Tax Research UK

PWC issued the latest of their Total tax Contribution reports today.

I readily admit I do not buy the logic of these reports, but this is what they say:

A survey by The Hundred Group of FTSE 100 Finance Directors has found that the UK total tax rate – combining all taxes borne or collected by FTSE 100 businesses on the Government’s behalf – has grown significantly as a proportion of total corporate earnings since 2007.  

The members of The Hundred Group reported that their total tax rate increased from an average of 38.2% of total earnings in 2008 to 41.6% in 2009. This represents a year-on-year increase of 9% in FTSE 100 companies’ average total tax rate; an expansion in the overall corporate tax burden which has been implemented against the backdrop of the deepest recession for many years. 

The survey was conducted on The Hundred Group’s behalf by PricewaterhouseCoopers LLP.  During the 2008/2009 tax year, the UK’s largest companies paid or collected £66.6 billion in taxes. Corporation tax payments fell 6.4% to £10.3 billion over the period. However, other taxes did not reduce in line with declining profitability and therefore account for a higher proportion of overall earnings. 

But hang on – don’t economists all agree that business can’t pay tax?

How can so many people – the captains of industry and the biggest firm of accounts in the world no less – have made such a drastic mistake in the face of that evidence from the world’s best economists (you know, the ones who didn’t see the recession coming)? Note that PWC say borne? Surely some mistake?

I hope Tim Worstall’s on the case

Richard Murphy Accounting, PWC

FT.com / Companies / Banks - Deloitte chief reignites accounting debate.

The debate on how to account for banking losses goes to the core of International Accounting Standards project.

Now Deloitte and PWC cannot agree on the issue,a s the FT notes:

Jim Quigley, global head of “Big Four” accounting firm Deloitte Touche Tohmatsu has proposed that banks account for losses in two radically different ways, to meet the opposing demands of politicians and accountants.

He has told the Financial Times that he is an “advocate” of banks making loan loss provisions for “incurred losses” separately from “expected losses” – and reporting them in two different lines in their accounts.

However, PWC says this proposal would:

“muddy the waters”.

Politicians and regulators have blamed the current system of “incurred losses” – whereby companies may make provision for loan losses only as they occur – for exacerbating the crisis, by encouraging a cyclical approach to risk management.

But that view is questioned by many accountants and bankers who argue that “incurred losses” give investors clarity. Accountants and bankers are also are sceptical about the “expected loss” model, as they fear it raises the risk of “cookie jar” accounting, whereby executives put funds aside during years of bumper profits only to release them later to cover up bad performance.

Let’s be clear about this: until 2005 everything PWC are arguing for would have been unacceptable in the UK. We did expected loss accounting under UK rukles. It is only the International Accounting Standard Board that over-ruled this.

Three years later most banks fell over.

And the thing PWC is arguing against is anti-cyclical provisioning to ensure capital retention. To put it anothjer way, PWC wants pro-cyclical accounting that encoruages recklessness.

PWC’s recklessness seems to know no bounds. The lack of honesty in their argument is also stunning: to suggest that the prudence that under-pinned accountancy for more than a century is “cookie jar” accounting is an appalling mis-statement of reality. That prudence served us well and is exactly what we need now.

PWC needs a rude awakening.

Richard Murphy Accounting, Banking, Deloittes, PWC

FT.com / By sector - Political meddling seen as danger for banks.

The FT head their article on this issue “Political meddling seen as danger for banks”. As they say:

Political “meddling” has emerged as the greatest threat to the global banking industry for the first time, according to a report highlighting the biggest risks faced by financial markets in 2010.

Then you read:

In the … report, political interference, which has never before been identified as a risk in the survey, was considered the most severe threat to global markets, ranking above credit risk, over-regulation, macroeconomic trends, liquidity and the availability of capital.

Weird you think until you note:

The survey, Banking Banana Skins, sponsored by PwC, received 440 responses from individuals in 49 countries, two-thirds of which came from bankers and the remainder from analysts, consultants, investment managers and regulators.

And then you realise this is PWC meddling in the politics of banking to ensure that they and their clients can continue to enrich themselves at cost to the rest of us.

To argue that politicians should not interfere in banking when PWC are blatantly seeking to capture the political process and the income streams it controls  for the benefit of bankers and themselves is uite extraordinary hypocrisy.

But I suspect they are quite unable to see it that way - after all, they still think they are amongst the masters of the universe.

Richard Murphy Banking, PWC

FT.com / Financials - UK chief executives’ pay hit by cost cuts.

The FT has reported:

The base salaries of chief executives of the UK’s largest companies rose more slowly than average pay last year for the first time in a decade as tougher economic conditions forced boardroom restraint, a study by PwC has revealed.

One in six chief executives of FTSE 100 and FTSE 250 companies also received no bonus in a sign that boards are linking executive pay more closely to performance.

PwC analysts found the median salary of FTSE 100 chief executives reached £805,000 ($1.3m) in 2009, up 1 per cent, and the median bonus fell 20 per cent to £525,000.

Send for Millionaire Aid! How will they survive without your support? Please give generously. The whole well being of the bosses in our society is in jeopardy. Have we ever faced a bigger national crisis? PWC might doubt it…………

Richard Murphy PWC

Tax haven risks corruption, OECD warns Ghana | Business | guardian.co.uk .

As the Guardian notes:

Ghana has had a stern warning from the Organisation for Economic Co-operation and Development to ensure that its emergence as a tax haven does not fuel corruption and crime in west Africa.

Ghana is becoming an offshore financial centre but Jeffrey Owens, head of the OECD’s Tax Centre, said: “The last thing Africa needs is a tax haven in the centre of the African continent.”

The OECD is in talks with Ghana to guarantee the country “adheres to the highest standards and integrity”. Owens said Ghanaian officials “are aware of the risks they are running”.

They might be. But let’s be clear, they’re not the real moves and shakers behind this. As the Guardian also notes:

Barclays Bank has been advising Ghana’s government on establishing its financial centre.

Wilson Prichard, a researcher at the Institute of Development Studies at Sussex University said:

Aside from the general social costs associated with the operation of tax havens globally, in the absence of a very strong regulatory framework and very strong standards of transparency there’s a particularly high risk that a tax haven in west Africa, which is home to major oil wealth and high levels of corruption, could facilitate large-scale corruption and tax evasion, and pose a correspondingly large risk to good governance and economic growth in the region.

But Barclays are backing it anyway.

And you want a better example than that of the complete and utter social irresponsibility of banks in the face of the risk of corruption, fraud and social breakdown?

It would be hard to find unless it is PricewaterhouseCoopers’ support for the development of a tax haven in Jamaica.

This is the financial services industry pursuing profit at cost to society at large. There’s nothing new about that. But the time has come to stop it.

Richard Murphy Barclays, Development, PWC, Tax Havens

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.

Richard Murphy Auditing, Big 4, PWC

I debated bankers bonuses with Mike Warburton of Grant Thornton yesterday on Radio 2. As Howard reed – a co-author of mine on the recent Compass tax report noted:

I doubt there will be many sympathisers with Mike Warburton’s position outside the banking sector itself. He was effectively arguing that the UK should tax bankers as lightly as possible when times are good and then give them as much money as possible to bail them out when times are bad. One doesn’t need to be an economic genius to work out that this creates an incentive for bankers to gamble as recklessly as possible in the knowledge that the taxpayer will always bail them out. It’s a crazy approach - and I think the UK public understands that at a fundamental level.

I am sure Howard is right. But this morning we have my old friend Bill Dodwell of Deloittes telling the Guardian:

We’ve had calls from bankers asking about … what action they might take under the Human Rights Act. There’s never been a precedent [for a tax targeted on one group].

I think government lawyers will be working incredibly hard as to whether this [tax] is feasible at all

You can be sure that Bill will be doing his best to make sure it is not. So will Jon Terry at PWC, who said:

They will find ways around it

Since the report continues by noting:

Terry at PwC said the definition of "bonus" and "banker" would be crucial

I think we can safely assume that Terry actually means “we will find ways round it”.

This is the madness of the big firms of accountants. I use the word mad advisedly. If mad means “being out of touch with reality”, and I think it does, then I can genuinely say these comments represent the madness of these firms.

If they continue this way accountants are next for public opprobrium. And quite rightly so. Advertising intent to circumvent the law is, in my opinion, profoundly unethical behaviour if that is, indeed, what they are doing.

Richard Murphy Accounting, Deloittes, Ethics, PWC, Tax avoidance

PwC off the hook over Satyam? Not so fast!.

Dennis Howlett on PWC’s legal manoeuvrings to get out of liability for the Satyam audit.

As he notes:

So let me get this straight. PwC successfully argued that it was a franchise and not directly connected to other firms in the PwC orbit. If that’s the case then there’s a whole bunch of questions to be asked such as:

• What the heck was the CEO of PWC doing in India in the aftermath of the Satyam scandal?
• If there is no connection then why did Thomas Mathew step down?
• Do we now have confirmation that PwC is only a brand and not a global firm?
• Does this mean that if I subcontract and my subcontractor messes up then I can still avoid liability?
• How does PwC get a pass when it signed off the accounts and not the subcontractor?

This one has a long way to run as yet.

Richard Murphy Accounting, Auditing, PWC

Auditors face being called to account for their role in the global financial crisis | Business | The Observer .

For decades, auditors have enjoyed self-regulation. This has led to senior accountants, mainly from PricewaterhouseCoopers and KPMG, assuming rule-making status. Many argue that this apparent conflict of interest has led to auditors skilfully deflecting blame for failing to spot glaring black holes or fraud at a range of institutions from Enron to Madoff and the failed banks.

UK forensic accountant Richard Murphy says: “The fundamental question is how accountants got away with changing rules of accountancy, which state they don’t have to assess the valuation of assets underlying the assets on a balance sheet. How did they get away with changing the audit rules?”

The Observer begins to ask the over due question - why have the auditors had a ‘good recession’ when they so obviously contributed so seriously to the misinformation and opacity that helped cause it.

It’s time they were called to account - and made to both pay and reform.

Richard Murphy Accounting, Auditing, KPMG, PWC

FT.com / Companies / Banks - PwC fees mount to £154m in Lehman wind-up .

The winding-up of Lehman Brothers in Europe, one part of the largest-ever global bankruptcy, is heading into record territory for accountancy and legal fees in the region, as well as the size of the claims made against the overseas parent company.

PwC [have] revealed that in their first year working on the case they have charged £154m (€168m) in fees for work on the company’s winding up.

The report notes that there has been a “general downward” trend in the average hourly charge-out rates for PwC partners and staff. The average hourly rate has dropped from £329 to £309 over the past six months, say the administrators.

At 8 hours a day, 5 days a week, 46 weeks a year (which is fair) that an average annual fee of £568,560 per person on the case.

Please do not tell me that’s reasonable.  That is robbery.

If there was a concept like usury in insolvency then PWC would be usurers. And they should be roundly and wholeheartedly criticised for it.

Richard Murphy Accounting, PWC