UK News
Bribery up
HMRC offshore actions
Moore Stephens investigated
Moore Stephens’ practice in Northern Ireland is to be investigated by the Accountancy and Actuarial Discipline Board over its audit of the Presbyterian Mutual Society in Belfast, which is in administration. The Treasury reported that PMS offered financial products that it was not authorised to offer. Moore Stephens said it welcomed the enquiry, which it regarded as “routine in such cases”.
Moore Stephens cleared
Moore Stephens does not have to pay compensation to an audit client for the firm’s failure to detect a fraud, the House of Lords has ruled. The company, Stone & Rolls, was in the exclusive control of its sole director and shareholder. As such, the company could not be allowed to recover compensation for the consequences of its own illegal conduct, the court ruled. The court accepted that the auditor’s duty of care was to the company’s shareholders, not to its creditors.
PwC investigated
IASs ‘not to blame’
Financial Crisis Advisory Group has concluded. “Improved financial reporting will help restore the confidence of financial market participants and thereby serve as a catalyst for increased financial stability and sound economic growth,” said Hans Hoogervorst, co-chairman of FCAG. The report says that accounting standards must have integrity and be free from political intervention.
Walker for all
Improvements to corporate governance for banks put forward by Sir David Walker could be included in revisions to the Corporate Code for all listed companies, suggests the Financial Reporting Council. Further consultation will now take place on possible revisions to the Combined Code drawing on key themes of the Walker review, including the responsibilities of the chairman and non-executive directors; obtaining the right balance between independence and expertise for non-executive directors; the role of performance-related remuneration; companies’ reporting on corporate governance; and improved engagement between investors and boards.
HMRC targets landlords
HMRC’s £5bn bill
nsolvencies surge
Frauds rise
A record number of fraud cases came to court in the first half of this year, according to analysis conducted by KPMG. Over 160 cases appeared in UK courts involving charges in excess of £100,000, with a total value in the cases of £630m. Particular concerns highlighted by KPMG were the trend by professional fraud gangs to target investors and by managers exploiting their positions to take £150m from their employers. Hitesh Patel, partner at KPMG Forensic, predicts that the fraud figures will worsen as the impact of the recession works its way into the fraud statistics.
nsolvency demand up
Engagement partners must sign
Engagement partners would have to sign audit reports under proposals agreed by the US Public Company Accounting Oversight Board. The proposals have been put out for consultation under a Concept Release. PCAOB also agreed an Auditing Standard on Engagement Quality Review that establishes a framework for an engagement quality reviewer to evaluate audit judgements. The EQR standard implements a requirement of the Sarbanes-Oxley Act for second partner review of audit reports.
IASB name change
The IASB is to become the IFRS Board under proposals put forward by the IASC Foundation. The Foundation would also change its name to the IFRS Foundation. Several respondents to a recent consultation complained that the existing names are confusing. The Foundation’s trustees also agreed that the IASB should consult with the trustees and the Standards Advisory Council on the board’s agenda items. They said the public should be able to review and comment on papers that the IASB presents to the Standards Advisory Council on the agenda-setting process.
Deloitte and BDO suffer
Deloitte’s gross revenues in the UK were down 2% to £1.97bn in the year ended June. Net revenues remained stable at £1.7bn. The audit practice did well, with net revenue growth of 7%: consulting revenues grew by 3%. But net revenues fell by 7% in the tax practice and by 9% in corporate finance. Net profit distributed to partners was down 6.1% to £601m. BDO Stoy Hayward seems to have suffered more severely and is losing 10% of its partners. The BDO Seidman practice in the US reported a 5.9% fall in revenues to $620m for the year ended June.
RoW News
Cayman freezes Saudi billions
AIG accused by SEC
Hank Greenberg, the former CEO and chairman of AIG, has been charged by the SEC with violations of accounting regulations. He has agreed to pay $15m to settle the charges. Deputy chairman and CFO Howard Smith was similarly charged and will pay $1.5m to settle the charges. The SEC claimed that AIG had faced financial challenges under Greenberg’s leadership that were disguised through improper accounting. It alleged that Greenberg and Smith were responsible for material misstatements that enabled AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets. Robert Khuzami, Director of the SEC’s Division of Enforcement, said: “Corporate leaders cannot avoid the truth and consequences of their companies’ performance by using improper accounting gimmicks and signing off on distorted financial reports.” Both Greenberg and Smith agreed to make the payments without admitting or denying the charges.
Irish artists are smiling
Nearly 3,000 Irish artists benefited from a scheme to exempt them from paying income tax, saving them €66m in 2006. But half of the tax saving accrued to just 28 artists. Those benefiting from the scheme include poet Seamus Heaney and rock band U2. A change to the tax ememption introduced for 2007 capped the exemption to €250,000 of taxable pay per annum. The scheme was adopted in 1969 to promote the artistic sector in Ireland.
Ireland’s ‘Snip’ report proposes big cuts
Big cuts in welfare spending and public administration have been proposed by an Irish government-commissioned report, to help the country close its massive fiscal gap. Ireland has suffered a 33% loss in tax revenues as a result of the recession. The ‘Snip’ report proposes cutting public spending by 8.5%, cutting initially 17,300 government jobs, closing government departments and agencies and ending some benefits entitlements. It backed previous proposals to raise the minimum retirement age for the police and teachers.
Israeli foreign minister faces bribery charges
Engagement partners must sign
Engagement partners would have to sign audit reports under proposals agreed by the US Public Company Accounting Oversight Board. The proposals have been put out for consultation under a Concept Release. PCAOB also agreed an Auditing Standard on Engagement Quality Review that establishes a framework for an engagement quality reviewer to evaluate audit judgements. The EQR standard implements a requirement of the Sarbanes-Oxley Act for second partner review of audit reports.
GE pays up
General Electric has been charged by the SEC with accounting fraud. GE is alleged to have misled investors by reporting materially false and misleading financial statements, using improper accounting methods to increase reported earnings and avoid reporting negative financial results. It will pay $50m to settle the SEC’s charges, without accepting or denying liability. The SEC claims that GE committed four separate accounting violations from 2002 onward. “GE bent the accounting rules beyond the breaking point,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Overly aggressive accounting can distort a company’s true financial condition and mislead investors.”
Huron admits irregularities
IASs ‘not to blame’
Financial Crisis Advisory Group has concluded. “Improved financial reporting will help restore the confidence of financial market participants and thereby serve as a catalyst for increased financial stability and sound economic growth,” said Hans Hoogervorst, co-chairman of the FCAG. The report says that accounting standards must have integrity and be free from political intervention.
US ‘must converge by 2011’
IFRS convergence “can’t go on for ever”, says IASB chairman Sir David Tweedie. In a speech to the American Accounting Association’s annual meeting, he urged the US and other countries to complete convergence of GAAP with IFRS by 2011. “We’ve been converging for seven years. We have a timetable to finish in 2011,” he said. Tweedie added that the “FASB is riding two horses”, both maintaining GAAP and pursuing convergence.
IASB name change
The IASB is to become the IFRS Board under proposals put forward by the IASC Foundation. The Foundation would also change its name to the IFRS Foundation. Several respondents to a recent consultation complained that the existing names are confusing. The Foundation’s trustees also agreed that the IASB should consult with the trustees and the Standards Advisory Council on the board’s agenda items. They said the public should be able to review and comment on papers that the IASB presents to the Standards Advisory Council on the agenda-setting process.
PwC to process Somali aid
Deloitte and BDO suffer
Deloitte’s gross revenues in the UK were down 2% to £1.97bn in the year ended June. Net revenues remained stable at £1.7bn. The audit practice did well, with net revenue growth of 7%: consulting revenues grew by 3%. But net revenues fell by 7% in the tax practice and by 9% in corporate finance. Net profit distributed to partners was down 6.1% to £601m. BDO Stoy Hayward seems to have suffered more severely and is losing 10% of its partners. The BDO Seidman practice in the US reported a 5.9% fall in revenues to $620m for the year ended June.
FEE annual report
The Federation of European Accountants (FEE) increased its income from member bodies from €2.7m to €2.9m in 2008, its annual report reveals. The contribution from EFRAG rose from €450,000 to €504,000. Royalties and other income increased from €16,000 to nearly €28,000. The value of volunteers’ working time was worth €1.67m to FEE. It reported a surplus for the year of nearly €115,000, up from just under €84,000 in 2007.
Politics
Firms ‘not Tory donors’
The Big Four firms have denied newspaper suggestions that they are supporting the Conservative Party, but confirm they have strengthened links with politicians likely to form the next government. Ernst & Young says it has appointed one person for secondment to the Conservative Party. PwC said it “does not make any cash donations to any political party or other groups with a political agenda”, but that it does “seek to maintain constructive and balanced relationships with the main political parties”. This includes “limited non-cash assistance to those parties in areas where we have appropriate expertise”. Deloitte said it does not give financial contributions to any political party, but “may make available partner, advisor and staff resources and technical and factual information on occasion”. KPMG did not respond to enquiries
‘Tax policies fueled boom’
Tax policies fuelled the boom and subsequent recession, a study by the IMF concludes. The main failing was that high tax rates on corporate profits – taxed as corporation tax and personal income tax on dividends – make equity much more expensive than debt, the cost of which is tax deductible. The study calculates that the average effective tax rate on debt is -46%, while that on equity is 24%. One result of this disparity was the growth of complex financial instruments to take advantage of the tax benefits of debt, but which were too opaque for investors to understand their risk exposure. The IMF reported in another study that G20 countries’ debt levels will rise by 40% by 2014: the largest peace time rise.
McCreevy sparks crisis by refusing to sign-off IAS documents
Mr McCreevy has committed to consulting the European Parliament fully on the progress with respect to changes to the IASB’s Charter and the introduction of the Memorandum of Understanding. He is awaiting the return of the European Parliament in the new term with the newly constituted committees in order to conclude his consultation.”
Ethics is the ‘x-factor’
Public sector
‘Taxes must rise’
UK tax rates may have to go up by an extra 15 pence in the pound to allow the public finances to recover, a report from the NIESR predicts. Other policy options include deferring the state pension age to 70, or making severe cuts to all public services, including the NHS. The Government is building-up public debt of £175bn this year, plus another £173bn next year, according to the respected academic think-tank. It will take until 2023 before the national debt returns to pre-recession levels, it predicts. NIESR says that the severity of the downturn has been unknown in the UK since the Great Depression of 1929. It believes that the UK economy will return to growth next year – but only at the modest level of 1%.
Treasury select committee doubts efficiency gains
Government claims for substantial improvements in efficiency are not backed by sufficiently rigorous auditing, claims the House of Commons Treasury sub-committee. The MPs said the Government should work with the National Audit Office to ensure that future efficiencies are accurately measured. In future, the Government should establish robust data collection processes to assist with the accurate monitoring of achieved savings. The committee also concluded that future efficiency targets should be set methodically, involving consultation with departments, to ensure they are realistic and sustainable. The absence of departmental consultation does not inspire confidence in the process or the accuracy of claimed savings, said the MPs.
Practice
Landlords ‘should reconsider VAT’
Enterprise
Tax deferral ‘threatens suppliers’
A scheme adopted by HMRC to allow debtors extra time to pay if they have cash flow problems in the current recession may have a perverse impact on suppliers, warns insolvency practice P&A Partnership. It says that suppliers need to know the identities of the 158,000 companies given time to pay by HMRC, to enable suppliers to take informed decisions when awarding trade credit. P&A partner Andy Wood says that it has had the effect of allowing more companies to trade without the capacity to pay their bills. Last year’s Pre-Budget Report launched the Business Payments Support Service to help viable businesses that suffer temporary financial difficulties. But Wood believes that some time to pay authorisations have been awarded to companies that have no realistic prospect of paying-off their debts.
Rescued banks ‘have monopoly’
High street banks are cementing their monopoly position as lenders to small firms following the rescue of many by the Government, says the Federation of Small Businesses. There are now fewer options for the one in four SMEs struggling to access affordable finance by the main banks, the FSB claims. The FSB says that struggling banks should not be sold to competitors as this reduces competition and choice. Instead the Post Office should be converted into a Post Bank that is publicly owned, a mutual or trustee bank and able to give small firms more support. The FSB praises Essex County Council for establishing its own bank with lending facilities to small firms and urges other public bodies to copy the initiative.
Corporate
US leads bribes action
Criminal investigations by US authorities have led to fines of over $1bn, according to analysis carried out by law firm Freshfields Bruckhaus Deringer. Some 43 companies have been successfully investigated by US agencies, compared to just one in the UK. Most of the non-US companies investigated are based in the UK, or the UK-associated tax havens of Bermuda and the Cayman Islands. The US believes that UK authorities should do more to tackle corruption. Law firm DWP warns firms that the UK’s draft Bribery Bill is likely to lead to tougher action by UK agencies, with amendments proposed by a House of Commons committee potentially making employers liable for bribes paid by their staff. Joel Heap, a litigation partner with DWF, says: “It is important that companies address the issue now and put procedures in place before the bill becomes law.”
ProStrakan settles tax claims
ProStrakan has agreed to pay Aventis €9.15m to settle a claim for a tax liability incurred by Aventis of €13.4 arising from the sale of the Proskelia business by ProStrakan
in 2006. Aventis sold Proskelia to ProStrakan in 2004, with undertakings that there would be no disposals that would trigger tax liabilities for Aventis. But ProStrakan agreed to sell Proskelia to Galapagos in 2006. ProStrakan stated at the time of the disposal that it was in discussion with Aventis and the French tax authorities regarding tax liabilities. The settlement puts an end to all legal proceedings between Aventis and ProStrakan.
Financial services
HSBC fined for lax controls
HSBC subsidiaries have been fined over £3m by the FSA for weak controls of customers’ confidential data. The fines were imposed after FSA investigations into the loss in the post by HSBC Actuaries of an unencrypted floppy disk that contained the personal information of 1,917 pension scheme members, including addresses, dates of birth and national insurance numbers, and the loss by HSBC Life in the post of an unencrypted CD containing the details of 180,000 policyholders. Both companies were fined, as was HSBC Insurance Brokers. FSA inspectors found that large amounts of unencrypted customer details had been sent via post or courier to third parties and that confidential information about customers was left on open shelves and unlocked cabinets. Staff had not been given sufficient training in how to handle customer records. The data thefts could have been used by criminals to commit widespread frauds, concluded the FSA.
Banks warned on tax avoidance