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This month’s stories include reform of the audit market in the European Union, Grant Thornton’s expansion in Brazil and the Big Four’s plans to appeal an SEC suspension ruling

EU audit reform

Reform of the audit market within the European Union took another step forward when the EU’s Legal Affairs Committee supported the revised proposals on a majority vote. The proposal requires public interest entities to rotate audit firms at least every 10 years and limits auditors’ provision of non-audit services. A vote of the full European Parliament is expected in April.

HP restates profit

Hewlett-Packard has restated the 2010 operating profits for Autonomy, reducing them by 81%. The company has passed allegations of accounting irregularities at Autonomy to regulators in both the UK and the US. Legal action has now been initiated by some HP shareholders who claim that executives at the corporation failed to undertake adequate due diligence prior to the US$11.1bn acquisition in 2011. HP has since written-down the value of its Autonomy division by US$8.8bn. Former senior executives at Autonomy described HP’s allegations as ‘completely false’.

Starbucks gets smart

Starbucks has disclosed that it has 10 million users signed up to its smartphone payment and loyalty scheme. Nearly five million customers a week pay from their smartphones in the US alone. This generated more than US$1bn in revenues for the company last year.

Last year of recovery

Faith in the strength of the economic recovery is at its strongest than at any time over the last five years, according to the Global Economic Conditions Survey (GECS), carried out by ACCA and the IMA (Institute of Management Accountants). The GECS quarterly survey, the largest regular economic survey of accountants in the world, gauging the views of ACCA and IMA finance professionals globally, revealed that in the last quarter of 2013, 55% believed conditions were improving or about to do so, up from 53% in the third quarter of 2013. To download a copy of the GEC quarterly survey, see 'Quick links'.

GT expands in Brazil

Grant Thornton has completed two merger and acquisition deals to expand its operations in Brazil. A merger with Directa Auditores, previously part of the PKF network, has added 120 staff to Grant Thornton’s practice. In addition, Grant Thornton has acquired KPMG’s outsourcing business in Brazil, with a further 70 staff and revenues of US$5.5m. Grant Thornton is currently the third largest provider of outsourcing services in Brazil.

KPMG pays US$8m

KPMG has paid US$8.2m to settle charges from the US Securities and Exchange Commission (SEC). An SEC investigation alleged that KPMG had broken auditor independence rules by providing prohibited non-audit services such as bookkeeping and expert services to affiliates of companies whose books KPMG was auditing. In a further violation of auditor independence rules, KPMG personnel were found by the SEC to own stock in audited companies or their affiliates. The SEC said that KPMG had ‘compromised’ its independence. A spokeswoman for KPMG said: ‘KPMG is fully committed to ensuring our independence with respect to all of our audit clients. In the years since the events discussed in this SEC action, KPMG has implemented internal changes that are designed to ensure its ability to comply with restrictions on providing non-audit services to SEC audit clients and/or their affiliates.’

End of accountants

There is a 94% probability that the work of auditors and other accountants will be replaced by technology within the next two decades, according to a report in The Economist. ‘Accountants may follow travel agents and tellers in the unemployment line as tax software improves,’ it said. The prediction drew on research from Frey and Osborne in their paper The Future of Employment. The only profession or trade more likely to be automated is that of telemarketers, according to the study.

Audit must evolve

The audit profession must evolve if it is to remain relevant, a KPMG report concludes. Based on a survey of the firm’s own audit leaders from around the world, the study, Value of Audit: shaping the future of corporate reporting, finds the role of audit needs to include the provision of added value to the client. Audit leaders suggested there was a need for quality excellence in audits, backed by the use of data analytics and assessments of management controls and business strategy. More needs to be done to assist clients to understand the limitations of audit opinions, commented another audit leader.

Big Four to appeal

The Big Four’s operations in China will be suspended from auditing US-listed companies if a judgment from the Securities and Exchange Commission (SEC) is upheld on appeal. The firms received a six-month suspension for refusing to release audit work papers to the SEC, which they say would potentially violate Chinese information control laws. The SEC is seeking the papers as part of investigations into some Chinese companies. The judgment was awarded by the SEC’s administrative law judge, who operates independently from the SEC. In a joint statement the firms said they would appeal the decision, adding: ‘In the meantime the firms will continue to serve all their clients without interruption.’

SASB and IIRC sign MoU

The International Integrated Reporting Council (IIRC)has signed a memorandum of understanding with the Sustainability Accounting Standards Board (SASB) to collaborate closely on the evolution of corporate reporting and disclosures. SASB executive director Dr Jean Rogers said: ‘SASB’s standards are a practical implementation of integrated reporting in the context of US capital markets. The missions of SASB and the IIRC are aligned and formalising our partnership will strengthen harmonisation and guidance to companies regarding improved disclosure on material sustainability factors. Both organisations put investors at the heart of determining materiality.’

Big data confusion

The vast majority of executives at major corporations are unclear how to implement effective data and analytics (D&A) strategies, according to a report from KPMG Capital. A study found that 85% of executives found analysis of existing data challenging, while 75% have difficulty in making decisions related to D&A. ‘We live in an increasingly data-driven world where D&A has the potential to revolutionise the way we conduct and manage business operations across the entire enterprise,’ said Mark Toon, CEO of KPMG Capital. ‘From CEOs, to CFOs, CIOs and CMOs, the challenge for today’s executive is understanding how to draw actionable insights from data and turn them into tangible, genuine results.’

Lease challenge

Compliance with the new lease accounting standard will be very difficult for corporates to achieve, according to a Deloitte survey. Some 62% of large companies said that IT system constraints were a significant problem, with 55% saying they will have difficulty compiling a complete electronic inventory of real-estate leases. Companies are also concerned at the effect on their balance sheets, with 58% predicting a significant impact. ‘It’s clear that lessees are increasingly forecasting difficulties complying with the new standard, though the concerns for lessors look to  be easing,’ explained Scott Hileman, director of Deloitte Transactions and Business Analytics.

Latin American PPP

MasterCard has signed a public private partnership (PPP) agreement with the Inter-American Development Bank (IDB) to roll-out the expansion of electronic payment systems across Latin America and the Caribbean. The five-year PPP is intended to cut transaction costs and improve efficiencies in the financial system, including making governmental financial systems more transparent and accountable. The IDB said the deal should help the poorest members of society to overcome poverty.

UHY expands

HY International has expanded in the Middle East and the Balkans after recruiting new member firms. In Qatar, McKenzie Shaw will operate under the UHY name as UHY Ammo & Co. Its Doha office will comprise 16 staff, including four partners. In Montenegro, local firm Mont Audit Plus has joined the network, bringing with it four partners and eight other » staff. The firm is based in the capital, Podgorica.

Cyber security

PwC has formed a strategic relationship with Ridge-Schmidt Cyber LLC, a consultancy formed by Tom Ridge, a former US secretary of homeland security, and Howard Schmidt, who advised presidents Barack Obama and George W Bush on cyber security. The partnership aims to help leaders in business and government navigate the increasing demands of cyber security. Both PwC and the company already provide advice to businesses and governments on how to protect themselves from cyber threats.

EU rules on food

New controls over high-frequency trading and restrictions on food commodity speculation are at the centre of proposed new financial regulations agreed by the European Commission and EU member states’ ministers. The commission said that regulating agricultural derivatives will ‘contribute to orderly pricing and prevent market abuse, thus curbing speculation on commodities and the disastrous impacts it can have on the world’s poorest populations’. The commission is also keen to put a brake on the use of high-frequency trading, which it says threatens financial markets’ stability.

Regulation challenge

Private equity CFOs say that regulation and compliance are now the major business challenges, according to a survey by EY and Private Equity International. But the global survey of CFOs found that three-quarters are expecting their firms to raise new funds in the next three years. Most reported that they are involved in enhancing their firms’ valuation processes.

NEDs needed in Africa

African businesses have an increasing need for high-quality non-executive directors (NEDs), but there are doubts about the availability of people with the right skills and time for the role, according to a PwC survey. ‘The quality of our NEDs is now the critical focus, not the quantity,’ said Gerald Seegers, PwC’s head of HR services for southern Africa. PwC warned that NEDs in Africa are not paid enough, and face rising potential liabilities in relation to their governance responsibilities for risk.

UAE salaries to rise

Pay for professionals in the UAE is likely to grow by between 6% and 8% this year, according to recruitment adviser Morgan McKinley. It expects available jobs to rise even faster, at 8% to 10%. The banking, financial and oil sectors are likely to increase staffing, concludes the latest UAE Salary Survey Guide. However, the firm warns it is hard to predict increases in the cost of living and whether salary rises will translate into higher disposable income.

Compiled by Paul Gosling, journalist

Last updated: 4 Mar 2014