The threat of the ‘Big 6’

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On Friday I wrote about the 'vision document' produced by the six biggest firms of accountants in the world about where they see financial reporting and auditing going in the future.

I could spend a lot of time addressing individual points that they raise. Indeed, I might do so at some time. But not now. What I'm interested in now is what this development might really mean because I think something really significant is going on.

It was Mark Hampton, now at the University of Kent, who first looked at the idea that corporations created 'secret spaces' in which to undertake their activities. In his work on offshore he showed that these spaces facilitated particular forms of activity, and were then colonised by them.

Ronen Palan, my colleague at the Centre for Global Political Economy at the University of Sussex, took this further and showed in his 2003 book 'The Offshore World: Virtual Spaces and the Commercialisation of Sovereignty' saying that commerce as we now know it needed these spaces to function. That does not mean they are desirable; he's saying they are part of the process.

If I have added a twist to this it is to say (as I showed, for example, in my work for the States of Jersey last year) that the space business uses for these activities is not actually offshore. The space is between offshore and the major nation states. The reason is simple. To provide its services the offshore company has to be nowhere. Jersey facilitates this. It lets companies that operate there not be considered to be resident in that territory even though they are clearly also not resident anywhere else. This extended the idea of the secret space from being a place to being somewhere between places, a quite different notion.

Ronen Palan and I have continued to explore this idea. In a forthcoming publication we look at whether consolidated accounts provide another secret space in which commerce functions. Consolidated accounts are, after all, a fiction. There is no entity that undertakes the reported transactions. The choice of transaction reported is highly selective. Intra-group trading, which represents so much of the world's trade and which facilitates so much of the financial planning of corporations entirely disappears from view in this chosen representation of activity. We argue that this is the creation of another 'space' in which business can operate unseen. This work will be published early next year.

There is however a feature of all these activities that links them to the state. Major international corporations are at present ultimately required by national based rules to comply with a particular type of regulation and to operate a specified form of governance. This is a condition, for example, of being registered or quoted in a specific location. This provides the spaces in which they operate with some geographical reference.

It's my belief that the ideas now put forward by the Big 6 is an attempt to remove that geographical reference. As they say:

Global capital markets and investors want to be able to compare the financial information reported by companies regardless of the country in which they are incorporated or conduct business.

Later they add:

While global rules and coordinated national enforcement are essential prerequisites to assuring the production and dissemination of company information that is uniformly relevant, reliable and comparable across countries, our international audit networks must be able to deliver those outcomes.

They move on to call for a seamless world in which they can operate at a global level: the preamble in the last sentence quoted is clearly cast as a constraint, not a necessity.

As such this seems like an argument for a new space. It is, perhaps, the inevitable reaction to the attack on offshore. Now business wants more than spaces between the geography of the nation state, it wants to float above such states. Seen in that way this paper is not a bid by the Big 6 for new information or audit techniques (whether they are required or not). This is a bid to remove themselves, and business, from national control into a world which they alone control.

The challenge from the business community to the nation state has to date been typified by its indifference to taxation. It's now moving beyond that. We're seeing a situation where global business is calling for global trading, global reporting, global auditing and global investment, but is offering no control mechanism to the stakeholders of the world to control these activities.

This is a really worrying development. Few would, I think, like to live in a world regulated solely by chartered accountants in their own commercial interest. And yet that is the option that is being put on the table. Which means that this paper is about a lot more than it claims. This is the point where these firms seek to leave regulation behind. And that is profoundly worrying.


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