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Trust relationships and HMRC?

Richard Murphy alerted me to an article on AccountingWeb that talks about the trust gap between HMRC and just about everyone else. Loughlin Hickey - global tax partner at KPMG - made the following remark:

"Hickey warned that the tax gap - in essence the difference between what ought to be paid by taxpayers given a certain level of economic activity versus what is collected - will widen unless there is greater trust between tax collector and taxpayer."

Hmm - is that's how KPMG justifies flogging dodgy tax schemes?

 

The report notes Hickey as remarking that:

"In order to bridge the gap HMRC, taxpayers and HMRC must change behaviours."

If it wasn't so serious the whole thing would be laughable. Hickey's answers are clueless. Hickey talks about 'formal representation' by business on policy committees, publishing policies and other rubbish. This is yet another example of people who are out of touch with reality pontificating in ways that government loves to hear and which will be utterly pointless. It makes me want to puke. Instead, how about:

• Injecting a dose of good old fashioned ethics and shoving it into the KPMG (and other Big Four) tax training programmes - preferably on day one, two, three through to the end? If they can find an ethics reference work.
• HMRC putting an end to its strutting around with sledgehammers to crack nuts? (seen the results of recent IR35 reviews?) 
• HMRC advising Brown on policies that aren't constantly tainted with the 'stealth tax' moniker?
• Framing legislation that's easy to understand, logical and effective instead of the patchwork quilt that keeps tax planners busy?
• Dumping the tax red tape that's burying business and professionals alike?
• Having a sensible policy on 'file by Internet' instead of the FU approach?
• All sides being honest - just for a change - and dispensing with the culture of blame that informs so much of what HMRC is currently doing and against which so many practitioners feel powerless to fight?
• Oh yes - and how about communicating openly with everyone with an interest in this area and actually listening to the very customers government likes to talk about yet seems clueless to address?

Let's face it - everyone resents paying tax at some level. But when the tax regime becomes mired on all sides, it doesn't take a brain surgeon to figure out that taxpayers will be more than willing to go the extra mile to avoid what they see as an unfair system. That's what needs addressing and it's simple to do. I'll happily host that blog.

 

Technorati Tags : ehtics, British_taxation

 

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Big Four spanking - again

The US Public Company Accounting Oversight Board has dished out another spanking - this time to E&Y and PwC. Earlier, it had a crack at KPMG and D&T.

 

The range of errors or ommissions found go from the sublime to the ridiculous but as Jack Cieslielski says:

"It’s not encouraging stuff to read; you’d like to think that the Big Four would do a higher-quality job in what should now be their mainstay business - auditing. But you also have to recognize that the tension between regulator and regulated is what makes the process work for investors. If the day ever comes when the PCAOB doesn’t find some flaw in the way public accounting firms operate, investors should be concerned that the regulator isn’t doing its job. "

Cold comfort for investors that have witnessed a litany of cock-ups and downright cheating that seem to float by the Big Four with little or no discernible impact. And this on the back of the FSA saying it believes the Big Four are now so large it is virtually impossible to regulate them on a global basis using current structures. 

 

I don't get it. How can a profession, that makes lofty claims of independence and has disciplinary processes in place continue to command the public trust when this kind of report keeps surfacing at regular intervals? Of course the markets are becoming inceasingly complex and that regulation is a significant burden. What's changed to make life more difficult? Is it the case that regulators are getting better at spotting under-performance? Is business deregulation going too far and creating the kinds of gap that make cheating so much easier and less detectable? Is training so shabby that the audit report is little more than a sham, glossed over by a recognised brand?

 

When the so-called leading lights of the profession can't get basic audit procedures right, then there is little hope for the rest of the profession. Is it any wonder that trust - that most valuable of professional commmodities - is being steadily eroded in the minds of many.

 

Technorati Tags : audit, compliance, FSA, ethics, KPMG, Deloitte, PwC

 

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Deloitte in Irish stew.

AccountancyAge last week devoted a great deal of screen space to the story of how Deloitte is at the centre of controversy over a botched IT project where costs seem to be completely out of control. In part of the article, the Age says:

"Whatever the need for the systems, it is clear they have not saved money. One estimate claimed if the projects had been completed the bill would have reached 400m euros.

Taoiseach Bertie Ahern and under-fire minister for health Mary Harney have subsequently said the consultancy costs on PPARS were ‘excessive’. The controversy has led to the government reforming how it monitors major IT projects. Ministers must justify use of outside consultants, and civil servants are being given a greater role in procurement."

What the heck does this kind of story do for the credibility of a profession that routinely has to offer consulting services? How credible and trusted can 'we' be as advisors when one more Big Four outfit craps all over the very profession it represents? They can argue that consulting is divorced from mainstream accounting services. That hasn't changed the perception one iota in the eyes of clients.

Technorati Tags : ethics, Deloitte

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Baker Tilly doesn't get Sanctuary's tune

It's a musical day. Earlier, AccountancyAge reported that Sanctuary Group, which counts Morrisey, Nancy Sinatra, Elton John and Kelly Osbourne among its portfolio of artists:

"Is understood to have treated advances to artists as assets rather thanexpenses. The company also recognised revenues from rights to its back catalogueup front, even though the cash was only due over a longer period. Sanctuary isworking with auditors Baker Tilly to review its accounting policies and toestablish the extent, if any, of capital loss."

This is wrong, wrong, wrong. Baker Tilly are the auditors of record. Surely the company needs an external review. If the allegations are correct then what on earth was it thinking? Advances as assets? Come on. A quick reading of the latest interim accounts should have been enough to send out alarm signals. Amounts advanced total £39 million out of  total net assets of £133 mllion.

In its trading statement released June, chairman Andy Taylor said:

"The Group’s Recorded Product Division has suffered from a greater degree of slippage of releases than previously experienced, particularly in Sanctuary Urban...The Board views the underperformance and reduced profitability as regrettable and unacceptable but also as the result of a set of issues that are being urgently addressed."

Nowhere is there any hint of a potential capital loss although its share price has slumped 90% since July.

When I was involved in the 'bizz' during the early 1980s, keeping finances under control was extremely difficult. It needs an iron hand and attention to detail. In this case, it looks like Baker Tilly has allowed itself to be persuaded to agree a dangerous course.

There's a genuine lesson here. We all want to satisfy clients. But at any price?

Technorati Tags : Baker Tilly, ethics

£0>3.2 million, in 2 years

Do you think it's possible to go from zero to an annual run rate of £3.2 million in fees with 26 staff and remain cash positive from month 2 of operations and fund on the basis of a £1 million valuation from day one? That's what QED IS has done. It's a specialist niche consultancy created by some of the better alumni from the Big 4. What I found amazing is their transparency.

They talk about the people centric culture, what they look for in people, how they operate on a risk/reward basis with clients and on and on. It's such an incredible breath of fresh air in an industry, that has seen itself flayed with boring regularity as too self-interested and lacking in delivering value.

We can learn from QED IS. Not just about the business of managing hyper-growth, but of how developing a different approach, which centres heavily on adopting social networking principles, specialist skills will deliver value to you and clients.

They take time out to run a health check on the business and to keep staff intimately involved. These are approaches that are truly innovative in every way. And it is leading to success - like cash positive from month 2 of operations. Being able to attract funds on a day 1 valuation of £1 million.

And before the purists rant at my use of the personal 'their' rather then the impersonal 'its in the above text;' it was deliberate. When you read their stuff, you'll see why.

With a hat tip to the Age - I spotted it on a trawl for something else.

Fuzzy lines at KPMG?

Don't you just love a touch of hypocrisy? AccountancyAge has published a belter which includes Loughlin Hickey, global head honcho at KPMG's tax practice. In his piece, Hickey (sic) says:

"The traditional bright line between avoidance (using legal means to reduce tax burdens) and evasion (illegal acts) is not sophisticated enough to delineate the difference between appropriate and inappropriate actions in a society that relies on a public private partnership to create wealth and regulate behaviour.

Equally the arbitrary ‘smudging’ of that line to shift the boundaries of tax evasion to cover legal actions that have unintended fiscal consequences not only creates uncertainties and mistrust, but could also tempt the tax agencies to go beyond their remit to enforce the blurred definition on taxpayers.

We need to restore the certainty that acting within the law is a right and an obligation of taxpayer and tax collector."

Is he having a laugh or what? This is the company that recently got slapped with $456 million fine for engaging in illegal practices and which has recently been flayed again for crap less than thorough audit work.

Who's uncertain here? Who ever thought there was anything other than a 'traditional bright line.' I don't know about you but I find it very hard to believe someone who's firm has just been given such a severe thrashing - twice. But then I suppose someone's backside was a bit sore and they couldn't sit down long enough to hold their job. Hence the promotion. Hence the new spin. And maybe long term rehabilitation back into the fold of the good and the great. Ho hum.

Fire and brimstone

Simon Sweetham has sparked a furious outpouring about the appointment of KPMG by HMRC to review the administrative burden faced by small business taxation. At a cost to all of us of £6 million. Here's some of the debate:

Simon opines: "But deep down it bothers me that the people doing this work are KPMG, and that they are trousering over £6 million in the process. KPMG know lots and lots about business – big business – and they know lots and lots about clever tax avoidance: but do they know anything about small business? Do they really know what the real problems are, and can they measure the very important stress factors which don’t obviously show up on the balance sheet ?"

Alastair Harris adds: "Any firm of accoutants earns substantial fee income from the tax system - sounds like a significant conflict of interest? Surely this would be better placed with an independent academic institution?"

Richard Murphy chips in with: "Candidly it sickens me that a contract of this sort goes to a firm whose American division has just been fined $456 million dollars to avoid criminal prosecution over abusive tax shelters, with eight of its former partners were indicted and with the firm needing an independent monitor....KPMG London will be saying this has nothing to do with them. But that's nonsense, as we all know...KPMG should be barred from all public contracts until they can prove they have mended their ways."

I've suggested an alternative approach. Bypass KPMG. Prove government wrong to be wasting money when this can be approached differently. Use the collective power of the 15,000+ firms in the UK to canvass and represent client opinion. It can be done very quickly, cheaply and effectively. Present those findings to both government and press. There are ways to do that. Don't make this a single purpose campaign but as a springboard for the voice of the silent majority who would welcome change where that change benefits everyone.

E&Y up before the beak

Ooops - I missed this from Accountancy Age.

"Chris Dickson, executive counsel of the JDS, has told Accountancy Age that he would 'go and get some dates for the tribunal', having laid complaints against Ernst & Young for its work on the audit of Equitable Life."

I hope Nick Land has a good excuse for continuing to take fees in a troubled company. Maybe he will be  forced to answer some of the questions posed here.

Is there anything to learn here? Do we believe that E&Y were naughty boys and are prepared to make a noise about it so the JDS slaps them with a say...£20 million fine? Why not? Why should it (nearly) always be the Big Four that taints the rest of the profession? PwC and Deloittes have already been pulled up this year for stepping over the line. In the US, the Big Four have been trying to get liability thresholds pegged back for SarbOx related issues.

How the heck is the profession supposed to become trusted by any stakeholder unless the silent majority kick up a stink and insist the Big Four play by the same rules as everyone else?

No winners at Equitable Life

The Equitable Life case has collapsed. At first sight, it seems even the current crop of directors have taken a misguided course. According to the Herald:

"The action was abandoned because former directors who took the witness stand testified that they would have managed the business the same way even if the audit had reported the size of liabilities differently. That effectively demolished Equitable Life's case that Ernst & Young had failed to inform it adequately about liabilities. The former directors' evidence seemed to come as a surprise to Equitable Life – despite that evidence being available in pre-trial witness statements."

While E&Y will no doubt sigh with relief I'm not sure the profession comes out of this smelling of roses. Crowing over the result will not help. Some humility might be expected but no. Business Week quotes Nick Land, E&Y's UK chair as saying:

"This was an ill-conceived and badly prepared action which we have said all along should never have been brought," Land said. "The past four years since the legal proceedings began have been a scandalous waste of time, money and resources for all concerned."

If things were as described and that in effect Equitable directors ignored E&Y - why didn't E&Y resign immediately? I draw this conclusion from the fact that Equitable:

"...lawyers had informed the company that there was a strong chance the court could rule that the former directors of the company would not have acted differently, no matter what advice was provided by Ernst & Young." (my emphasis added)

If correct, then E&Y must have had some inkling the directors' actions would have an adverse impact for stakeholders? E&Y might say the Penrose Report and subsequent actions (as reported by the BBC) vindicates them because in essence, even regulators had a hard time getting to the bottom of what was going on, or for that matter, getting Equitable to play the game. Not the point.

This raises a more general yet important point. If, as auditor or adviser (E&Y was acting as both) it becomes patently obvious the client is going to be in a difficult position by pursuing certain actions and you earnestly believe they should behave differently, then at what point does it become a resigning matter? Some will argue that none of us has 20-20 foresight, only 20-20 hindsight. But I'm willing to bet practitioners have had to face this dilemma at least once in their working lives.

If 'we' are to be seen as trusted advisers then surely our ethical position - however that's defined -  should take precedence over any kudos or fee arising from a client who is out of control? Maybe I'm oversimplifying it and without full access to the E&Y papers I may be out on a limb. But that's what these kinds of discussion are for.  And as an 'outsider' it's how I perceive this issue. Feel free to disagree.

Lessons from Kate Moss

Kate Moss has finally got the heave-ho from her lucrative H&M deal. This was always going to happen. Moss committed the cardinal sin in any client relationship - engaging in activities that don't fit the values of the company paying her wages and then getting publicly flayed. I'm not sure what the accounting equivalent is - maybe taking a leak at the pin on the 18th hole at Wentworth in full view of the ladies sipping their gin and tonics on the 19th.

This is the kind of thing that really matters. As everyone knows, reputation is everything, especially in trust relationships. The last major clanger of this kind I recall was Gerald Ratner and his infamous "we sell crap" remark.

Every day, accountants wrestle with matters of high principle while endeavouring to protect their clients. Every day, (some) accountants are propositioned to do something they know they shouldn't. The 'bum spanking' pages of AccountancyAge used to be full of them.

Today more than ever, trust is something the profession has to build, nurture and protect. Trust can be communicated through your web site efforts but if so, the values you espouse must be an accurate reflection of what you deliver. Anything else and you're betraying the client relationship in a very public way.