Money Laundering
| by Paul Gosling 05 Jan 2004 Topic: News |
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ACCA announces new chief executive ACCA has appointed Allen Blewitt, former ACCA executive director - Asia Pacific, as its new chief executive. During his career, Blewitt has held a number of senior positions at the Institute of Chartered Accountants in Australia (ICAA), including those of deputy chief executive, and head of strategy. He is well known in the accountancy profession in the Asia Pacific region and has direct experience of advising developing countries. He has written a number of influential papers on the future of the accountancy profession in the Asia Pacific region. He originally joined ACCA in May 2003 as executive director - Asia Pacific. In his role, he has been directly responsible for developing new and existing markets in a region which already has 100,000 ACCA members and students in 13 countries. He has also co-ordinated the work of eight ACCA offices in Australia, Greater China, Malaysia, Singapore and Vietnam. Commenting on the appointment, ACCA President Sam Wong said: �I am delighted to welcome Allen Blewitt to the role of ACCA chief executive. Allen brings with him a wealth of experience of the international accountancy profession and an in-depth knowledge of many of the major markets in which ACCA operates. I am sure that his vision, zeal and commitment will be of great benefit to ACCA as it moves into its centenary year and beyond.� Allen Blewitt commented: �I am pleased and honoured to be appointed as chief executive. ACCA is a strong, rapidly growing and influential global accountancy body and I look forward to enhancing its reputation and influence at this particularly challenging time for the profession. In the six months since I took up the position of executive director - Asia Pacific, I have developed great respect for the quality and commitment of ACCA�s staff and Council members. I hope to inspire them to continue to work together to fulfil the vision put forward by ACCA�s founders.� More audit exemptions. More fraud? The UK Government�s decision to raise the small company audit threshold from £1m to £5.6m has been condemned by ACCA, which warns of an increased risk of fraud in the owner-managed business sector. ACCA is now calling for amendment to company law to provide explicit protection for independent shareholders and directors with minority stakes in their companies - the groups whose interests will be most seriously affected by the absence of a statutory audit. ACCA also wants all external shareholders to have the right to demand audited accounts, in return for allowing directors to enjoy limited liability status. John Brace, ACCA�s Deputy President, says: �We believe strongly that the Government is making a big mistake by proposing to remove the audit requirement for around 70,000 small UK companies. Independent audit is a valuable financial discipline for the owner-managed business sector and is proven to reduce the risk of fraud. We fear that a large rise in the audit threshold will almost certainly lead to a decline in the quality of published financial statements. Companies House reports that 93% of the complaints it receives about the credibility of filed accounts concern audit-exempt companies. �At a time when money laundering regulations are requiring more checks on company finances, taking a large number of companies out of the audit regime seems neither sensible nor an example of joined-up thinking. The Government appears to believe small companies do not need tight financial control but this is not the case. The Government�s plans will disenfranchise still further the small non-managerial shareholder. These may be family members who do not participate in the day to day running of the company, or may be friends or �business angels�. We do not believe these groups should lose the protection of the audit. �From a broader economic perspective, the savings to the UK economy involved in raising the audit threshold are minuscule. They are certainly not worth the risks involved of weakened financial controls and increased fraud - a survey ACCA carried out two years ago showed that, in most incidences of fraud, management manipulated financial records and overrode financial controls to effect the fraud. In 45% of cases it was the external auditors who detected it. Financial information on the public record will inevitably suffer a loss of quality. While we support moves to reduce burdens on business, taking away the statutory audit from large numbers of companies is not the way to go about it.� Meanwhile, the UK�s Auditing Practices Board has proposed new ethical standards relating to the integrity, objectivity and independence of auditors. These standards will consider long-term audit engagements, personal relationships between auditors and clients and the provision of non-audit services by auditors. Important new features include the roles of the audit firm�s �ethics partner�, the requirement for an �independent partner� where the audit client is a listed company or other public interest entity, and the interaction with the Code of Corporate Governance. Other significant new rules would include the barring of business relationships between auditor and client outside the normal course of business, the establishment of a cooling-off period before a former audit partner could join a client company and a requirement for key audit partners to rotate after seven years. It is also proposed that the size of fees must not inhibit the allocation of sufficient partners and staff to properly perform the audit, that fees from any one client should not exceed 10% of fee income and that audit team members� pay should not include performance enhancement arising from the sale of non-audit services. It is intended that the new ethical standards, subject to the results of consultation, should apply from September 2004. APB chairman, Richard Fleck, says: �One of the Auditing Practices Board�s primary objectives has been to develop ethical standards that are rigorous, complete and likely to be effective in practice. To achieve this, APB has taken account of international developments, including the EC recommendation on the independence of statutory auditors and the requirements of the IFAC Code of Ethics for Professional Accountants. However, this has not precluded us from proposing more stringent requirements, where this is in the public interest and practicable. Determining what is in the public interest in this area is a challenging and highly judgmental process.� The APB�s proposals comply with the Code of Ethics produced by IFAC, which will come into effect by 2006. These, in turn, are in accordance with ACCA�s own suggestions. Key changes include placing the Code on a �threats and safeguards� footing to provide a framework for analysing the threats and safeguards which accountants can use to determine appropriate courses of action. Significantly, the code will now become a standard which will assist in further harmonisation of global markets. David York, head of audit at ACCA, says: �The confidence of investors and the public is of key importance for capital markets to operate effectively and efficiently. The interests of stakeholders, who rely on information in the public domain, must be protected. Any system of regulation of the accounting and auditing profession must be transparent and proportionate, and must reflect global best practice. It must also rise above vested interests which have undermined confidence in the past. �ACCA believes that all this can be best achieved by principles-based ethical standards. These are best suited to a rapidly changing business environment, in contrast to legalistic, rules-based standards, which encourage creative, loophole-based avoidance. However, we do believe that the revised Code, as currently drafted, needs considerable additional work to increase its clarity and render it easy to apply in practice. �Countries throughout the world are reviewing their existing practices to maintain and enhance market confidence. Nevertheless, unco-ordinated action by national bodies, however well motivated, will not promote the necessary harmonisation of global markets. The elevation of the Code to a �standard� will be much more influential around the world. For the Code to meet the expectations of being a �standard�, however, it must be sufficiently robust. The Code needs to meet this challenge and demonstrate to the world that a principles-based code is best suited to protect the interests of stakeholders.� Euro - will a dead pact lead to a dead currency? The long running row over the euro�s Stability and Growth Pact came to an abrupt conclusion, when the economic clout of the eurozone�s largest economies, France and Germany, overcame the persistent criticisms of smaller members. As a result, no sanctions will be imposed on the two big countries which have breached the Pact�s rules by running larger than permitted budget deficits. There is no doubt that the decision by a majority of EU members to reject Commission proposals for sanctions against the dominant two nations will leave scars on relationships. In particular, Austria, the Netherlands, Finland and Spain were angry at what they perceived to be French and German arm twisting to get their own way. In turn, the two big countries were displeased by comments from some of their critics. And yet, life goes on. There are now no functioning rules to control eurozone member states� fiscal behaviour. But the impact seems more political - in terms of problems in reaching consensus on an EU constitution - than economic. Perhaps surprisingly, the problems with the Pact have not led to any perceptible damage to the value of the euro. Martin Essex, economist at Capital Economics, says this has more to do with the problems in the United States - the imbalance in the economy and the current account deficit - than any inherent strength of the euro. �I think the story is one of dollar weakness, rather than euro strength,� says Essex. �The pound has hardly moved. There are only so many places [moved money] can go to and the predominant one is the euro. People think that European growth rates look OK. Money has gone from the dollar to both the UK and the eurozone. People are pulling their money out of dollar assets at the moment, without worrying too much about where it goes.� A parallel might be drawn with the circumstances of the Commission itself. It continues to function, despite the obvious weakness of its internal financial controls. The European Court of Auditors has now qualified the accounts of the Commission for an astonishing nine successive years. As well as the well documented problems of the Eurostat agency, the court of auditors reported on a series of major difficulties within the Commission which meant that 90% of expenditure could not be verified. This was because of �some shortcomings caused by weaknesses in the design of the accounting system�, said the court. Nor is it optimistic about things improving quickly, suggesting that the proposed implementation date of 2005 for a modernised accounting system �may be over-ambitious�. Particular problems in the Commission�s accounts relate to the payment of agricultural support, the use of structural funds and with some internal transactions, such as those based on the Research Framework Programmes. While progress on administrative reform was noted, it was also recognised that internal controls remained inadequate. There are probably two reasons why this extraordinary situation did not receive wider publicity. After such a long period of repeated accounting failures, the matter has ceased to be especially newsworthy. And, ironically, the story was dwarfed by another major event happening on the same day as the court of auditors� report - the collapse of the Stability and Growth Pact. Tighter accounting standards for insurance and pensions The UK�s Association of British Insurers has issued a revised version of its Statement of Recommended Practice on accounting for insurance business which tackles a number of the criticisms made of insurers� accounting practices. The revised Statement complies with Accounting Standards Board policy and the Code of Practice for industry developed SORPs, and is to take effect from the beginning of 2004, with earlier adoption encouraged. There are several important changes to the previous SORP. Provisions on accounting for reinsurance contracts have been improved, so that any significant reinsurance element should not result in a net credit to the profit and loss account at inception. There are new disclosure requirements on estimation techniques, uncertainty, and contingent liabilities that are consistent with FRS 12 relating to provisions, contingent liabilities and contingent assets and FRS 18 relating to accounting policies. There is to be recognition that gross rather than net premium methods are the preferred basis on which the valuation of insurance liabilities should be undertaken. Commenting on the revised SORP, the ABI�s head of financial regulation, Peter Vipond, said that the new SORP went �a long way to reflect best accounting practice� within the legal limits on the industry. He added: �From 2005, the provisions of the IASB�s interim phase one International Financial Reporting Standard on accounting for insurance contracts will take effect, to be followed by a final phase two standards later on. Our view is that, going forward, a full fair value standard based on an embedded values approach for life business will be the best way for IASB to ensure that the requirements of investors are satisfied.� Meanwhile, the US Financial Accounting Standards Board proposes to require employers to disclose more detailed information on their pension and other post-retirement benefit plans. Subject to the results of consultation, the new disclosure standards would apply for companies� 2003 annual reports. FASB says it is addressing �perceived deficiencies� in disclosures about defined benefit and other post-retirement plans for the benefit of users of financial statements, principally investment analysts. However, pensions consultant Mercer has warned that some of the proposed disclosures could prove misleading to investors. Ned Cazalet, life assurance analyst and industry critic, has previously strongly criticised what he regards as misleading accounting practices adopted in particular by life assurers. He said that the sector had to overcome a history of opaque financial reporting that confused even themselves. �Many life assurance companies have no idea of what they really look like [financially],� he suggested. | |