Tax – that’s too hard for us

Posted on December 12 2006

Accountancy Age reports that only 16% of executives in quoted companies think financial analysts employed by major brokers in the City really understand their companies. They say:

More than 80% of European listed companies think their performance isn't accurately reflected in their share price - and that analysts don't fully understand the fundamentals of their business.

If you're a tax executive I'd make that 100%. When I began work on 'Mind the Tax Gap' I spoke to a number of City institutions about their interest in tax. The blank-look response was universal. And the explanation similarly common:

That's too hard for us.

Nothing has changed since.

You'd have thought that for a few hundred thousand a year you'd have got someone who could get their head round the tax charge in a set of accounts. But I came to the only obvious conclusion: that's not true. That's too hard a way to make money.

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2 Responses

Dennis Howlett says:

December 12 2006 at 6:10 pm

This is a common problem and one that deserves airing. For many years it was the case that investment bankers and analysts were joined at the hip. Analysts on Wall Street spent an average of 3 days per year (yes 1% of their time) talking to and trying to understand the companies they cover.

That situation has improved following Enron but not a lot. I specifically asked this question the other day of an investment analyst: ‘What weight do you apply to tax in arriving at E/V?’ Answer: not sure I know awhat you mean – please elaborate!

I’m sure you can do that far more eloquently than I!! 🙂
roger rabbit says:

December 12 2006 at 7:12 pm

I think the answer here, based on my experience with analysts and in preparing global tax numbers in sets of multinationals accounts is that very few understand tax.

But when:

1. none of these analysts competitors understands tax and
2. most key analytical measures operate at the pre-tax level

they either do not need to understand or think they do not need to understand tax.

And let’s face it, how many accountants and even tax accountants fully understand tax accounting?