2009 December » Tax Research UK

Another mess for PWC

Dec 162009

FT.com / Companies / Financial Services – Shareholders ponder Cattles legal action.

Some of us have been warning one or more of the Big 4 auditors will fail. It seems likely regulators now agree.

So it’s timely to note that PWC are in more trouble:

Cattles plc has admitted to a breakdown in internal controls, which resulted in its impairment policies being incorrectly applied. Its shares were suspended in April this year following the discovery of the accounting errors.

Last month Cattles said in a statement that the balance sheet at the end of December 2008 would have been likely to show a deficiency of shareholders’ funds of £197m ($320m) with loans and advances to customers of £2.5bn and gross external borrowings of £2.7bn. Its numbers are unaudited.

Shareholders have been called to an extraordinary meeting today so that Cattles can explain the “serious loss of capital” caused by the higher than expected impairment provisions.

PwC, the company’s auditors, resigned earlier this month .

On Tuesday David Greene, head of litigation at Edwin Coe, said the law firm had hired barristers and forensic accountants and was examining whether legal action could be taken against former directors or against PwC as former auditors.

The Accountancy and Actuarial Discipline Board, the independent investigative and disciplinary body for accountants and actuaries in the UK, said in July that it had launched an investigation into the conduct of members at Cattles and of PwC as auditors to Cattles.

PwC would not comment.

Well of course it wouldn’t.

But prima facie the accounts were wrong. And it was not a one off. And the question has to arise about how long cut price audit can last when this sort of problem recurs time and again.

Audit risk is meant to be born by auditors. It is being externalised to shareholders and society at large. Is that sustainable?

I doubt it.

A new paradox – Paul Krugman Blog

Economics 3 Responses »

Dec 162009

A new paradox – Paul Krugman Blog – NYTimes.com.

This is important, so I hope I’m going to be forgiven for re-posting a loot of it:

Gauti Eggertsson is in the process of presenting a new paper on fiscal policy; the paper is here. In his presentation ‚Äî though not in the paper ‚Äî he offers great phrase: the “paradox of toil.”

According to his paper, when you’re in the liquidity trap, certain kinds of tax cuts have perverse effects. Cutting taxes on capital income, for example, encourages more saving ‚Äî which is a bad thing, because we’re suffering from the paradox of thrift. In fact, reduced taxes on capital income actually end up reducing investment.

So what’s the paradox of toil? If you cut taxes on labor income, this expands labor supply ‚Äî which puts downward pressure on wages and leads to expectations of deflation, which increases the real interest rate, which leads to lower output and employment.

All of this only applies in a situation of zero interest rates, which wouldn’t be interesting except that that’s the situation we’re in.

The general point is that we’re really through the looking glass, in a world in which lots of things have perverse effects ‚Äî and basing your policy ideas on intuition from “normal” times can lead you very much astray.

Conservatives please note.

Crass comment of the year?

Banking 1 Response »

Dec 162009

RBS chief blasts ‘politicisation’ of bank | Business | guardian.co.uk .

This one stands high on the list of nominations for crass comment of the year:

The chief executive of Royal Bank of Scotland today attacked the “politicisation” of the bank as it emerged that a new multimillion-pound salary package was being devised for him and his boardroom colleagues, despite the political furore over bankers’ pay.

It proves, first, they still don’t get it and, second, just how short the memory of bankers is: his bank is all about politics now, It’s nationalised for a start.

The comment is so stupid that it makes you realise everything else bankers say must be doubted.

The truth is they really are only making money by looting. Their targets are the Treasury or pension funds. Either way society pays.

And that’s why the attack on banking is the right thing to do. We can do without much of what they do. As indeed we did until a decade or so ago.

Treasury hints at extending supertax

Banking, Tax avoidance Comments Off

Dec 162009

FT.com / UK / Business – UK Treasury hints at extending supertax.

Treasury ministers and officials threatened on Tuesday to extend the one-off levy on bank bonuses if avoidance became widespread.

The temporary 50 per cent bank payroll tax on bonuses is due to end on April 5 2010. But on Tuesday officials warned banks thinking of simply deferring bonus decisions into the new financial year that the legislation could easily be extended.

Liam Byrne, the Treasury chief secretary, told MPs: “We remain open to the possibility of extending this legislation and tax if we see the kind of avoidance measures that some have been talking about.”

Good. That’s what we wanted to hear.

Chile Passes Tax Law to Improve Transparency

Transparency Comments Off

Dec 162009

Chile Passes Tax Law to Improve Transparency ¬´ Task Force on Financial Integrity and Economic Development.

The Task Force on Financial Integrity and Economic Development, of which Tax Research LLP is a member, welcomes the news that Task Force Partnership Panel member Chile has enacted legislation enhancing access to bank information for the purposes of improved compliance with OECD standards on tax information exchange and increased transparency in financial transactions.

Previously, legal restrictions prevented Chilean tax authorities from obtaining and exchanging certain types of tax information in non-criminal tax cases. The new law, which is currently in effect and applicable as of January 1, 2010, will enable Chile to better comply with its current 20 bilateral tax treaties which provide for information exchange in tax evasion investigations.

Raymond Baker of the Task Force said:

As a member of the Task Force on Financial Integrity and Economic Development, Chile has demonstrated a commitment to increasing transparency and accountability in the global financial system. We welcome the news that they have taken this key step towards cooperation and participation in the global movement for better tax information exchange and regulation and oversight of financial institutions.

Visit www.financialtaskforce.org for more information about the Task force including the Task Force publication “Economic Transparency: Curtailing the Shadow Financial System” and a list of the full Task Force membership.

Climate deal in balance

Development, Economics, Ethics Comments Off

Dec 162009

FT.com / World – Climate deal in balance over aid.

I don’t blog much on climate change. That’s not what this blog is about. But it’s massively important.

I don’t really care if the change is natural or man made: I think it is exacerbated by our behaviour, and to that extent we can do something about it.

Our screwed up economics is preventing that. So we get this sort of report:

The chief of the United Nations has conceded that a deal in Copenhagen on climate change might not include promised financial aid for developing countries, an admission that will infuriate poorer nations and potentially scupper a broad-based agreement.

Ban Ki-moon, secretary-general of the UN, told the Financial Times in an interview that countries could sign a deal at Copenhagen without a firm commitment from developed nations on long-term financing for poorer countries to combat global warming. “We can start next year discussing this matter,” Mr Ban said. Developing countries have long insisted that any Copenhagen deal must include assurances that they would receive finance flows of at least $100bn a year by 2020.

This is not aid. This is meeting the cost of our externalities. That’s all.

But we deny this obvious truth.

That’s why I get angry with conventional economics: the reality is that whilst it is the prevailing paradigm its prevailing logic of maximisation without consideration of cost also prevails, at cost to us all.

Clean tech sector needs more capital

Green New Deal Comments Off

Dec 152009

FT.com / Reports – Clean tech sector needs more capital.

That’s why we need green bonds

That’s why we need a Green New Deal

Going, or are they?

Economics 4 Responses »

Dec 152009

FT.com / Financials – Tullett offers brokers chance to move from UK.

Tullett Prebon has offered its entire broking staff the chance to relocate from Britain in a sign of the fallout from the government’s 50 per cent “supertax” on bank bonuses.

The broker has also been studying the possibility of moving its corporate headquarters abroad. No decision is thought imminent.

Nigel Szembel, of Tullett, said: “The board has concluded that it is in the best interests of shareholders to respond to requests from desks to relocate out of the UK, and will seek to facilitate, where possible and appropriate, relocation to the company’s other offices worldwide, which have more certain taxation regimes.”

Now let’s note what this broker does:

Tullett Prebon operates as an intermediary in wholesale financial markets facilitating the trading activities of its clients, in particular commercial and investment banks. The business now covers the following major product groups: Volatility, Rates, Non Banking & Sterling Cash, Treasury, Energy, Environmental, Credit, and Equities. Tullett Prebon’s electronic broking division offers electronic solutions to these products. In addition to its brokerage services, Tullett Prebon offers a variety of market information services through its IDB Market Data division, Tullett Prebon Information.

So they trdae in a great deal of what is ‘socially useless’.

Please feel free to go.

It will be very interesting to note how many actually do.

Good man!

Banking 1 Response »

Dec 152009

FT.com / UK – Darling defies bank threats on bonus tax.

Alistair Darling has warned banks that he will not water down his 50 per cent supertax on bonuses or offer special deals in a standoff in which brokers and banks have threatened to move key staff out of the UK.

The chancellor has been deluged with claims by banks that the tax would raise far more than the £550m he predicted. They have demanded that he make the levy less onerous.

But an aide to the chancellor said: “The solution to their problem is that they pay less in bonuses. The banks don’t seem to realise this tax is about changing their behaviour, not raising revenue.”

Let me put it on record: I’m impressed by Darling.

He’s made a point of principle. It was the right principle. And he’s sticking to it.

Good man!