UK News

Vantis executives accused
Two executives of Vantis’s tax divisions have appeared at Highbury Magistrates’ Court, facing charges from HMRC. The charges relate to the aggressive use of Gift Aid to reduce the tax liabilities of clients. The scheme is estimated to have saved famous clients – including sportsmen and musicians – over £100m in tax. The HMRC investigation has taken at least two years and has involved the seizure of papers and equipment from the Vantis’ offices and homes of senior staff. In a statement to the Stock Exchange prior to the hearing, the company said: “Vantis confirms that Roy Faichney and David Perrin, two employees of Vantis’ tax division, are due to appear before Highbury Corner Magistrates’ Court on 30 October 2009. The charges are brought against them personally, as set out in the summonses, and will be vigorously defended by them.” Both Faichney and Perrin are reported to be former Inland Revenue tax inspectors.

EU takes UK to court

The UK is being challenged by the European Commission over its allegedly improper implementation of a European Court of Justice ruling on cross-border loss relief. The referral relates to an earlier ECJ judgement regarding Marks & Spencer. According to the Commission, UK legislation imposes conditions on cross-border loss relief that makes it “virtually impossible for taxpayers to benefit from such relief”. In the Marks & Spencer case, the Court ruled that it is disproportionate to prohibit a UK parent company from deducting the losses of its non-resident subsidiary, when the latter has exhausted all possibilities for relief in its state of establishment. Following this ruling, the UK should in principle grant relief for definitive losses of a subsidiary established in another member state. It is thought that compliance with the European Commission’s requirements could cost the Treasury hundreds of millions of pounds.

FAST FACTS

£99m M&S claimed losses from overseas subsidiaries

£30m reduction in M&S tax liability

£?00m – the unknown cost to the UK Exchequer of further claims using the M&S precedent

Going concern

The FRC has updated its going concern guidance to directors. The guidance emphasises the importance of balanced, proportionate and clear disclosures about going concern issues and the key assumptions being made in one place in an annual report. Ian Wright, Director of Corporate Reporting of the FRC, said: “The Guidance reduces significantly inconsistencies between UK practice and IFRS, but some differences remain.” The FRC has written to the IASB suggesting it incorporates the principles and guidance into IAS 1: Presentation of financial statements when it is next reviewed.

Narrative strength

Most UK companies provide good quality content in their narrative reporting on financial performance and position, financial key performance indicators (KPIs) and articulation of strategy, according to a review undertaken by the ASB. But some companies struggle to meet some requirements of narrative reporting, regarding the communication of principal risks and non-financial KPIs. The ASB also found that companies have difficulty with some enhanced business review requirements, with only 38% of companies providing discussion of trends and factors that are relevant and forward looking.

Ethical standards

The APB has finalized its ethical standards on audit rotation. Under the revised ES3, key audit partners will have to change at least every five years – except where an extension of up to two years is needed in the opinion of a company’s audit committee to safeguard audit quality. In March, the APB published a consultation paper proposing that audit rotation requirements be increased from five to seven years. The APB says that while there was general support for this, some investors opposed it.

Non-audit services

The APB is consulting on whether additional limits should be placed on audit firms’ ability to provide non-audit services. This follows concerns expressed by the House of Commons Treasury Select Committee on the extent to which audit firms provided non-audit services and whether this undermined their objectivity towards audit clients. The APB is seeking views from investors and others on whether there is broad support for the Treasury Committee’s opinion that a ban would improve confidence in audit reports.

Whistleblowers’ protection

Protection has been given to whistleblowers who report concerns about their employer to the FRC and its bodies. The Accountancy and Actuarial Discipline Board, the Financial Reporting Review Panel, the Professional Oversight Board and the FRC have all been added to the list of bodies to which employees can responsibly disclose information under the ‘whistle blowing’ provisions of the Employment Rights Act, 1996. Individuals will now be protected if they make a qualifying disclosure in good faith – provided that they believe that the information is substantially true and the wrongdoing falls within the scope of the FRC and its bodies.

Deloitte sells Abacus

Deloitte has sold its Abacus Enterprise software and related business to Thomson Reuters. The two parties have not disclosed the value of the deal. Abacus provides software designed for companies to plan, comply and remit income taxes and VAT. About 40 employees will be transferred with the business, which will continue to be based in London. Abacus will be integrated into Thomson Reuters’ tax planning, transfer pricing, provisions and workflow management operations. The strategic distribution relationship in the UK held by Abacus with software provider Sage will be retained by Thomson Reuters.

EU tackles emissions fraud

The European Commission has introduced VAT reverse charging on carbon trading permits, to combat the high level of fraud. Several EU member states have recently reported high value cases on carousel fraud on greenhouse gas emission allowances, believed to be organized by criminal gangs. Reverse charging may now be applied by member states on five categories of goods and services, the others being mobile phones, computer chips, precious metals and perfumes.

‘Accountancy should lead world out of recession’

Accountants must take a leadership role in steering the world out of recession, says IFAC’s president Robert L. Bunting. “At this crossroad for the world economy, this means raising our voice about what we know best – including the capital markets, government accountability and the small and midsize businesses we call SMEs,” he told the third annual conference of CReCER (Accounting and Accountability for Regional Economic Growth ) held in Sao Paolo, Brazil.

‘Prevent bribery or else’, says PwC

UK businesses must recognize they have reached the end of an era, with tighter rules now introduced against bribery, fraud and anti-competitive practices, says PwC. It believes that recent prosecutions are part of a move towards more consistent global regulation. The firm warns that many companies may be unaware they are breaking rules, with subsidiaries and agents possibly paying bribes without head office knowledge. Industries receiving government contracts are most at risk of future prosecutions, says PwC.

BDO integrates

BDO’s global member firms are moving towards closer integration, with a single trading style. All the firms in 110 countries will now adopt the BDO name. The firms will also be able to share a common IT platform, integrating network-wide tools and applications, improving document and knowledge sharing. Jeremy Newman, CEO of BDO said: “This is a very exciting change for BDO and is the culmination of many years of strategic and operational investment and engagement.”

IAS 19 reform ‘would shed risky assets’

Adoption of proposed reforms to IAS19 that would lead to immediate recognition of the volatility of pension fund surpluses and deficits in the profit and loss accounts of sponsoring companies would lead to pension funds shedding riskier assets, according to a report by EDHEC-Risk. This would be potentially detrimental to the long-term management of funds’ assets. Yield smoothing should be used when reporting pension fund surpluses and deficits in sponsoring companies’ accounts, suggests the report.

Assurance best for PwC

PwC marginally increased global revenues in the year ended June 2009. Revenues rose by 0.2%, to $26.2bn, if constant exchange rates were used. But using variable exchange rates, revenue fell by 7.1%, because of the strengthening of the US dollar. Assurance was the best performing practice, with revenue growth of 2%, to $13.1bn. Tax revenues were stable at $6.9bn, while advisory fell by 2.9% to $6.1bn. The firm said it expects the acquisition of the BearingPoint advisory businesses in the US and Japan to lead to growth in the advisory practice. The strongest region was South and Central America, where revenues increased by 13.3%: they rose by 9.1% in the Middle East and Africa.

Transfer pricing hardline

Governments around the world are taking a tougher approach to transfer pricing, according to the 2009 Ernst & Young survey on multinationals’ tax challenges. More countries have increased documentation requirements and penalty rules. As a result, the pressure on international businesses to get transfer pricing practices correct has intensified.

RoW News

SEC supports IFRS

The US SEC has reaffirmed its commitment to the adoption of international accounting standards. Speaking to the IOSCO Technical Committee Conference in Basel, SEC chairman Helen Schapiro said: “I remain committed to the goal of a global set of high-quality accounting standards.” She explained: “We all want confident investors, stable markets, and a sound financial system. And it is only by maintaining accounting standards whose overriding purpose is to provide accurate and transparent financial information to investors in public markets that we can expect investors to recover the confidence necessary to return to securities markets worldwide. These objectives are true regardless of whether you are discussing accounting standards developed in Norwalk, London or anywhere else in the world.” Schapiro said the existing roadmap towards convergence would be reviewed, but stressed: “I am committed to focusing our efforts this fall to following up with a work plan that expands upon the concepts proposed in the roadmap.”

Icelandic raid

The Icelandic offices of PwC and KPMG have been raided by police officers seeking information on insolvent banking clients. The prosecutor’s office is reportedly examining whether there breaches in laws relating to accounting, annual reporting, companies controls and securities transactions. In a statement, KPMG Iceland said: “The investigation concerns certain clients of KPMG, not the company itself and KPMG will endeavour to provide all requested information and assist the special public prosecutor’s office to the best of its ability.” PwC stated that the investigation was related to its audits of Landsbanki and Glitnir. It added: “PricewaterhouseCoopers is working as closely with the prosecutors as possible and their employees were given the material requested. The prosecutor has stated that this visit was in connection with his investigation into the collapse of the banks, and that PricewaterhouseCoopers, individual partners, members of PwC staff or any other clients of the firm are not under investigation.”

FAST FACTS

$150bn – total assets of Iceland banks at end of 2006

$10bn – value of IMF rescue package after Iceland’s banks collapsed

304,000 – the population of Iceland

Citi fined

Citigroup has been fined $600,000 and censured by the Financial Industry Regulatory Authority for failing to supervise complex trading strategies partly designed to minimize tax liabilities. The firm also failed to report to an exchange trades executed under these strategies and to adequately monitor Bloomberg messages. Citigroup had bought stock from foreign clients, selling it back after taxable dividends were paid. While the dividend would have been subject to a withholding tax, a ‘dividend equivalent’ paid as part of a swap agreement between the parties avoided the tax. Citigroup neither admitted nor denied the charges.

Deloitte sells Abacus

EU tackles emissions fraud

Reform to IAS 19 would lead to pension funds dropping risky assets

European bank losses ‘could exceed €400bn’

Losses by major European banks may reach €400bn this year and next year, according to a stress testing exercise conducted by the Committee of European Banking Supervisors. The banks have not been named. It is understood that none of the banks is at risk of closure because of the rescue measures put in place by their governments. A similar exercise is now to be conducted of large European insurers.

Axa attacks IASB

‘Accountancy should lead world out of recession’

BDO integrates

Political independence needed

The Monitoring Board – set-up to improve the accountability of the IASC Foundation and the IASB – has stressed that there must be “independence and transparency in the standard setter’s due process”. In its statement of principles, the Monitoring Board stated that high-quality financial information was essential to ensure the confidence of capital providers in making investment decisions.

Grant Thornton wins Parmalat judgement

Grant Thornton International has won the next stage in the litigation over liability for the collapse of Italian dairy giant Parmalat. The firm was granted summary judgement in a US district court . Nan Williams, a spokeswoman for Grant Thornton International, said: “We are very pleased with the decision. We think it’s the right decision and have been confident throughout the whole proceedings.” Parmalat intends to appeal.

G20 supports convergence

Convergence of accounting standards should be completed by June 2011, the leaders of the G20 nations stated after their Pittsburgh summit. Standards setters should “redouble their efforts to achieve a single set of high quality, global accounting standards within the context of their independent standard setting process”. But, they added, the IASB should do more to improve “the involvement of various stakeholders”. The leaders also agreed stronger controls on financial institutions’ liquidity and capital adequacy and that the trading of derivatives should become more transparent.

Assurance best for PwC

Transfer pricing hardline

Politics

More work for auditors

Companies would be able to avoid intrusive regulatory inspections by contracting with audit firms to vouch for regulatory compliance, under radical plans proposed at the Conservative Party conference. Firms that contract with auditors to do the regulatory inspections would be permitted to refuse entry to official inspectors. Announcing moves to slash regulations, shadow business secretary Kenneth Clarke said: “We need to protect the highest standards of health, safety, fair trading and honesty in business life. We are not going to lower standards. We do not need mountains of forms, thousands of non-jobs, hundreds of quangos in gleaming office blocks to achieve that. Regulations based on achieving outcomes rather than just blindly following box-ticking procedure, will actually work better.”

Business model ‘should be driver’

Valuation of financial instruments should be permitted to be switched between fair value and amortised cost when the business model changes, concluded an ASB meeting that brought together preparers, users and auditors of UK company accounts. The IASB is against allowing reclassification, under proposals that would replace IAS 39. Peter Elwin, head of research accounting and valuation at Cazenove and a member of the ASB board, said: “It would have to be fairly fundamental…. real organizational change. In those circumstances you would expect the accounting to show that something really fundamental going on.”

Walker ‘not addressing causes’

The Walker Review of corporate governance in UK banks has addressed the symptoms and not the causes of the financial crisis, says ACCA. It argues that the 39 recommendations will not tackle the problems, as they make the wrong assumption that shareholders can influence boards to improve governance practices. “We believe the starting point for any review of governance should be to answer the question, ‘What do banks or other financial institutions do, or what should they do?’ and then to consider what governance system would help them to meet their objectives” said Dr Steve Priddy, ACCA’s Director of Technical Policy and Research.

G20 supports convergence

‘Tax policy fueled credit crisis’

The global financial crisis was inadvertently fuelled by governments’ tax policies, an ACCA policy paper has concluded. Tax policy made debt cheaper than equity, distorting the financial markets, according to the report, ‘Competition or Co-ordination: Reassessing Tax in a Global Environment’. Chas Roy-Chowdhury, ACCA’s global spokesperson on taxation issues said that the paper raised the question whether there needed to be global co-ordination on tax policy in the same way that there is on regulation. But he added: “Tax policy is and must remain in the hands of sovereign national governments, which should be able to run regimes suited to their stages of economic development, such as the flat-tax systems in post-communist countries in Eastern Europe.”

Public sector

NHS reporting standstill

NHS trusts and primary care trusts failed to improve their financial reporting standards in the 2008/9 year, with 46% of PCTs only meeting minimum requirements, according to the latest annual Audit Commission Use of Resources Assessment. But the Commission said the absence of improvement reflected the pressures of a tighter timetable in that year for the production and auditing of accounts. The Commission reported that NHS bodies, excluding foundation trusts, held a surplus of £1.74bn at the end of 2008/9, up from £1.67bn in 2007/8. Only six NHS trusts and one PCT failed to achieve an in-year financial balance, against 11 the year before. Another five organisations in 2008/9 reported ‘technical deficits’, mostly relating to the impairment of assets – which is ignored when considering whether an NHS trust has achieved its statutory duty to break-even.

Hays warns on public sector jobs

Hays has warned that recruitment of finance professionals in the public sector will slow down because of the Government’s fiscal crisis. While the tide of job losses in the private sector had now ebbed, it was rising in the public sector, said the recruitment agency. Public sector recruitment markets are “becoming increasingly difficult” said the firm, with signs already of reductions in the hiring of finance staff by local authorities. In the last quarter, Hays’ public sector revenues fell by 13% on a like for like basis compared to a year before. But this was better than the performance in private sector recruiting, which was down 47%.

Practice
Financial advisers ‘to be culled’

The number of financial advisors could fall by as much as two-thirds according to industry analysts as the Financial Services Authority moves to outlaw payment by commission. Payment based on advice could lead to fewer clients seeking assistance and with only the best and most highly qualified advisors surviving. At present, 80% of work done by the 35,000 IFAs is undertaken on commission, with another 50,000 advisors operating on commission as tied or multi-tied agents of banks and insurers. Under proposals from the FSA due to come into place in 2012, investment advice must be truly independent; clients must be able to identify and understand advice; commission-bias must be removed from the system; advice must be uninfluenced by product providers; and investors must be informed in advanced the cost of advice. All investment advisors will be qualified to a higher level, equivalent to the first year of a degree.
VAT moves online

All businesses with a turnover above £100,000 per year will have to file VAT returns electronically from April next year, as will newly registered VAT traders. All payments will also have to be made electronically. Paper returns will remain an option for the remaining VAT registered businesses, but this will be reviewed in the run up to 2012. Other VAT services available online include VAT registration, changing registration details, submitting the EC Sales List and submitting a Reverse Charge Sales List. From January next year, claims for VAT refunds from other EU countries will have to be made electronically.

Enterprise

Lending fear for SMEs

The Forum of Private Businesses has warned that the European Commission’s drive to improve competition amongst the state-rescued banks could have the unintended consequence of drying-up funding for SMEs. The possible forced sale by RBS and Lloyds of much of their networks of branches servicing small businesses could cause more than two million small firms losing their existing links with banks and finance, says the FPB. It argues that despite the Government’s rescue of the banking system, SMEs’ access to commercial finance has worsened. In its latest quarterly members’ survey, 77% of respondents reported that terms and conditions of lending had got tougher in the last year, with many borrowers forced to provide more security to cover existing levels of lending. Some 65% said it was harder to access finance for growth, while 68% said the cost of finance had increased.

Interest free loans

The Carbon Trust is highlighting the availability of interest-free loans to businesses to install new equipment that reduces their carbon emissions. Loans are available under the Big Business Refit scheme for equipment purchases of between £3,000 and £400,000 and are designed to pay for themselves through direct energy savings. Some £100m is held in the fund, which is expected to support up to 3,000 SMEs and reduce £40m from their annual energy costs. At present, says the Trust, UK businesses waste £3.3bn a year in energy, often because they do not have the cash to replace old and inefficient equipment. More than half of SMEs wait until equipment breaks down before they replace it.

Corporate

Brewin Dolphin restates

Brewin Dolphin is restating its accounts following an investigation by the Financial Reporting Review Panel, which found that the company had not complied with IFRS 3 on business combinations. Under IFRS 3, a company acquiring another business must recognize intangible assets separately if they meet the definition of intangible assets under IAS 38 and their fair value can be measured reliably. But Brewin Dolphin failed to do this when purchasing investment management businesses. The company will implement a change of accounting policy for the period ended September 2009, with intangible assets representing client relationships now recognised separately from goodwill. As a result, net assets at October 2007 will be reduced by £2.2m to £113.1m and in the 2009 financial statements, the comparative figures for 2008 will be amended to include a total amortisation charge on intangible assets of £4.2m.

… and Robinson Webster and Supercart

FRRP has also reviewed the accounting practices of Robinson Webster and Supercart. It found that Robinson Webster had failed to comply with FRS 20, on share based payments. This had led to an auditor qualification on the company’s accounts in respect to a share option scheme. The impact of this has led to a profit of £1,234,000 in 2007 to be restated as a loss of £536,000. FRRP found that Supercart’s failure to disclose certain items of segmental information on the grounds of commercial sensitivity was in breach of IFRS 8. Supercarts’ directors have accepted the FRRP’s conclusions and in the accounts for 2008 have complied with IFRS 8, including disclosure of the relevant information for 2007 by way of comparatives.

Financial services

CEBS proposes enhanced risk disclosures

The Committee of European Banking Supervisors has proposed draft disclosure guidelines to help financial institutions improve their risk disclosures. The draft guidelines aim to improve the form and the content of disclosures, without conflicting with IFRS, Pillar 3 or listing rules. CEBS says the guidelines are not only relevant in times of crisis, but can be useful to highlight points requiring attention, irrespective of the economic environment. The disclosure guidelines relate to general principles to be applied to high quality disclosures; principles dealing with the content of disclosures on areas or activities under stress, including business models, impacts on results and risk exposures, impacts on financial positions, risk management and sensitive accounting issues; and guidance on presentational aspects of disclosures.

Axa boss attacks IASB

The chief executive of insurance giant Axa has attacked the IASB as being “accountable to no one”. Henri de Castries added that accounting standards are “an instrument of political sovereignty” and “far too important to leave to accountants”. The Pan European Insurance Forum – whose members include Axa, Allianz, Aegon and Aviva – has meanwhile called on the IASB and FASB to accelerate accounting standards convergence, but to avoid the use of standards that encourage pro-cyclicality and negative spirals of asset values. They called on the adjustment of IFRS to remove “pro-cyclical effects of market-to-market valuation of financial instruments for which there is no longer substantial market liquidity”, but said “market consistent valuation of both assets and liabilities” should underpin insurers’ financial information and be used in prudential oversight.

Accounting news: Accounting & Business

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