Naughty Hollande

Posted by Christie Malry on July 11, 2012 at 5:54 am

The ICAEW's Tax Faculty has a short piece about the proposals to hike taxes on French holiday home owners. CSG is a French social security tax. What I hadn't fully appreciated was the following:

CSG on income will apply retrospectively from 1 January 2012, although the tax on sale will only apply to future sales.

The fact that the tax is being applied retrospectively is a good reason to oppose it. Hollande said recently that it's not his intention to levy punitive taxes against owners of holiday homes in France.

Free depression help from CABA

Posted by Christie Malry on May 30, 2012 at 11:01 pm

At CABA we help clients who suffer from depression and anxiety.

We offer a free and confidential 24/7 counselling helpline (0800 107 6163) as well as an online support programme called Beating the Blues.

Beating the Blues uses cognitive behavioural therapy to enable you to understand depression and anxiety and then provides you with ways to better manage your symptoms. It is approved by the National Institute for Clinical Excellence, used widely by the NHS, and is free of charge to ICAEW members and their families as well as ACA students in training agreements.

The programme is carried out online with the support of specialist advisors and consists of eight weekly sessions that each last for about 50 minutes. You can access the programme whenever you like and complete it at your own pace.

If you feel you could benefit from Beating the Blues, please simply complete the form below or call us on 01788 556366.

I suffer from depression. I was lucky enough to get help through my GP. If you think you could use some help, please get in touch with your GP in the first instance. CABA's course looks pretty handy, though, so you might want to suggest to him/her that you try that in the meantime.

There's more information here.

The ICAEW annual review and AGM 2011

Posted by Christie Malry on May 13, 2012 at 10:30 pm

So, the ICAEW has published its annual review and financial statements for 2011. And, in good time-honoured tradition, that means it's time to take the piss out of them.

WIthout further ado, here are a couple of things that most certainly do not give me confidence

Stop me if you think you've heard this one before

In the inside cover there's some horrific marketing spin that attempts to sum up the ICAEW in a few paragraphs. It's utterly gut-wrenchingly bad:

But, didn't we see this somewhere before?

Let's hope they don't trot this out next year. I, for one, have absolutely no idea what it actually means to "shape opinion, understanding and delivery".

Some girls (and boys) are bigger than others

As ever, it's good to see how the ICAEW treats its staff. And some do rather better than others.

The directors have had a really good year, with an overall increase in earnings on a proforma basis 1 of 5.45% (comprising salary increase of 4.67% and bonus increase of 8.85%).

Embarrassingly for the ICAEW, their own salary survey shows the following:

With the ICAEW survey finding that the average CEO being paid just under £200k, including bonus, how can a tiny and simple not-for-profit organisation like ICAEW possibly justify paying its own CEO nearly two and a half times that?

Generous, eh? Well, not if you're any other member of staff. Excluding employer's social security costs, salaries and pensions were static at £33.1m. But, considering that staff numbers increased from 635 to 675 full-time equivalents, this means on average staff actually took a pay cut of 6% from £52k to £49k. OK, so maybe there are some mix variances in there, but it's still a staggering drop. 

Any of my readers who is attending the AGM might want to ask some questions around this topic.

ICAS hasn't published their financial statements yet, but I'll get round to them when they do.

Notes:

  1. Because Protherough wasn't a director for the whole of 2010, I've presumed that he was for the purposes of calculating the percentage increase, in order to avoid skewing the percentages

Ritchie on the teaching of accountancy

Posted by Christie Malry on May 10, 2012 at 10:15 pm

Ian Fraser, a financial journalist, has been interviewing Ritchie:

Richard Murphy believes that the way in which accountancy and economics are currently taught is fundamentally flawed since it is based on a false premise—that markets are perfect and investors rational.

Yeah, only there's a bit of a problem with Ritchie's entire thesis. Actually it's a big problem. A problem so big, you'd expect Fraser to have picked it up himself.

And that's this graph (on p33):

Accountancy courses are mostly irrelevant. It really doesn't matter what they're teaching students of accountancy and economics at university because the majority of accountants become professional accountants having taken degrees in other subjects.

Kinda torpedoes his entire argument, really!

The alternative Finance 100

Posted by Christie Malry on March 6, 2012 at 10:09 pm

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)

Having fun with Economia's Finance 100

Posted by Christie Malry on March 5, 2012 at 10:38 pm

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!

The importance of the 100 Group to the UK's finances

Posted by Christie Malry on March 5, 2012 at 10:08 pm

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.

The future of assurance

Posted by Christie Malry on March 2, 2012 at 12:54 pm

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.

KPMG and bonuses for trainees, a personal reflection

Posted by Christie Malry on February 24, 2012 at 10:10 am

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.

A timely Vodafone reminder

Posted by Christie Malry on February 13, 2012 at 10:46 pm

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.