I had a conversation with a partner in a Big 4 Firm of accountants before Christmas. This is the sort of exciting thing I do to pass my time.
His question to me was “What's your beef with International Financial Reporting Standards?” I patiently explained that an accounting system designed solely to meet the needs of capital markets did not meet the needs of the vast majority of users of accounts, including the investors in the 99% of companies in the UK who are not involved with the capital markets.
So then he wanted to know whether accounts for other stakeholders would look very different from those produced for the capital markets. It was very apparent that he could not imagine what the differences might be.
So I explained the need for country-by-country reporting and that this would meet the needs of vast numbers of local stakeholders of large companies.
And then I explored the information ends of employees and how better data on pay, gender issues, pensions from an employee perspective and tax paid (to make sure that what is deducted really is paid over, at the very least) all requires wholly different reporting from what we had now.
We then got to the climate.
And for suppliers, I suggested reporting on local average number of days to make payment.
Whilst I suggested that all accounts should be prepared with their inevitable tax use in mind.
By now he seemed to be convinced. Accounts with stakeholders in mind might look very different from IFRS accounts.
However, I was left with two thoughts. The first was that it was staggering that he could not have worked this out for himself.
The second is that now he knows I suspect that there is very little he will do about it.
I can only change one of these in 2019.
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I empathise Richard, though it could be worse. You might have to convert economists!
I am surprised to hear you of all people feeling ‘staggered’.
This chap is obviously ‘Mr Orthodox’ himself.
Producing crap accounts pays well. That is the fundamental problem. And will remain as so until someone chooses to do something about it.
I live in hope of finding awareness
Money (from fat fees etc., plus the remuneration packages for partners) tends to insulate them from the reality of what they are doing.
I think you will find that the same apparent openness the fellow had about your ideas will be displayed when he gets his next corrupt brief about his next job from a client.
And yes – you are allowed to hope otherwise.
🙂
No Pilgrim,
I’m staggered. Things like BEPS and Country by Country reporting are now standard knowledge for the OECD, its member nations, their tax offices and the big 4 – and this guy, of all people, doesn’t know about it?
http://www.oecd.org/tax/beps/country-by-country-reporting.htm
https://www.pwc.com/gx/en/services/tax/publications/tax-transparency-and-country-by-country-reporting.html
Oh, but that’s just tax and not accounting is the response
What do you mean by ‘accounts should be prepared with their inevitable tax use in mind’?
Profits are taxed! They should be suitable for this use. Existing IFRS and GAAP specifically say they are not
Noel says:
“What do you mean by ‘accounts should be prepared with their inevitable tax use in mind’?”
I find that a curious question.
I’m inferring from that, that it is currently deemed acceptable that there is more than one set of accounts prepared for different purposes.
Am I missing the point ? Call me suspicious but I would have thought that more than one set of accounts was likely to imply some degree of deception….. ??
You rate right Andy, in part
The part which is not right is that there should be a single set of accounts designed amongst other things to be suitable for tax purposes
It would be a revolutionary act if the next Labour government were to tax all UK quoted companies on their accounts profits and disapply all other deductions, allowances, exemptions etc.
Is there any research on how this would impact on tax recovery Richard? It would certainly gut the big 4.
You are assuming that there is no manipulation in profit
I am afraid that is very definitely not true
I am reminded of the saying about Italian companies (IIRC – probably not true of all theirs, but true of many others), that they kept three sets of books: one for the taxman, to show how badly they were doing (and so how little tax was due); another for the owners, showing how well they doing (and so how much profit would be paid); and a final set for the managers – who needed to know what was actually happening.
Of course there is manipulation in profits up and down but for UK quoted companies the temptation is to manipulate upwards to deliver earnings growth and higher shareholder dividends. It would be no use taxing foreign owned or privately owned companies on accounts profits because their manipulations will usually be downwards.
Sorry – the issue is much more complex than that
Your conversation goes to show the extent to which the financial ‘community’ has become a very closed community, largely cut off from the rest of the society in which it operates and from which it ultimately makes its living.
The parasite is overwhelming the host and bleeding us all dry.
This shows how little thinking outside their own box some people can do if they aren’t motivated or forced to do so.
I know it’s cosy, but blooming heck!
At least he opened him mind long enough to be convinced…whether he keeps it open is questionable. Cosy is usually quite comfy.
There’s a lot more work to do isn’t there…
To get our politics right we have also to get our economics right. The two go hand in hand. If we get our economics right then we should also strive to get our accounting right. Ideally the three should dovetail and support each other. I commend your efforts Richard. I would also include in the accounts the distinction between value added and non-value added nominal expenses. Non-value added expenses principally include all fictitious costs. Fictitious costs are those not consumed in the production process. These are not necessary costs as such, they are transfer payments from the 99% to the 1%. Examples are (the bulk of charges for ) banking, land, Insurance and finance. They also include such items as trade marks, copy right and management fees.
Now I suspect my suggestions may be slightly contentious. They may be objected to on the grounds that they would expose the extent to which our society is polarized between the vast majority of debtors and the minority of creditors. A society where the majority the 99% are being increasingly into debt peonage by the 1%.
When Labour comes to power we need to ensure that we get the accounting right. If we are able to do that we will get the economics right, from that, the right politics will follow.
I think your comments soundly based
John Adams says:
“When Labour comes to power we need to ensure that we get the accounting right.”
Unless Labour can persuade enough of us that they understand how to do that, their coming to power at all is not a given. Another neoliberal-infected labour government, in office by default, will be of little service to anyone (except the 1%).
Andy you are right, but democracy is not a spectator sport. We all need to step up to the plate and argue our case. Despite being over represented within the Parliament the Labour Party does not belong to its neo-liberal faction. Its all to play for. As the late Bob Crow said ” If we fight we may not win, but if we don’t fight we will certainly lose”.
Had a similar conversation (if less informed accounting wise) last night with an early 30’s PWC accountant in ‘restructuring’. Nice guy with progressive parents, but little or no experience outside that cosy and comfy world of City and accountancy, that might cause him to question what he does and how he earns his very generous income.
The insularity of these firms is staggering
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