Accountancy » Tax Research UK

If regulation is to work ‘chums’ can’t regulate ‘chums’. Getting tough is necessary

Accountancy, Accounting, PWC, Regulation 3 Responses »

Jan 062012

I’ve already mentioned the derisory fine dished out to PWC that’s in the news this morning. Then I noticed this in the FT:

The £1.4m ($2.2m) fine that an accounting industry tribunal has levied on PwC is doubly notable. First, because it is the largest ever of its kind. Second, because it is disgracefully small. PwC, auditor to JPMorgan Securities, failed to tell City watchdogs that the broker was riskily lumping billions of clients’ money with its own. This represented “very serious” misconduct, according to the tribunal. But the three worthies, led by Richard de Lacy QC, lacked the backbone to impose an appropriate fine.

Do you want evidence that ‘chums’ can’t regulate ’chums’? Then this is it.

This type of cosy regulation is a neoliberal, market based conceit. It’s time for it to go.

Ernst & Young are confused

Accountancy, Country-by-country, Ernst & Young 23 Responses »

Nov 222011

A representative from Ernst & Young came to the meeting I spoke at in the European Parliament last night on country-by-country reporting.

He was a very confused chap. I concentrated on EU related issues: Eurodad, as a development agency, unsurprisingly concentrated on developing country issues. And then up popped E & Y (and I paraphrase, but I hope accurately):

“I’m confused.” he said, “You want to tackle corruption is developing countries and you want to help EU countries collect tax. What is it you really want?” The poor chap sounded so confused as if reconciling such aims was beyond his no doubt highly paid ken.

But is it really that hard? We want accounts that simply say where a multinational corporation operates, what it is called in each country it operates and a profit and loss account, limited balance sheet and even more limited cash flow data for each country (almost without exception) on a basis that also reveals intra-group trading and that therefore holds global capital to account locally, wherever local might be.

Is that so hard to understand? I beg to suggest it isn’t, unless of course you’re wilfully blind and a major representative of the 1%. Not that I’m suggesting such a thing of E & Y, of course.

PWC – not up to scratch, yet again – with no hint of reform in sight

Accountancy, Auditing, PWC 7 Responses »

Aug 162011

It’s depressing to note the ongoing incompetence of my own profession. As the Guardian reports:

Auditor PricewaterhouseCoopers admitted to years of mistakes relating to the failure of investment bank JP Morgan to ensure that billions of pounds of its clients’ assets had been properly ring-fenced.

PwC is now expected to face a heavy fine over its role in the client asset scandal which could have wrought unnecessary mayhem had the bank collapsed at the height of the financial crisis in October 2008. At that point, JP Morgan’s futures and options desk held $23bn (£14bn) of client money, largely belonging to hedge funds, which was not segregated from the bank’s own funds.

This is basic stuff. It’s not, as PWC implies, a small slip. It’s an absolutely fundamental failure to audit. It’s incompetence on a gross scale. And incredibly easy to spot.

But PWC did not do it.

So threee questions:

1) Why not?

2) Why are they allowed to continue in operation in that cae?

3) When will auditing be totally reformed?

The answer is, in all cases ‘conflicts of interest’ do in differing ways explain a) why it happened b) why it will continue to happen c) why reform is blocked.

And if ministers won’t tackle this then you can be sure they won’t tackle other deep problems in society either.

Cameron speaks of responsibility whilst the accountancy profession seeks to evade the tax gap

Accountancy, Uncategorized 9 Responses »

Aug 112011

From Accountancy Age earlier this week, and overlooked at the time due to other issues on the agenda:

The £42bn “tax gap” might be an illusion, accountancy institutes have said.

The figure is supposed to represent the difference between the actual tax collected and what should be collected. But institutes have said that HM Revenue & Customs’ concept of a “tax gap” is not useful.

Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants, told the This is Money website: “It is like trying to get hold of smoke. There is no proper idea what that is and then we are trying to close it.”

David Heaton, chairman of the tax faculty at the Institute of Chartered Accountants, said: “I think the tax gap is entirely misleading. The definition of what taxpayers should pay compared with what is actually paid is not very helpful. It is less than helpful because nobody really knows what taxpayers should pay.’

Roy-Chowdhury and Heaton also warned that the tax gap includes tax avoidance, which is legal.

An HMRC spokesman said: ‘The tax gap is an important strategic tool, but we also set targets for the additional revenue generated through our compliance activity.’

I admit I find these claims from two representatives of the accountancy profession staggering. These people, representing professional bodies that are supposedly based on codes of ethical conduct, are effectively denying two things. The first is that tax evasion - blatant criminal behaviour – need be measured or targeted and secondly that tax avoidance – getting round the law – should be addressed in any way.

The language used – and I am sure the journalists quote correctly – is also telling. In hoping to sow doubt about the tax gap and by deliberately obfuscating on meaning the profession is asking that a blind eye be turned to what might collectively be termed tax cheating – much of it in the grey area where avoidance merges into evasion. That dividing line – so often relied upon by the profession, who happily trot out the line that avoidance is legal (even if of highly dubious morality) and that evasion is not as if they always know precisely where the line between the two might be – is shattered by their own suggestion that they do not know what the proper amount of tax a person should pay is. They cannot, in other words, tell the difference between evasion and avoidance because too often it is not clear.

But that does not then mean that the tax gap (which is clearly and unambiguously defined in exactly the same terms by both me and H M Revenue & Customs) is not an issue. It actually means that it is a very real issue – and that tackling and stopping the two key components within it – both tax avoidance and tax evasion – should be at the heart of the ethical responsibility of the accountancy profession.

In other words – the line glibly trotted out here that tax avoidance is legal – should be barred from the excuse book of the UK’s accountacy profession if they want to retain the privileges that go with that status. They must say that tax avoidance - the deliberate act of getting round the requirements of the law, rather than complying with them – is wrong. And they must instead make clear that the duty of the taxpayer, and the tax professional, is to promote tax compliance, which is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. I assure you, that’s possible.

More than though – if the professions are to offer ethical leadership they have no choice but do this. In which context I’d remind the accountancy profession of the words of the prime minister, spoken yesterday. He said:

“For me the root cause of this mindless selfishness is the same thing I have spoken about for years: it is a complete lack of responsibility in parts of our society.

“People allowed to feel that the world owes them something, that their rights outweigh their responsibilities and that their actions do not have consequences. Well they do have consequences.

“We need to have a clearer code of values and standards that we expect people to live by and stronger penalties if they cross the line.

“Restoring a stronger sense of responsibility across our society in every town in every street in ever estate is something I am determined to do.”

He could have been speaking of those who promote tax avoidance whilst ignoring their duty to society and who in the process ignore their responsibility to society. He could have been referring to a profession that fails to weed out those who cross the line.

Evading the issue of the tax gap suggests the accountancy profession is moving in the wrong direction. It’s supporting those cheating the state of its revenues.

It’s time for accountancy to embrace responsibility. And it has to do it now. It could do it by embracing a proper Code of Conduct for its members. Start here.

Choose life: choose to pay tax

Accountancy, Ethics, Tax compliance 3 Responses »

Jun 292011

Art Uncut have an article in the Guardian this morning on their objectives. They say:

Art Uncut aims to bring about a culture shift, to create a world where people automatically and instinctively think about tax ethically.

First, we want to empower people to “Just Say No!” to the tax accountant.

Hear, hear, I say.

And by chance my old blogging friend Dennis Howlett sent me a link, this morning to an article by J K Rowling written a year or so ago in which she said:

Now, I never, ever, expected to find myself in a position where I could understand, from personal experience, the choices and temptations open to a man as rich as Lord Ashcroft. The fact remains that the first time I ever met my recently retired accountant, he put it to me point-blank: would I organise my money around my life, or my life around my money? If the latter, it was time to relocate to Ireland, Monaco, or possibly Belize.

I chose to remain a domiciled taxpayer for a couple of reasons. The main one was that I wanted my children to grow up where I grew up, to have proper roots in a culture as old and magnificent as Britain’s; to be citizens, with everything that implies, of a real country, not free-floating ex-pats, living in the limbo of some tax haven and associating only with the children of similarly greedy tax exiles.

A second reason, however, was that I am indebted to the British welfare state; the very one that Mr Cameron would like to replace with charity handouts. When my life hit rock bottom, that safety net, threadbare though it had become under John Major’s Government, was there to break the fall. I cannot help feeling, therefore, that it would have been contemptible to scarper for the West Indies at the first sniff of a seven-figure royalty cheque. This, if you like, is my notion of patriotism.

Hear, hear again I say.

The evidence that a person can be ethical about tax is proven. The evidence that some accountants recognise the issue is alos laid bare for all to see.

So why aren’t there more who do just that? Who say ‘choose life, choose to pay tax’?

New on Forbes: The Greek Accounting Tragedy

Accountancy, Accounting, Economics 2 Responses »

Jun 202011

New on Forbes – my blog on why the Greek crisis could have been avoided if only we’d had proper government accounts.

The House of Lords are incredulous: of course International Financial Reporting Standard

Accountancy, Accounting, Auditing Comments Off

Jun 162011

The House of Lords recently undertook a review of the role of auditors in the run-up to the 2008 financial crisis. The report was damning, and rightly so.

Now the government has responded and the House of Lords aren’t, overall enamoured with the response. As they note, in particular:

We were surprised by the Government’s denial that IFRS accounting standards had reduced prudence in audit. The Committee’s report concluded that IFRS has limited auditors’ scope to exercise prudent judgment. Auditors’ traditional, prudent scepticism must be promoted, whatever the accounting standards.

Too true: and it will get worse, as I have explained today.

New on Forbes: Has the International Financial Reporting Standard Foundation pressed the self destruct button?

Accountancy, Accounting Comments Off

Jun 162011

I’ve got a new blog on Forbes that looks at the proposed reform of the IFRS constitution.

The reform is wholly negative. as I say in the Forbes column about these reforms, which narrow the defined usage of financial statements to speculators in financial markets alone:

The only people who now, apparently, have an interest in the accounts of companies are investors and other market participants who are seeking to make decisions on resource allocation within capital markets. Other users of financial statements have disappeared from view. Unquoted companies are no longer of concern. Anyone seeking information for any purpose other than investment is now ignored. Any concept of stewardship on the part of the directors gone: the only issue of concern now is dealing for investment gain.

And yet this leaves massive question marks at the heart of the whole International Financial Reporting Standard process. In the space available I can raise only a few, but each in itself is enough to suggest this approach is wrong. If, as the IFRS Foundation are now suggesting accounts are only for speculators, where is the long-term investor get the information that they need? And if accounts are only for markets, where do the regulators, tax authorities, creditors, civil society, and others get their information on the activities of a company? And what about companies that will be never traded on financial markets? Are the IFRS foundation now saying that their standards are of no relevance to companies that are not quoted on markets? Or that they have no relevance in countries where financial markets have not reached that stage of development? And Why, very importantly, if IFRS are to be solely about provision of information for speculators should the resulting standards be applied to the accounts of not-for-profit organisations, and even governments themselves (who are now using them)?

What will happen?

I suggest that here.

To whom do I owe a duty of care?

Accountancy, Accounting 1 Response »

Jun 102011

New on Forbes, my latest blog asks the above question in the context of Southern Cross and the realisation that ‘too big to fail’ encompasses many more companies than the banks.