Dispatch (UK/ROW edition)
| by Paul Gosling 05 Jun 2007 Topic: News |
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ACCA backs EU reform of audit liability ACCA has told the European Union that auditors should be treated comparably with other professionals regarding negligence liability. 'We are generally favourable to reform of the law which addresses the issues of reasonableness, competition in the audit market and the availability of insurance cover,' John Davies, ACCA's head of business law, told the EU. 'Any reform should not restrict the rights of shareholder bodies and other legitimate plaintiffs to bring proceedings against a negligent auditor,' added Davies. 'It should, rather, aim to ensure that the auditor is not seen as the guarantor of shareholders' losses, as has effectively been the case in the past. Any EU-wide reform should also be broadly-based and ensure a level playing field for the audits of quoted and unquoted companies alike.' ACCA accepts the principle of proportionate liability, assuming that an auditor is guilty of negligence, that this causes an economic loss and that the courts uphold a liability responsibility upon the auditor. Proportionate liability is 'fairer than a monetary cap', says the ACCA submission. Proportionate liability is also consistent with the reality that the auditor is never the only party involved in a financial misstatement. It must always be remembered, says ACCA, that 'the management of the audited company has its own separate legal responsibilities in relation to the preparation of the accounts', and that, inevitably, 'the management will be at fault' for any defect in financial statements at least as much as the auditor, if not more so. 'For auditors to be liable not only for their own mistakes but those of others is, in our view, unsustainable,' the submission emphasises. 'It has led to the creation of a situation whereby auditors are sued by plaintiffs not because they are the party that is considered to be the party most at fault but because, via the insurance cover that professional rules require them to hold, they are the party that is most likely to be able to pay.' The adoption of proportional liability would not prevent innocent plaintiffs pursuing legal action against others who might also have been negligent and partially responsible for a loss, points out ACCA. ASB at loggerheads with IASB over fair value The UK's Accounting Standards Board (ASB) has put itself in potentially serious conflict with the International Accounting Standards Board (IASB) over the use of fair value. In its response to the IASB's discussion paper, 'Fair Value Measurements', the ASB made clear it rejected much of the underlying rationale of the paper's proposals. The message from the ASB seemed to be that use of the US approach to fair value was not appropriate in Europe. The US standard SFAS 157 'might be useful as a methodology for determining market-based exit prices', said the ASB, but the UK board challenged the assumption that fair value should necessarily be equated with exit value. Further, it is wrong, believes the ASB, to have a 'one size fits all' approach to fair valuation. The basis of value should be considered 'standard by standard'. It is also a mistake, suggests the ASB response, that fair value should always be assessed from the perspective of a market participant, rather than the entity. 'More prominence should be given to the importance of entity-specific measures,' says the ASB. Prior to the release of the ASB's criticisms, the IASB had already announced an extension to its consultation period. Originally the consultation on the paper, published in November, was to have closed in early April, but will now continue until early May. Mark Byatt, director of corporate communications at the IASB, declined to comment on the ASB response. 'We published a discussion paper inviting comments and the ASB has published their draft response which will be considered with all other responses,' he told accounting & business. firms accused of 'aiding corruption' Accountancy firms helping clients evade or avoid tax should be regarded as supplying 'corruption services', argues a report from the Tax Justice Network. Firms should be required in every jurisdiction in which they operate to report suspicious transactions they believe could lead to tax evasion, the study argues. The Tax Justice Network is a leading critic of many practices of the accountancy profession and has published previous reports complaining about the impact of tax avoidance and evasion and of transfer pricing practices. The Network receives support from the New Economics Foundation, an influential think-tank with close links to the Labour Party in the UK. According to the Network's latest report, 'Closing the Floodgates', 'the scale of capital flight and tax evasion is more than sufficient to finance the achievement of the Millennium Development Goals'. The eight goals were established by the United Nations and include halving extreme poverty, halting the spread of HIV/AIDS and providing universal primary education by 2015. The Network says that tax losses from evasion and avoidance run to hundreds of billions of dollars a year and tackling these offers the only realistic prospect for financing the achievement of the goals. Underlying the proposed reforms of the global taxation system is the need for a less tolerant attitude towards tax avoidance and evasion, it is argued. This includes acceptance that evasion is a form of corruption, and that if accountancy firms tolerate this among clients, or promote aggressive tax avoidance schemes, they are themselves involved in corrupt practices. The report also argues that companies should be required, in all jurisdictions, to disclose their tax accounting and planning practices and gain prior authorisation for any tax planning scheme. Accountancy firms, their clients and governments should agree codes of conduct for the management of domestic taxation. The criticisms were rejected by the Big Four. KPMG issued a statement saying: 'KPMG has consistently called for more transparency in tax at all levels and the OECD has been leading efforts to improve transparency and effective exchange of information between countries on tax matters. We support their work. 'As HMRC has said, “Across the whole range of taxpayers, taxes and circumstances, tax intermediaries help their clients to avoid errors and deter them from engaging in unlawful actions. So tax intermediaries are not part of the problem, they are part of the solution.” At KPMG we fulfil this function in all of the jurisdictions in which we are active, helping our clients to achieve high levels of compliance and transparency wherever they are based.' salaries lift as professional shortages bite Accountancy salaries are rising sharply on the back of severe global shortages for suitably qualified professionals. Increases are most notable where accountants are required with experience of specific market niches. However, there is a consensus across the recruitment market that accountants need to develop additional skills to attract the highest possible salaries. Recent research from the UK's Association of Graduate Recruiters concluded that many job vacancies remain unfilled because employers look for stronger 'soft skills' from candidates, particularly in communications abilities. Ian Graves, managing director for continental Europe of the consultants Robert Half International, explained: 'The traditional model of the accountant has changed. Today's accountants not only need financial acumen, but must also find a balance between leadership and managerial skills.' A survey for Robert Half found that managers nominated communications skills (13%) and an open-minded attitude (12%) as the most important attributes to develop. These were regarded as far more important than credit control management (named by 4%), risk management (2%) or corporate governance (1%). Chris Cole, managing director of the recruitment consultants Finance Professionals, said that several factors had driven up salaries. 'There is a demographic shortage of candidates,' he argued, 'with a shortage of candidates compared with peak years. There has been an increase in regulation - the Sarbanes-Oxley Act, MiFID, plus IFRS, and companies have become more aware of the need for stronger controls - and economic growth. That means a well qualified accountant with robust skills and who can work well with others can charge a premium.' Cole calculates that salaries have typically risen 10-20% in the last three years. According to the annual survey of another consultancy, Robert Walters, '2006 [in London] has been characterised by a notable shortage of newly qualified accountants entering the job market.' Bonus packages have increased by 15% for newly qualifieds and by 50% for senior accountants. Employers have found the recruitment of internal auditors a particular problem, says Robert Walters. New York's irritation at London's expanding role as home to international listings has led to accusations that the Alternative Investment Market is 'a casino'. The comments came from Roel Campos, a commissioner at the US Securities and Exchange Commission. Campos claimed that '30% of issuers that list on AIM are going within a year', a suggestion dismissed by the London Stock Exchange (LSE), which said the figure was more like 3%. The commissioner added that investors would increasingly recognise that they were not sufficiently protected in London. Concern has grown in New York in recent months that the Sarbanes-Oxley Act has driven increasing numbers of international companies, including US businesses, to list on London exchanges. A recent report sponsored by New York's mayor, Michael Bloomberg, warned that New York would be seriously damaged as a financial centre unless the impact of Sarbanes-Oxley was reduced. The LSE and the City of London Corporation hit back strongly at the allegations of weak regulation. A spokesman for the LSE said: 'Since the beginning of last year, the number of US companies on AIM has almost doubled to 60. It is therefore surprising that Mr Campos should make comments that are so entirely wrong. They do a disservice to the quality of small companies choosing to join AIM, the institutions choosing to invest in those companies and the high regulatory standards that the London Stock Exchange promotes.' Michael Snyder, chairman of the City of London's Policy and Resources Committee, added: 'AIM has shown itself to be a sustainable market because it is increasingly institutional, with such investors now at 56%, up from 40% a year ago. More than 40% of money that has ever been raised on AIM has been through further issues - a key indicator of a sustainable market.' private equity funds face loss of tax breaks The tax treatment of private equity funds is to be reviewed by the UK Treasury. Loans regarded as disguised equity could lose their tax relief as a result, reducing the tax advantage held by private equity firms over quoted companies. The Economic Secretary to the Treasury, Ed Balls, announced: 'the Government will review the current rules that apply to the use of shareholder debt where it replaces the equity element in highly leveraged deals in the light of market developments, to ensure that existing rules are working as intended.' But, he said, the government would not review the principle of tax relief on interest paid on loans, which he said was an internationally accepted approach. Balls added that the Government welcomed the private equity sector's own initiative of a review, to be chaired by Sir David Walker, to propose a code of conduct. 'This initiative has received wide support across the industry, demonstrating a commitment to make this happen, and also a desire to meet the legitimate concerns of interested parties,' he said. But Balls accepted that some criticisms of the private equity sector were valid. 'There has been a lack of clear, consistent and complete information on the valuation and performance of private equity investments, and a consequent gap in the ability of institutional investors in handling the governance, monitoring and engagement issues raised by this new investment opportunity,' he said. 'This is not good either for the industry itself or for investors.' It was stressed by Balls, though, that the government supported the role of the private equity industry, which it accepted was of increasing importance to the UK economy. He dismissed the argument that the funds were merely involved in short-term 'financial engineering' designed to make a quick sale and a fast buck. Rather, he said, they can 'help to reinvigorate a company and strengthen its long-term prospects'. He added that 'private equity investment has - on average - a positive impact on productivity' and also, in the medium term, on employment levels. Balls quoted a study by Nottingham University which showed that employment typically fell in the first year following a leveraged buy-out, but then rose 26% higher after five years. He argued that private equity firms typically hold on to the companies for 20% longer than institutional investors retain shares. in brief...
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