I wrote recently about the ICAEW/Economia Finance 100. And I highlighted some of the concerns that people have raised about the list.

I started putting together a list of accountants on Klout. But in many ways, the list Mark Lee has already put together is better. So why not check out Mark's list if you want to see how UK accountants stack up, Klout-style.

(and feel free to give me some Klout if you're so inclined)

Filed under: Institutes, Technology with tags economia, icaew, klout, mark lee
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With some fanfare, Economia launched its Finance 100 last week to coincide with its March issue. This is meant to be a list of those who have the most influence in the financial world, and are picked up and followed by key Twitter users.

Do you sense a little scepticism in my tone? That's because when the list was launched, I wasn't on it. So, after checking the list, and my PeerIndex score, and the list again, I went all wicked fairy on Economia via Twitter to demand an explanation. Only, er, to find that now I was on the list after all, at number 74. At the time of writing, this puts me higher than PwC UK, Grant Thornton UK and the CBI. Ha!

The list itself isn't without its critics, with a quite amusing discussion on Economia's webpage about whether PeerIndex is really the best measure for assessing impact, or whether Klout might be better.

So who is still missing from the list? I'd nominate Frances Coppola, whose PeerIndex score would certainly propel her into the top part of the list. How about Kevin Reed, Editor of Accountancy Age? Where's James Hellyer? And why does PeerIndex give such paltry scores to Ken Frost and Truen Fairview, two of the most erudite tweeps on accounting matters? There are certainly some anomalies in the way they've defined their universe for the purposes of compiling the list and the way that PeerIndex measures influence. But it's a brave attempt to put together a list of the most influential finance accounts and I look forward to future updates, especially those that propel me higher up the list!

Filed under: Institutes, Technology with tags accountancy age, cbi, economia, frances coppola, grant thornton, icaew, james hellyer, ken frost, kevin reed, klout, meta, peerindex, pricewaterhousecoopers, truen fairview, twitter
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Via ICAEW's Tax Faculty, here's the latest update on PwC's Total Tax Contribution (TTC):

The seventh PwC Total Tax Contribution has provided data on the amount of tax that the 100 largest groups in the UK, the 100 Group as listed on the London Stock Exchange, pay and collect. The latest study covers the period to 31 March 2011.

The study estimates that the 100 Group paid just over £25 bn in taxes to the government of which nearly 40% was corporation tax. A further £42.7 bn was collected on behalf of government, of which the main components were PAYE, fuel duties and irrecoverable VAT.

In total, £67.7bn in tax was paid or collected by the 100 Group which is equivalent to 13% of total government receipts. So nearly one pound in every seven tax pounds was either paid or collected by just 100 of the largest companies in the UK.

Well, it's no secret that Ritchie hates this way of looking at business tax. Even sensible tax commentators like Mark Lee don't like it either.

Now, I understand where Mark is coming from. It seems strange that a tax on an individual should count towards the tax contribution of the company. If personal income taxes go up, do we really want to be arguing that this should form part of the company's tax contribution?

Well, in some ways we do. Accounting standards aren't the right measure, because the standard that deals with income tax, IAS 12, only allows taxes based on corporate profits to be included in the company's "tax" line. So it excludes items that are intended to be and would appear to be levies upon the company itself. So employers' national insurance certainly should form part of the company's contribution. So should the banking levy and the banking bonus tax.

But what about something like VAT? This looks like a tax to be paid by customers, but it's complicated. To the extent that a product that's VAT-free suddenly becomes subject to VAT, the extent to which the additional cost will be borne by customers will depend upon the price flexibility of the product and the availability of substitutes. That may pass some of the cost to investors or workers. And, to the extent that it's investors that pay the price, we do want to include that as part of the company's contribution.

And what about employee income tax payments? From basic economic principles, we know that the employee income tax upsets the equation between employer and employee. So in part it will be borne by the employee and in part by the employer. If there was an infinite supply of labour, then we could argue that the employee would bear it. But if there's a finite supply and an infinite demand for labour, then the employer would bear it. If income tax were abolished tomorrow, it's hard to imagine that employers would continue to pay the gross salaries to their employees that they do now. They would probably cut them in order that the amount received by the employee is more or less what it is today. This suggests that the employer does in fact bear some of the cost of employee income tax.

What TTC does do is show just how important big employers are to the UK's tax take. If a big employer decides to move a major facility elsewhere in Europe, it will really hurt our tax take. So, for that reason alone, TTC deserves to be taken seriously. It's certainly an eye-opening statistic to learn that we are reliant on these big employers for one pound in every seven collected by HMRC.

Filed under: Taxation with tags corporation tax, hmrc, ias 12, icaew, income tax, mark lee, national insurance, pricewaterhousecoopers, richard murphy, total tax contribution
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It's hard to blog about accounting. Heck, you could probably use this blog as damning evidence of that hypothesis. So it's worth repeating something I've said before: Oliver Tant's blog over at the KPMG blog site is absolutely compelling reading.

His latest piece doesn't disappoint. He's writing about the future of assurance. What sorts of assurance services might professional accountants offer if we free ourselves from our current regulatory shackles and historical paradigms?

Tant proposes three big ideas: the forward looking audit; a change in focus from assuring numbers to assuring systems, controls and behaviour; and integration of financial data, narrative reporting and the audit report. In order for auditors to be able to innovate, he cautions that there will need to be mutual trust and collaboration. In other words, a meaningful way for auditors to limit their liability.

This is interesting and thought-provoking stuff. So, without responding to the piece point by point, I have the following reflections:

The forward looking audit sounds great. But Tant is a bit vague about to whom these reports will be addressed. I don't suppose there is any way they could be public reports. But could they realistically go to shareholders? Or is it just management?

I don't really like the use of the term "audit" to refer to anything other than the provision of an assurance report over historical financial information. I know this makes me a bit of a fuddy duddy; lots of services are typically called audits, especially in the public sector. But I think it's dangerous to muddy the meaning beyond its statutory term.

This risk feels particularly acute when you're changing the direction of an audit by 180°. People already unreasonably expect auditors to have perfect foresight.  How much worse will it be if auditors start commending on management's predictions? These future "audits" (if we accept Tant's lexicon) will need lots of cojones. Evidence about historical financial information is one thing: you can always look at invoices, bank records or talk to management. But the future is, to paraphrase, another country. They ain't done anything there... yet.

A 2003 report from ICAEW provided some guidance for directors on how to prepare prospective financial information: basically you must prepare it on the same basis you would your historic financial information. So, when the future eventually becomes the past, you can compare like with like (at least to the extent that GAAP doesn't change). But I sense that Tant wants to go far beyond a short term view. His ambition is as terrifying as it is delicious. But I'm glad he's thinking this expansively.

The concept of an audit that's less concerned with numbers doesn't feel new to me. It's the direction audit has been taking for a while now. But it's not risk-free. Fraud ultimately boils down to hiding liabilities or deferring expenses. Without a good understanding of the numbers themselves, it's possible to get mesmerised by systems and people. Since companies first began reporting, this has been happening. People who want to believe will use their judgment about directors and good-looking systems to overlook iffy numbers or the possibility of fraud. Enron, it's said, had exemplary corporate policies, even in respect of ethics. It's good to rely on systems, but you can go too far.

The idea of a more integrated form of reporting, under which management and auditor reporting are weaved together into a single, compelling narrative is also thrilling. But it too comes with risks attached. Does it provide a deeper understanding for shareholders or does it merely blur the responsibilities for preparing the financial statements and supporting information? The general public already seem to think that auditors prepare the financial accounts and are responsible to everyone in the world for their opinion. And predictions that turn out wrong are often used as evidence that the auditor's judgment was wrong. A report that makes it less clear what is the auditor's responsibility (ie the audit report) and what's management's responsibility (everything else) can only exacerbate the public's confusion.

So ultimately, Tant is right that, if we really want auditors to do more, we have to protect them, both with limitations on their liability but also with a much better behaviour from regulators. Regulators have been too swift to blame auditors for every crisis, and have failed to recognise the extent to which regulation itself contributed to it. Fear of financial annihilation prevents auditors from innovating outside the narrow confines of the statutory audit. So we have to do more to protect them. Tant shows us that auditors have good ideas. Can our regulators show us that they can be similarly enlightened? Let's hope so.

Posted from WordPress for Android. Post may be amended or reformatted later.

Filed under: Auditing, Regulation with tags audit quality, audit report, bannerman, big four, directors, enron, icaew, innovation, kpmg, oliver tant, prospective financial information
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City AM reports this morning that Big 4 audit firm KPMG has e-mailed its audit trainees to let them know that the £1,000 bonus that has traditionally been paid to students passing their second year exams now won't be paid. Affected students are, understandably, furious.

But twas ever thus. The firms have always sought to change their terms and conditions to meet market conditions. So, for no reason other than because I have a blog I can, here are some personal reflections of what it was like when I trained with KPMG.

Back in my day, students were allowed to resit key exams, with KPMG picking up the bill for resits. The caveat was that anyone getting a "bad fail" would, unless their department manager begged for clemency, be released from their contract. This policy changed during my time there, with new trainees being informed that they would need to fund resit costs themselves.

Also, we didn't have pass bonuses. In fact KPMG didn't even pay for our ICAEW joining fees, which back then put them out of line with the other big firms. Having to find £800 or so to become a chartered accountant was quite painful. They also didn't pay our subscriptions. I don't know what they do now, but I wouldn't be surprised to find they've moved with the times.

So, if the bonuses to trainees are seen as a prepayment on the joining fee, it's a shame to see them cancelled. But, as the economy still isn't recovering, it's hardly a big surprise.

Filed under: Institutes with tags big four, bonuses, exams, icaew, joining fees, kpmg, subscriptions
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Via the ICAEW Tax Faculty, we learn:

The European Commission has decided to refer the United Kingdom to the EU's Court of Justice for abolishing the ‘remedy for repayment of taxes paid in mistake of law’ without proper transitional rules.

To cut a long story short, the House of Lords had ruled that taxpayers should have longer to reclaim taxes paid by mistake. The government didn't agree, so introduced laws specifically to prevent taxpayers from doing so. Because they did this without introducing fair transitional provisions, they broke EU law. So the Commission is now taking the UK to court to force them to treat taxpayers fairly.

It's a timely reminder of precisely why HMRC was so keen to settle with Vodafone. UK tax law must satisfy European requirements.  If it doesn't, then the EC will force the UK to come into line.

Filed under: Taxation with tags european commission, hmrc, icaew, vodafone
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Filed under: Institutes with tags acca, cai, cima, cipfa, icaew, icas, membership
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Oliver Tant, by a country mile the best accountancy blogger ¹, has written about a KPMG scheme to help young people qualify as chartered accountants: 

our school leavers’ scheme is a step in the right direction.  It offers school leavers the opportunity to study for an accountancy and business degree at a respected university; in addition to paying tuition and accommodation fees for the degree course, we also pay a market rate salary to the graduate.  Six years after leaving school, our recruits will be fully qualified chartered accountants ideally placed to take advantage of opportunities in our global firm, or the many other career paths open to qualified accountants. 

The idea for the school leavers’ scheme came not purely for altruistic reasons but because we recognised it as a win-win solution for both the firm and the school leavers.  We want to work with teams drawn from the widest possible range of backgrounds – not just those fortunate enough to have been able to afford to pay to do a degree.  As well as my personal preference for diversity, it’s a fact that our clients are becoming more diverse and are looking for that diversity to be matched by the professional service firms they work with. 

This is, of course, good news. But I do wonder about his diversity claim. Chartered accountancy was always the profession of choice for clever, hard-working school-leavers. Philip Johnson, current FEE president, is a non-graduate chartered accountant. So is Martin Hagen, a former ICAEW president. And, while I was at KPMG, I knew partners there who had qualified by the non-graduate route.

But KPMG's scheme is different. They will be paying for school-leavers to get a degree as part of a period of learning that will include their chartered accountancy exams. That's obviously A Good Thing. But it's not obvious that it will increase diversity. Like my chartered accountant hero, Professor Michael Power, I'm a philosophy graduate. Other accountants I have known have degrees in languages, music, history, english, sciences, maths, theology and many other subjects besides. I know I draw upon my philosophy studies frequently, sometimes several times a week. For me, that's diversity, even though lots of accountants are dull, middle class, middle-aged men (yes, I count myself among that number).

The KPMG scheme may well help to bring in underrepresented groups, and is definitely to be applauded for that. But collectively, chartered accountants must remain alert to the possible risks to diversity from channeling so many future chartered accountants through a single route. More accountancy and business graduates may mean less philosophy and less music. That would be sad.

Filed under: Institutes, Other blogs with tags big 4, icaew, kpmg, martin hagen, michael power, music, oliver tant, philip johnson, philosophy
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Via e-mail, I learn of two interesting looking events on financial reporting that the ICAEW is running.

First up is the 2012 Information for Better Markets conference, which will be held on 17-18 December 2012 on the subject of ‘Who is Financial Reporting for?’.  They suggest you can register your interest by e-mailing them.

Filed under: Institutes with tags icaew, martin walker, pd leake
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If you don't, you won't find this sign,at the junction of London Wall and Copthall Avenue, much help.

It's pointing the wrong way!

Filed under: Entertainment, Institutes with tags icaew, london, signposts
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