice in each country. The agreement allows for joint inspections of accounting firms in Switzerland that audit companies whose securities trade in the US and for the sharing of information between the regulators. “Switzerland is home to a number of companies that have a significant impact upon US and global capital markets,” said PCAOB Chairman James Doty.
IFAC emphasizes predictive analytics
Accountants need to be skilled in predictive business analytics to assist them anticipate future events, forecast possible outcomes and select actions and decisions to raise corporate performance, says the Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC). The committee has issued a proposed good practice guide on predictive analytics to be applied across the private, public and not for profit sectors. The guidance is intended to help accountants deal with rising expectations to provide higher quality information.
Politics
Bank auditors challenged by PAC
Auditors at RBS and Lloyds could have missed frauds, MPs on the House of Commons Public Accounts Committee have suggested. “It is alarming that two of the UK’s major banks were simply unable to provide sufficient data to assure the Treasury that their assets were not linked to fraud or other criminal activity,” concluded the committee. Margaret Hodge, chair of the PAC, explained: “Both banks found it difficult to provide the Treasury with appropriate and robust data on their assets. We found this alarming. It places a question mark over the standards and practices of the banks themselves, and whether or not there was effective oversight by regulators and the banks’ own auditors.”
NAO doubts PFI value for money
Accounting rules provide an incentive to use the Private Finance Initiative to acquire assets – by allowing them to be obtained ‘off-balance sheet’ – irrespective of value for money, a report from the National Audit Office concludes. The NAO suggests that in the current climate, the use of private finance may not be as suitable for as many projects as it has been in the past. The auditors warn that the use of PFI has not been subject to sufficient challenge; that there has not been any systematic value for money evaluation of operational PFI projects; that government skills need to be enhanced to drive improved value from projects; and that alternative methods to deliver infrastructure and related facilities need to be identified by the Treasury and government departments.
IFAC’s Ball questions governments’ accounting practices
“Governments show a systematic, pervasive, though possibly not deliberate, ignorance of the critical value and importance of good accounting to their own management,” Ian Ball, CEO of the International Federation of Accountants, has complained. He warns that governments’ interventions to protect and stimulate their economies will not be accounted for properly. “This is not a new phenomenon; governments have always been reluctant to embrace the highest accounting standards for their own reporting,” he says. Examples include entering into public infrastructure provision contracts designed to misrepresent public sector borrowing requirements. But New Zealand has shown, he argues, that high quality accounting practices can be fundamental to strengthening public finances and management standards.
US plans tougher audit rules
Audit reports are to be made more relevant and clearer and auditors will become more publicly accountable, under suggestions aired by incoming US Public Company Accounting Oversight Board chairman James Doty. But Doty rejected proposals to reduce the size of the Big Four or to produce contingency plans in case any of the major firms collapse. “I do not believe that the global audit firm networks themselves pose a systemic risk to our economy,” said Doty. “Initiatives to shrink the global audit firms would likely weaken their ability to audit large, multinational companies that may be systemically important….. To protect investors, governments should regulate such firms, not cripple them.” He is seeking greater disclosure of PCAOB disciplinary actions against firms.
Basel III ‘not enough’ says Hoogervorst
Incoming IASB chair Hans Hoogervorst has warned that the Basel III capital requirements – strongly criticized by the banks – are insufficient to prevent a repetition of the last financial crisis. New capital rules for the minimum of tier 1 capital should be around 30% higher than the 7% that will be in place from 2018, said Hoogervorst. He implied that financial institutions might also need to become smaller. “The “too big to fail” problem has become bigger,” he said.
Public sector
Audit Commission spending challenged
The Audit Commission is spending like Elton John on an extravagant shopping spree, according to the Taxpayers’Alliance – a think-tank closely connected to the Conservative Party. The claims followed disclosures in Parliament of Commission spending. Rory Meakin of the Taxpayers Alliance responded: “The Daily Telegraph reports that the soon to be abolished Audit Commission spent £20,000 on luxury good and services on official Visa cards paid for by taxpayers. Executives enjoyed £600 dinners at L’Escargot and Coq d’Argent restaurants, spent £1,300 on flowers and splashed out on doughnuts, Thorntons chocolates and HMV goodies.” He claimed that government may instigate an inquiry into spending by the Commission, with officials required to personally repay money not regarded as appropriate. A spokesman for the Audit Commission responded that procurement cards are cost-effective and appropriate for low value transactions. “All purchases were for legitimate business purposes,” he said. “Payments made by these procurement cards are routinely checked to ensure the cards are being used correctly.”
New head of government finance profession
Richard Douglas has been named the new head of the Government finance profession. He will continue in his current role as the Department of Health’s director general for policy, strategy and finance. Douglas is the longest standing director general of finance in central Government and has been a board member at his department since 2001. He replaces Jon Thompson, director general for finance at the Ministry of Defence, who steps down after three years in the role. Douglas has worked for the National Audit Office, is a former finance director for National Savings & Investments and was acting permanent secretary at the Department of Health last year.
Practice
HMRC may collect debts through PAYE
HMRC is consulting on collecting various tax debts through the PAYE system, with new powers introduced from April next year. Secondary legislation would be required to enable HMRC to identify relevant debts to code out in Autumn this year. HMRC said: “Increasing the coding out threshold will ensure more taxpayers’ debts can be collected using this relatively cheap and less intrusive method. It also minimises the compliance burden on the taxpayer.” In a tax briefing, Baker Tilly suggested the measure could lead to the collection of VAT and other unpaid tax through PAYE, including tax arrears that have not been agreed with taxpayers. But, it said, the arrangement could offer the benefit of enabling arrears to be collected in instalments, on an interest free basis.
HMRC issues penalty notices for not making online returns
Employers now face late filing penalties if they fail to file Employer Annual Returns (P35s and P14s) online. Penalty of up to £3000 can be imposed, depending on the number of forms that should have been filed online. From May, employers became liable to a penalty if they file their annual return on paper – with only very limited exceptions. Last year, under transitional arrangements, no penalty was charged for employers with five or fewer employees. HMRC said that where employers file by paper after the 19 May deadline this “will almost certainly result in a late-filing penalty”. HMRC said that employers can use various systems to make online returns.
Financial services
UK pensions sector opposes IFRS
Pensions sector professionals are strongly opposed to ASB proposals to reclassify pension schemes as publicly accountable entities, a survey by Deloitte has found. Three-quarters of respondents disagreed with the ASB’s proposed recommendation that all pension schemes are deemed ‘publicly accountable’ and should comply with IFRSs, on a par with listed companies. Deloitte surveyed 80 accountants, trustees, administrators and actuaries in the pensions sector and found that 43% did not think it was necessary to change pension scheme financial reporting, with 29% believing that reporting practices should be reformed. Concerns included the cost of change and potential confusion of scheme members. Sue Barratt, audit partner at Deloitte, said: “We are surprised that all pension schemes are being proposed as publicly accountable entities, given that there are many small schemes with few members. It is doubtful whether such schemes hold assets for a ‘broad group of outsiders’, which is part of the ASB’s definition of ‘publicly accountable’.”
PIRC attacks Barclays’ accounting practices
Barclays accounting practices have been criticised by Pensions & Investment Research Consultants (Pirc), which suggests that it is spreading recognition of its bonus tax liabilities over a period of five years. This has had the effect, suggests Pirc, of boosting its 2010 profits by up to £1.4bn. Pirc argued that the accounting practice is “deficient” and is distorting investors’ analysis of its profits. A spokesman for Barclays rejected the criticism, saying: “Our accounting treatment is in accordance with IAS 19 and is consistent with that adopted by other banks. As such, our accounting, which has been applied consistently over recent years, reflects the usual industry practice.”
Corporate
Fisher takes Southern Cross role
Former KPMG corporate finance vice chairman Christopher Fisher is the new chairman of troubled residential care home giant, Southern Cross. He has been a non-executive director for five years and is a former managing director at Lazard investment bank. He replaces Ray Miles, who is stepping down as a director. In a reshuffle of executive roles, chief exectutive Jamie Buchan will focus on company restructuring and addressing Southern Cross’s capital requirements. Regional director Mark Cash takes on the new role of chief operating officer. Fisher said: “Looking ahead, the board is focused on supporting Jamie Buchan and his executive team in promoting an orderly restructuring of the company’s affairs, to stabilise its financial position and to provide the business with a sustainable platform for the future while at the same time ensuring the continued delivery of high quality care for residents.” Southern Cross’s share price has collapsed from 70 pence to less than 10 pence in the last year.
Kingon swaps Invest NI for NI Electricity
Stephen Kingon CBE, a former PwC managing partner in Northern Ireland, has taken on the chairmanship of Northern Ireland Electricity (NIE). NIE is the province’s electricity distributor, which was recently acquired by the Irish Republic’s state-owned electricity supplier, the Electricity Supply Board. It was acquired from the Viridian Group, owned by Bahraini investment bank Arcapita. Kingon has stepped down from two other directorships, relinquishing his position of chair of Invest Northern Ireland a few months before his term expired, and from the Irish government rescued Allied Irish Banks.
RoW sections
Financial services
Citigroup has transferred $12.7bn of key assets affected by the financial crash onto its trading book, enabling them to be valued at mark-to-market. The assets had previously been protected from mark-to-market valuations, but have now caused a $709m pre-tax charge to revenues, through the recognition of $1.7bn of pre-tax losses. The assets are now available for sale and have disproportionately higher risk-weightings under Basel III, allowing Citi to avoid higher capital charges and boost capital buffers. Citi put the assets into its special asset pool in 2009, avoiding them being marked-to-market at the depth of the financial crisis. At this time, held to maturity assets were accounted for at amortised cost, while those held in trading books were accounted for at fair value. The US Securities and Exchange Commission has accepted that Citi has moved the assets because the facts relating to the original decision had changed, resulting from the higher risk weightings introduced by Basel III.
PIRC attacks Barclays’ accounting practices
Barclays accounting practices have been criticised by Pensions & Investment Research Consultants (Pirc), which suggests that it is spreading recognition of its bonus tax liabilities over a period of five years. This has had the effect, suggests Pirc, of boosting its 2010 profits by up to £1.4bn. Pirc argued that the accounting practice is “deficient” and is distorting investors’ analysis of its profits. A spokesman for Barclays rejected the criticism, saying: “Our accounting treatment is in accordance with IAS 19 and is consistent with that adopted by other banks. As such, our accounting, which has been applied consistently over recent years, reflects the usual industry practice.”
Corporate
Small is better when it comes to boards of directors, according to a report from legal advisors Eversheds. The Eversheds Board Report concludes that the most effective boards tend to be smaller, more diverse and independent. Analysis considered the relationship between the make-up of directors, share price performance and company success before, during and after the financial crisis. The performance of nearly 250 top companies in Europe, the US and Asia Pacific was considered. The best boards had an average of 11 directors and those with more female directors tended to perform better during the financial crisis. There was also a strong correlation between the number of independent directors and company performance. Better performing companies were also more likely to have a larger proportion of investors holding substantial shareholdings. Mark Spinner, corporate partner at Eversheds, said: “Lessons should be learned from the factors that contributed to company performance and it is clear that, where appropriate, more streamlined, independent boards with a higher ratio of female directors could be keys to future success.”
CFO ‘recruitment crisis’
There is a recruitment crisis for CFOs, according to a report from advisors Heidrick & Struggles. Difficulties have been exacerbated by the rise in turnover, with CFOs having been reluctant to step down during the financial crisis. With signs of gradual economic recovery, more CFOs are retiring – leaving problems in recruiting replacements. The firm says that more are now looking to take early retirement because of the stress of recent years. “CEOs are….. competing for game-changing financial talent that can shift gears past the survival mode,” says H&S vice chairman Jory. Marino. But, he adds, the “well is dry”.
Practice
New assurance standard
A proposed new assurance standard has been published by the International Auditing and Assurance Standards Board (IAASB). ISAE 3000 is a principles-based standard intended to be applied to a broad range of assurance engagements, including assurance on statements about the effectiveness of internal control and direct engagements such as performance or ‘value for money’ audits. They are also designed for engagements such as integrated reporting or corporate social responsibility reporting. “Proposed ISAE 3000 includes requirements that enable consistent high-quality engagements, while being sufficiently flexible to apply to the broad range of relevant engagements,” explained Prof. Arnold Schilder, chairman of IAASB. “This is an important balance. ISAE 3000 is the overarching standard for current and future topic-specific ISAEs and assurance engagements where no separate ISAE exists. As a result, it needs to be sufficiently robust, yet not so unwieldy as to be impractical to apply. Equally, the ISAE should facilitate innovation in the evolving field of assurance, not act as an impediment.”
IAESB proposes revised professional standard
A revised standard for accountants’ ethical principles has been proposed by the International Accounting Education Standards Board (IAESB). IES (International Education Standard) 6, Assessment of Professional Competence, is a principles-based approach, which specifies the assessment of professional competence across the Initial Professional Development (IPD) and Continuing Professional Development (CPD) for a professional accountant, with assessment to be reliable, valid, equitable, transparent and sufficient. IFAC member bodies must undertake a formal evaluation of the adequacy of competence of aspiring professional accountants prior to their admission to the profession, verifying whether they meet CPD requirements.