Accounting news: Accounting & Business

UK

Value of audit doubted

The banking crisis raises doubts about the value of audit, according to a report from the House of Commons Treasury Select Committee.  It recommends banning firms from conducting non-audit work for audit clients.  The FSA is urged to consult on ways to improve financial reporting, enabling users to better understand banks’ accounts.  MPs criticised the power of the European Commission to choose which international accounting standards are implemented and called on the Treasury to review the impact of these powers.   They called for greater expertise amongst non-executive directors; more support for them to undertake their role; wider diversity amongst non-executives; and suggested there might need to be a limit to the number of directorships an individual can hold.  Shareholders were told they should become more engaged in the companies in which they invest.  The report condemned remuneration practices at banks.

‘Auditors not to blame’

Auditors and credit ratings agencies cannot be blamed for the banking crisis, as they merely provided information that aids good corporate performance, the Chancellor of the Exchequer has said.  It is up to boards to ensure that performance is of high quality, Alistair Darling told an audience at the London School of Economics.  He was launching an LSE report which argued that financial services regulation must have an international dimension, even though regulators cannot be global or pan-European.

Accountancy to lead recovery

Business services, including accountancy and consultancy, may lead the UK out of recession, says PricewaterhouseCoopers.  The cyclical nature and long-term growth of business services puts it in a strong position when UK economic recovery begins.  The sector has the highest price-earnings ratio of 15 sectors analysed, suggesting investor confidence in its fast recovery.  Engineering, postal services and telecoms could also outpace economic recovery.  PwC says that when the economy does recover it is likely to be reshaped, with some sectors emerging more strongly than others.

‘ISAs need clear guidance’

The Federation of European Accountants (FEE) has called for clear international guidance for the adoption of International Standards on Auditing (ISAs), praising the UK’s Auditing Practices Board’s Guidance on Smaller Entity Audit Documentation as a possible template for guidance on small firms’ audits.  FEE welcomed the Clarity project for making audit standards clearer and internationally consistent.  FEE is to begin helping member bodies with implementation of ISAs, including with translation of clarified ISAs into local languages, updating audit policy manuals and audit methodologies, updating audit software and updating training material.

Jump in director disqualifications

Director disqualification proceedings have jumped by nearly a third in the last year, research from law firm Wedlake Bell has revealed.  Disqualification proceedings were launched against directors of 1,079 companies in 2008/9, compared to 820 in 2007/8.  The number disqualified because of criminal activity rose by 72%.  Other causes of director disqualifications include non-payment of tax, continuing to trade while insolvent and failure to keep proper accounting records.  As well as the disqualification, another 773 directors were banned.

Graduate market ‘not too bad’

Demand for accountancy graduates is higher than is widely assumed, according to ACCA.  The UK Graduate Careers Survey found that 72% of graduates expected most employers will cut graduate vacancies this year.  But, points out ACCA, research from High Fliers shows that the accountancy sector is set to recruit the most graduates in 2009 – 20.9% of the entire market – yet less than 8% of applications so far from finalists have gone to accountancy firms.  ACCA says its qualification gives people the best possible chance to obtain work.

Treasury opportunities

Demand for specialist treasury accounting staff has increased in the last six months, reports Hays Treasury recruitment advisors.  The increased focus on compliance has led to a need to recruit more individuals with regulatory experience, with the role of corporate treasurer taking on greater significance.  “Employers are particularly keen to hire individuals who can demonstrate a solid understanding of IAS32 and 39, for both permanent and interim assignments,” says James Crichton, senior business manager at Hays Treasury.

Deloitte’s Rivat goes to IFRIC

Deloitte France partner Laurence Rivat has been appointed to the International Financial Reporting Interpretations Committee (IFRIC).  She is a leader of one of Deloitte’s six IFRS ‘Centres of Excellence’ and a member of the Deloitte IFRS Leadership Team.  IFRIC reappointments included Ruth Picker, a partner and global director at Ernst & Young’s Global IFRS Services.

Rise in business and personal insolvencies

Company insolvencies in England and Wales rose by more than a half in a year, according to the latest figures from the Insolvency Service.  Insolvencies in the first quarter of this year also rose by 7.1% from the last quarter of 2008, to 4,941.  There was a particularly sharp increase in company voluntary liquidations, which jumped by 62.5% in a year.  Personal insolvencies also rose, but by a much smaller percentage – increasing by 19% in a year to 29,774.

Mazars faces investigation

Mazars is to be investigated by the Accountancy and Actuarial Discipline Board regarding its advice on Threshers wine chain’s pension fund.  This follows a complaint from the Pensions Regulator.  Threshers’ pension fund, called First Quench, was acquired by Pensions Corporation Investments in 2007.  Mazars said: “We are surprised at the AADB’s decision to launch an investigation into this matter.  We are confident that the advice provided was to the highest professional standards and we will of course fully cooperate with the AADB during the course of the investigation.”

Fraud rises as recession grips

There has been a big increase in fraud since the onset of the recession, warns CIFAS, the anti-fraud agency.  There has been a 40% rise in identity impersonation and a 75% jump in the related account-takeover fraud in the last year, showing that these are now fraudsters’ preferred methods of operation, says CIFAS.  There has also been a rise in false insurance claims.  

Informa moves to Switzerland

Global media and information company Informa has announced its intention to move its domicile from the UK to Switzerland, with incorporation in Jersey.  It will remain listed in the UK.  Informa said that benefits of Switzerland for tax domicile include a less complex tax system, greater certainty of tax treatment and the fact that it is not seeking to tax profits remitted from overseas subsidiaries.  Other advantages of Switzerland include political and economic stability, global connections, convenient location and time zone.

Credit ratings to be regulated

Credit ratings agencies will registered and regulated under measures approved by the European Union.  The agencies will have to comply with strict obligations on integrity, quality and transparency, under the supervision of public authorities. The moves are intended to stamp out conflicts of interest at agencies, enabling users of agency’s information to be confident in their reliability.  Agencies will no longer be able to provide advice, nor will they able to rate financial instruments where they have insufficient information to form sound judgements.

Stronger governance demanded

Financial services companies need to improve governance stuctures, enabling directors to challenge executives without creating conflict, says the FSA.  In a speech to the Securities and Investment Institute, the FSA’s chief executive, Hector Sants, said that it needed to change its approach in judging the competence of firms’ senior management, as well as their probity.  Too often, he said, there was insufficient challenge within decision-making structures.  “With the benefit of hindsight, there are some management decisions that have revealed a degree of incompetence, and at times a rather cavalier approach regarding risk management,” argued Sants.

Irish tax revenue plummets

Irish tax revenues have plummeted by a quarter because of the recession.  Projected tax income for 2009 is now €34.4bn, compared to actual tax collected of €47.9bn in 2007.  During 2008, the government debt to GDP ratio rose from 25% to over 41%.   Capital gains tax receipts slumped by 80%, from €3.1bn in 2007 to an expected €625m this year.  Ireland has suffered disproportionately because it is “a small, highly-open economy heavily reliant on trade and foreign investment,” said finance minister Brian Lenihan.

Rest of World

Irish tax revenue plummets

Irish tax revenues have plummeted by a quarter because of the recession.  Projected tax income for 2009 is now €34.4bn, compared to actual tax collected of €47.9bn in 2007.  During 2008, the government debt to GDP ratio rose from 25% to over 41%.   Capital gains tax receipts slumped by 80%, from €3.1bn in 2007 to an expected €625m this year.  Finance minister Brian Lenihan said: “As a small, highly-open economy heavily reliant on trade and foreign investment, the weak condition of the international economy has impacted disproportionately on Ireland, compounding very significantly problems in the domestic economy……  Stabilising the public finances in order to return our overall government spending deficit to below 3% of GDP by 2013 is central to our strategy.”  In an emergency budget in April, the government increased personal taxes and duties and cut state spending.

EU cut taxes

Final approval has been given to EU member states to cut the rate of VAT on labour-intensive services.  The move was driven by France, which is now permitted to cut VAT on restaurant bills to 5%.  Pressure will increase on the UK government to reduce VAT rates on housing renovations and improvements – which environmental groups have lobbied for.  VAT cuts will also be permitted on personal care services, home cleaning, hairdressing and minor repairs.

Hedge funds regulated

Proposals to regulate hedge funds have been agreed by the European Commission.  Hedge fund managers must be authorised and meet minimum regulatory standards that are harmonised across the EU under the measures.  Greater transparency in fund investment would be required, improving prudential oversight and enabling authorities to make earlier interventions to protect markets.  The proposals now go to the European Parliament and to the Council of Ministers – where the French government may seek to strengthen them.

Controls on securities

New controls on the issuing of securities have been proposed by IOSCO, the International Organization of Securities Commissions – whose members include the US SEC and the UK’s FSA.  Originators and sponsors of securities could be required to retain long-term financial exposure.  New duties of disclosure would be imposed, regarding the level of risk analysis conducted and the creditworthiness of related parties.  Experts used by issuers must be independent and investors must be ‘suitable’ . The measures would apply to collatoralised debt obligations, collateralised loan obligations and credit default swaps.

FEE statement on international audit standards

The Federation of European Accountants (FEE) has called for clear international guidance for the adoption of International Standards on Auditing (ISAs), praising the UK’s Auditing Practices Board’s Guidance on Smaller Entity Audit Documentation as a possible template for guidance on small firms’ audits.  FEE is to begin helping member bodies with implementation of ISAs, including with translation of clarified ISAs into local languages, updating audit policy manuals and audit methodologies, updating audit software and updating training material.

Deloitte’s Rivat goes to IFRIC

Deloitte France partner Laurence Rivat has been appointed to the International Financial Reporting Interpretations Committee (IFRIC).  She is a leaderof one of Deloitte’s six IFRS ‘Centres of Excellence’ and a member of the Deloitte IFRS Leadership Team.  IFRIC reappointments included Ruth Picker, a partner and global director at Ernst & Young’s Global IFRS Services.

Informa moves to Switzerland

Global media and information company Informa has announced its intention to move its domicile from the UK to Switzerland, with incorporation in Jersey.  It will remain listed in the UK.  Informa said that benefits of Switzerland for tax domicile include a less complex tax system, greater certainty of tax treatment and the fact that it is not seeking to tax profits remitted from overseas subsidiaries.  Other advantages of Switzerland include political and economic stability, global connections, convenient location and time zone.

Credit rating regulation

Credit ratings agencies will registered and regulated under measures approved by the European Union.  The agencies will have to comply with strict obligations on integrity, quality and transparency, under the supervision of public authorities.  The moves are intended to stamp out agencies’ conflicts of interest.  Agencies will no longer be able to provide advice, nor will they able to rate financial instruments where they have insufficient information to form sound judgements.

Sustainability Disclosures

Members of the European Parliament have been urged by the Federation of European Accountants (FEE) to increase sustainability disclosure requirements.  Hans van Damme, FEE president, says: “Sustainability disclosures are integral to reporting: sustainability should be embedded at the core of the company’s strategy and decision making. It is regrettable that the disclosed sustainability-related Key Performance Indicators are often not yet linked with the financial statements.”

Deloitte settles

Deloitte has agreed to pay $950,000 to settle claims brought by investors in Beazer Homes, who claimed auditors overlooked reporting errors on sales and leaseback transactions and impairment charges.  Beazer and its former executives have also settled claims, which totalled in excess of $30m.  In a statement, the firm said: “Deloitte denies all liability and settled to avoid the expense and uncertainty of continued litigation.”

GAO criticises SEC

The US General Accountability Office has criticised the Securities and Exchange Commission for lax regulation.  The SEC should improve the monitoring and evaluation of rules development and the transparency of the review process, says the GAO.  Its chairman should routinely track major milestones in regulatory development, reporting when target milestones are reached.  She should also regularly review performance against targets, concluded the GAO report.

Germany reforms accounting laws

Germany has passed legislation that radically amends its national accounting laws, bringing German national standards closer to IFRS.  Some aspects of the national Commercial Code are unchanged where these are regarded as more straightforward than IFRS.  The justice ministry claims the changes will cut costs for small firms and reduce their accounting obligations, while increasing disclosure of large companies’ use of special purpose vehicles.

Italy seizes banks’ assets

Financial police in Milan have sezied assets of €476m from four banks, as part of an investigation into alleged derivatives fraud.  The banks were named locally as UBS, Deutsche Bank, JP Morgan Chase and the Depfa Bank subsidiary of Germany’s troubled Hypo Real Estate.  The investigation is focusing on a €1.6bn derivatives purchase in 2005 by the Milan city municipality.  Italian police said that they believe parties to the transaction could have earned about €100bn in illicit profits.  

Zimbabwe seizes currency

Zimbabwe’s central bank regularly removed hard currency from the bank accounts of businesses and foreign residents without permission in order to keep government departments running, its central bank governor, Gideon Gono, has admitted.  Gono said the money would be repaid.  The country’s new coalition has been given backing by banks across Africa, which have advanced credit of $428m to help its recovery.

South Africa corruption warning

Businesses in South Africa have been warned to be vigilant against corrupt practices by their staff.  Managers who are aware of corruption but ignore it could pay a large fine or be sentenced to prison for up to 10 years, warns PwC.  “South African courts are currently riddled with cases related to corruption and fraudulent activity in businesses throughout the country,” says the firm. 

Riyadh wins central bank

Riyadh is to be the headquarters for the new central bank for the Gulf States after currency union is achieved, countries in the region have agreed.  A single Gulf currency was to have been in place next year, but the global financial crisis means this now seems unachievable.  Further strains have been caused by the decision to host the regional council for monetary union – which will evolve into a central bank – in Saudi Arabia, against the opposition of the UAE.

Politics

Sustainability Disclosures

Members of the European Parliament have been urged to increase sustainability disclosure requirements by the Federation of European Accountants (FEE).  Paul Druckman, chairman of the FEE Sustainability Policy Group, said: “The European Commission should consider how disclosure of sustainability information could be promoted; such disclosure will be instrumental to establish a more long term view in corporate behaviour.  Recent events have shown how critical this is.”  Hans van Damme, FEE president, added: “Sustainability disclosures are integral to reporting: sustainability should be embedded at the core of the company’s strategy and decision-making. It is regrettable that the disclosed sustainability-related Key Performance Indicators are often not yet linked with the financial statements.”

EU cuts taxes

Final approval has been given to EU member states to cut the rate of VAT on labour-intensive services.  The move was driven by France, which is now permitted to cut VAT on restaurant bills to 5%.  Pressure will increase on the UK government to reduce VAT rates on housing renovations and improvements – which environmental groups have lobbied for.  VAT cuts will also be permitted on personal care services, home cleaning, hairdressing and minor repairs.

‘Greater convergence needed’

Bank rescues underline the need both for convergence around IFRS internationally and between the private and public sectors, says Robert Bunting, president of the International Federation of Accountants (IFAC).  “Convergence to international public sector accounting standards, which has proceeded at a slower pace than convergence to those in the private sector, is now urgent,” Bunting argues.    With International Public Sector Accounting Standards (IPSASs) adopted by the United Nations, NATO, IFAC, and the Organization for Economic Cooperation and Development and supported and promoted by the World Bank, it is time for more governments to use them, he says.

Cyber attack warning

Governments must take greater action to protect themselves against cyber attacks, according to a report published by Deloitte.  It stresses that governments and citizens  have increased their dependence on electronic systems faster than they have improved their cyber security: successful cyber attacks are a threat to commerce and military security.  “The stakes of not addressing cybersecurity now are high, and the risks of not doing it right are even higher,” says Deloitte’s Greg Pellegrino. “There are effective ways to address cyber security, which include developing a positive cyber culture, cooperation between countries, building partnerships between government and the private sector, and education of users and citizens,” he adds.

Bankruptcy incentive

There are fears that the growth in use of credit default swaps is increasing the number of bankruptcy filings, with many creditors having hedged debt default exposure with CDSs.  Creditors may be better-off if debtors are forced into administration or receivership than if they accept a write-down on the value of bonds.  Hedges through CDSs have been blamed for creditor intransigence in several recent bankruptcies, including General Growth Properties and AbitibiBowater.  They have also reportedly blocked proposals for the restructing of General Motors.

Public sector

PFI accounting

PFI schemes will not automatically count as government debt, the Treasury has confirmed.  About half of PFI projects at present are off-balance sheet for the public sector and most were expected to move on-balance sheet with the adoption of IFRS this year.  But the latest Treasury advice is that schemes can move on-balance sheet without counting as part of Public Sector Net Debt.  It says that departments’ use of IFRS does not affect the Office for National Statistics’ continued use of EU standards for the measurement of PSND.  The clarification is likely to increase the flow of PFI schemes promoted by the Government – it means that PFI schemes will not be caught by plans to halve capital spending as public expenditure is cut back.  There are about £13bn of PFI schemes in preparation – including waste management, roads and schools – which are being supported by a new Treasury ‘PFI bank’. 

Council tax ‘most unpopular’

The council tax is the most unpopular tax of all, according to a survey conducted for the unbiased.co.uk website, which promotes the use of financial advisors.  Some 43% of Britons listed the council tax as one of the three they most hated.  Previously fuel duty was the most disliked, but is now the third least favourite.  TV licence fees are the second most unpopular.  The Conservative Party has promised to freeze the council tax for two years if they win next year’s General Election.  VAT has become less unpopular following the decision to temporarily cut it to 15%.

Financial services

Hedge fund regulation

Proposals to regulate hedge fund managers have been agreed by the European Commission.  All hedge fund managers would need to be authorised and meet minimum EU-wide regulatory standards.  There would be greater transparency obligations regarding fund investments, enabling public authorities to improve prudential oversight and intervene to support the proper functioning of financial markets, says the Commission.  Proposals cover hedge funds holding investments above €500bn, or €100bn where funds are held using borrowed money: this would regulate about 30% of fund managers and 90% of fund values.  The proposals would initially cover fund managers, not funds – most funds are held offshore.  The proposals will now go to the European Parliament and to the Council of Ministers – where the French government may seek to strengthen them.  The Commission also proposed limits on bankers’ pay: bonuses and stock options would be linked to sustained performance over several years, while pay-offs for failed bankers would be banned.

IOSCO proposes new controls over securities

New controls over a variety of securities have been proposed by IOSCO, the International Organization of Securities Commissions – whose members include the US SEC and the UK’s FSA.  If adopted, originators and sponsors of various securities could be required to retain a long-term economic exposure to the securities.  There would be greater transparency, with disclosure requirements regarding the level of risk analysis conducted.  Disclosure would also be required on the creditworthiness of parties with a liability towards the issuer.  Experts used by issuers must be independent.  Stronger investor suitability requirements would be established.  The measures would apply to collatoralised debt obligations, collateralised loan obligations and credit default swaps.

Corporate

Resolution investigation ends

Resolution has announced that the FSA investigation of four of the company’s directors has closed.  The closure means is no longer a barrier to further acquisitions by Resolution, which buys financial services businesses to restructures them to achieve cost efficiencies.  The Resolution group of companies was founded by controversial City figure Clive Cowdery.  It is understood the FSA investigation examined the £5bn sale of the consolidated closed life funds of Cowdery’s previous Resolution company to the Pearl Group.  Cowdery initially rejected a sale to Pearl, then agreed a sale to Standard Life, before Pearl made an improved offer and acquired the business.  Resolution said that it appreciated the speed with which the FSA conducted its enquiries.  John Tiner, the former chief executive of the FSA, is now chief executive of the new Resolution company, but was not subject to the FSA investigation.

FD roundabout

Guy Whittaker has agreed to step down as FD of RBS – he will be the last senior exective to leave associated with former chief executive Sir Fred Goodwin.  RBS has begun a search for a replacement.  Jeff Carr is stepping down as group FD of EasyJet, which is seeking a replacement.  Nic Nicandrou is leaving his post as FD of Aviva to become chief finance officer at Prudential, replacing Tidjane Thiam – who becomes chief executive at Prudential.

Practice

HMRC curbs tax refunds

Fewer companies will obtain refunds of overpaid tax as a result of measures included in the Finance Bill, according to law firm McGrigors.  It says that restrictions will be imposed on the payment of compound interest, taxpayers will be unable to pursue refunds from HMRC in the High Court after April next year and HMRC will limit the use of Group Litigation Orders (GLOs).  GLOs are used by taxpayers to jointly bring actions against HMRC, to reduce the risk and cost of taking action.  A recent high value GLO, led by British American Tobacco on behalf of more than 20 companies, cost HMRC £1.2bn.  Jason Collins of McGrigors says: “It is unfair that the full rate of interest will no longer be available for taxpayers, even where HMRC is found to be at fault.” McGrigors believes that HMRC will be unable to avoid paying compound interest to taxpayers where HMRC has breached EU law.

Warning issued of tax refund ‘phishing’ scams

Small firms are being targeted by fraudsters with tax refund ‘phishing’ scams, warns credit ratings agency Equifax.  Large numbers of emails have been sent out to self employed individuals and SMEs advising them of supposed tax refunds due, requesting identification details and passwords – with the intent of misusing these to commit frauds.  Equifax warns that superficially the emails appear convincing, with fraudsters becoming more sophisticated with phishing scams.  Scam emails link to what appears to be the genuine HMRC website.  “The crucial thing to remember is that HMRC would always notify individuals of tax refunds by post, rather than email or telephone,” says Neil Munroe of Equifax.

Enterprise

Late payers ASBO-ed

Companies paying their bills from small firms late have been threatened with Anti Social Behaviour Orders by the Federation of Small Businesses.  Almost £26bn in overdue payments is owed to small businesses says the FSB, which believes that a quarter of business failures are caused by slow payment of bills and the use by large companies of small firms as a free source of credit.  The FSB is urging the Government to give Companies House the power to name, shame and fine companies that fail to comply with payment terms.  A survey by the Credit Management Research Centre of UK found that Hemisphere Properties is the slowest to pay, at an average of 535 days, whereas five companies take just one day to pay.  The FSB says that large companies are now taking longer to pay bills to small firms, despite the launch last year of the government-based Prompt Payment Code.

SMEs lose customers

Falling customer demand is the biggest problem facing SMEs, according to the Open University’s first quarter survey of small businesses, which is supported by ACCA.  The next most serious problem is pressure on cash flow caused by customers paying their bills later.  While 64% of SMEs suffered a fall in demand, only 25% had problems because of lack of access to finance, while a mere 14% reported difficulties with suppliers and in obtaining trade credit. The previous quarterly OU survey found that small firms are typically owed more by customers than they owe to suppliers.

International public sector

Convergence urged

Bank rescues underline the need both for convergence around IFRS internationally and between the private and public sectors, says Robert Bunting, president of the International Federation of Accountants (IFAC).  “Convergence to international public sector accounting standards, which has proceeded at a slower pace than convergence to those in the private sector, is now urgent,” Bunting argues.  With International Public Sector Accounting Standards (IPSASs) adopted by the United Nations, NATO, IFAC, and the Organization for Economic Cooperation and Development and supported and promoted by the World Bank, it is time for more governments to use them, he says.  Bunting called on university leaders, particularly in the US, to broaden their curriculum to recognise the need for convergence of accounting standards.  “Teaching only US GAAP (Generally Accepted Accounting Principles) handcuffs students to the US economy. Academic institutions must incorporate International Standards on Auditing, IPSASs, and International Financial Reporting Standards into their accounting curriculum,” he said.

New guidance

The International Federation of Accountants’ (IFAC) International Public Sector Accounting Standards Board (IPSASB) has proposed new guidance to strengthen governments’ financial reporting.  Changes focus on accounting for intangible assets and for entity combinations.  The new guidance is particularly important because so many governments have had to acquire business entities to protect them from liquidation and the proposed financial reporting requirements will increase the consistency with which these are accounted for.  “Converging IPSASs with IFRSs, where appropriate for the public sector, is one of the key objectives of our standards development program,” says  Mike Hathorn, chair of the IPSASB.

International practice

One in five ‘not going concerns’

At least one in five audit opinions in the US for last year will question whether businesses are going concerns, concludes research from Audit Analytics.  It believes over 3,300 audit opinions for 2008 filed with the Securities and Exchange Commission will be qualified by going concern uncertainty – the highest number this decade.  The smallest number of going concern qualifications were recorded in 2003, when there were just 2,600.  An upward trend in going concern qualifications began in 2004.  Earlier Audit Analytics predictions were of around 3,500 going concern qualifications for last year, but the number filed late has been lower than expected.  Don Whalen, director of research at Audit Analytics, suggests this may mean that many going concern uncertainties raised in 2007 have since been resolved.  Many foreign filers and smaller companies have yet to file their accounts for 2007: figures have been calculated using projections from those accounts that have been filed.

BDO enrols new member firm in Georgia

BDO International has appointed a member firm in Georgia, which will operate as BDO Georgia Ltd.  Previously known as Tbilisi Managers & Consultants Ltd, the firm was established in 1999.  The new member will be backed with investment and practical support the Israeli BDO member firm.  Managing partner in Georgia is Zurab Lalazashvili.  BDO has also expanded its operations in Hong Kong and China.  BDO McCabe Lo Ltd, the existing member firm in Hong Kong, has merged with Shu Lun Pan Horwath Hong Kong CPA Ltd to create BDO Ltd.   Shu Lun Pan Horwath has nine partners and over 200 staff.  Earlier this year, the Chinese firm Shu Lun Pan Management Co Ltd joined the BDO International Network. 

International corporate

Corporations ‘pose systemic risk’

The International Monetary Fund has called on policymakers to consider which corporations represent systemic risks to national and global economies.  Research from the IMF aims to help policymakers identify and measure events that threaten systemic crisis.  The IMF says a variety of data must be considered by regulators, recognising that corporate connections can cause several institutions to be at simultaneous risk of failure.  More information should be held publicly on key data, including off-balance sheet liabilities and measures of market liquidity.  Some corporations are simly too connected to so many other financial institutions to be allowed to fail, because this would trigger catastrophic failures elsewhere.  The global financial crisis results, in part, from a lack of awareness by regulators and corporations that financial innovations created risk transfers that greatly increased the chances of systemic failures.  Comprehensive contingency plans should be available to policymakers for speedy implementation, because of difficulties in predicting systemic failures. 

Citigroup director charged

A former Citigroup director has been charged with widespread insider trading.  Maher Kara was a director in Citigroup Global Markets investment banking division in New York.  He has been charged by the US Securities and Exchange Commission with repeatedly tipping-off his brother about forthcoming deals in the healthcare sector, leading to stock purchases by his brother and other relatives.  The SEC alleges that family members made more than $6m in profits through insider trading.  The two Kara brothers and a friend also face criminal charges from the FBI and the US Attorney’s Office.