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Dispatch (UK/ROW edition)
| by Paul Gosling 22 Dec 2006 Topic: News |
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KPMG and Deloitte begin network integration The integration of worldwide accountancy networks may have been set in train with initiatives by KPMG and Deloitte to amalgamate previously autonomous national practices. KPMG speaks of ‘creating a truly European firm’ beginning with the merger of the UK and German firms – its two largest in Europe. It becomes the biggest European firm. ‘This is only the start of our journey: it is our ambition to merge other KPMG European firms, should they wish to join, into the new entity as quickly as realistically possible,’ said a KPMG statement. The merger is subject to approval from the partners in both national practices, but KPMG assumes there will be agreement. The new structure will provide more opportunities for partners and staff to develop their careers internationally. ‘Given the pace of global change, and the size of the UK relative to the rest of the world, this will become increasingly important to our next generation of leaders,’ said KPMG. The announcement by KPMG was followed days later by the combination of the UK and Swiss Deloitte practices, which now operate as a single practice. Deloitte’s Swiss practice becomes wholly owned by Deloitte & Touche LLP in the UK. Partners in Switzerland become partners in the UK firm. UK chief executive John Connolly – who is also chairman of the Global Management Committee of Deloitte Touche Tohmatsu – said the move would improve the flow of specialist skills across national territories, enabling the firm to improve the quality of its service and increase investment in Switzerland. Ernst & Young is also moving towards network integration, but is taking a different approach. An E&Y spokesman explained: ‘We have no plans to merge in a similar way to KPMG and Deloitte. We have looked at this and a decision was made globally a couple of years ago that we would integrate our practices and that our preferred route of doing this was our seven areas, of which Nemia [Northern Europe, Middle East, India and Africa] is one.’ PricewaterhouseCoopers declined to say what steps it was likely to take. KPMG Europe explains its move was sparked by the EU’s Company Law Directive, permitting cross-border ownership of accountancy firms. But pressure over quality assurance within international networks is likely to have been a factor, following Grant Thornton’s troubles over the Parmalat scandal and PricewaterhouseCoopers’ problems with its Japanese member firm ChuoAoyama, which led to its suspension from the PwC network. It can now be said with certainty. Reporting that people have ‘fawned over’ the head of one of your major clients can be very bad for your career prospects. One of Morgan Stanley’s brightest stars – Andy Xie, head of its Asia Pacific economics team and a former World Bank economist – relayed his ‘fawning’ comments in an e-mail about a dinner party at which Singapore’s Prime Minister was treated with excessive deference. The cutting edge to the e-mail was compounded by Xie’s less than flattering analysis of Singapore’s economy. Given the amount of business that Morgan Stanley does in Singapore – including for its Government – it was probably inevitable that Xie would have to go, and he has. But the incident has serious implications for all organisations: clear protocols for the content, style and distribution of e-mails need to be in place. Failure to comply with these can cause a crisis. Mark Donkersely, managing director of AXS-One, a supplier of records management systems, said: ‘This isn’t the first time that an e-mail is at the heart of a corporate drama, and reiterates exactly why companies need to adopt company-wide policies that address e-mail usage and protect the corporation in the event of inappropriate communication. In this case, the issue seems to be simply perceived embarrassment. But, in other circumstances, e-mail can cause or reveal more serious malfeasance.’ Donkersely added that companies need to consider the risks to corporate reputation and brand. Failure to do so could lead companies towards not just market damage, but serious and expensive litigation. UK tax regime ‘will cost jobs and investment’ The UK will fall behind Luxembourg and Ireland as a centre for investment management unless tax rates are cut, a report written by KPMG for the Investment Management Association has warned. Already, new investment funds are locating elsewhere and existing funds may relocate, the study argued. The impact of relocation would be substantial, said KPMG, because the UK’s economy has been strongly supported by the use of London as an investment management centre. In the last two years net sales of non-UK funds have grown from 1% to 20% of the UK market, while sales of UK funds abroad remain low. Julie Patterson, director of regulation, operations and taxation at the Investment Management Association, said: ‘The UK is losing out because of the unnecessarily complex and burdensome tax regime. Funds are being established overseas and many jobs go with them, leading to a loss of revenue for the UK. The fear is that the UK investment management industry is approaching a tipping point with more and more of the value chain being domiciled overseas.’ Jane McCormick, head of tax – financial services for KPMG, added: ‘The growth in fund assets domiciled here has been well behind the competition. Between 1995 and 2005, growth in fund assets domiciled in Luxembourg and Ireland has been respectively 10 times and twice that of the UK. The view of the vast majority of UK investment managers we interviewed is that the UK’s complex tax system for funds is largely to blame.’ But, she said, without a clear single alternative domicile within the EU, the UK could re-emerge as the leading location of choice with a simpler tax regime. These criticisms were echoed by the Confederation of British Industry (CBI), the British employers’ body. It argued that the combination of a 30% corporation tax rate that compares poorly with the Irish rate of 12.5%, and a strong campaign by HM Revenue & Customs against tax avoidance, would drive increasing numbers of companies to locate elsewhere. The CBI director-general, Richard Lambert, said that already many companies that might be expected to be based in London were actually headquartered in Dublin. The complaints were rebutted by the Treasury. Writing in the Financial Times, the Chancellor of the Exchequer, Gordon Brown, said: ‘Britain will maintain a competitive tax regime and a responsive tax administration.’ He has asked his adviser, Sir David Varney, to review HM Revenue & Customs’ relationship with big business. European Commission edges towards liability limit Limitation of liability for auditors would reduce the risks of a damaging collapse of one of the Big Four audit firms, a study for the European Commission has concluded. The failure of a Big Four network could lead to problems for the wider economy, concluded the report, which was conducted by London Economics for the European Commission. Consequences could include a significant reduction in large company statutory audit capacity, creating serious problems for companies in obtaining audited financial statements. It argued that there was little likelihood of a mid-tier firm competing for audits with the largest listed firms if one of the Big Four folded. While there are various options for statutory audit liability limitation, the diversity of possible circumstances makes it inappropriate to look for a ‘one size fits all’ approach, the study concluded. The Internal Market and Services Commissioner Charlie McCreevy welcomed the report, saying it highlighted the reality ‘that large claims may put at risk an entire auditing network’. He hoped the report would stimulate greater discussion about what steps might be taken to deal with the challenge. The Federation of European Accountants (FEE) also expressed support for the study, which it said supported its view that there is a problem ‘in countries which have not taken appropriate measures to limit auditor liability’. FEE highlighted what it claimed were the study’s endorsement of FEE’s argument that there is ‘empirical evidence that audit quality and the cost of capital would not be impacted by a limitation of auditors’ liability and indicates that it should increase choice in the market for larger companies’. FEE added that ‘statutory auditors must be appropriately responsible for their statutory audit, but to no greater extent than is reasonable’. It urged member states to consider the problem ‘from an internal market perspective’, recognising that the problem extends beyond national boundaries. ‘Actions to limit auditors’ liability throughout the EU are in the public interest,’ FEE argued. The preparation of the European Commission study was accompanied by the creation of an Auditors Liability Forum composed of market experts. ‘corruption is becoming more common’ More companies are paying bribes to win business, according to a report from international risk consultancy Control Risks, and the law firm, Simmons & Simmons. Ignorance of the criminal law regarding foreign bribes compounds the problem, the study found. Four out of five companies surveyed internationally believe it is common practice in their country to use agents to process bribes for foreign customers occasionally, regularly or almost always. Nearly half of businesses surveyed reported losing contracts to competitors paying bribes. ‘Despite OECD [Organisation for Economic Co-operation and Development] governments having introduced legislation on foreign bribery over the past few years, this survey indicates that many companies are simply not aware of the law, while others are trying to get round the law by making payments through intermediaries,’ said Nick Benwell of Simmons & Simmons. ‘Whether bribes are paid directly or indirectly, those involved can find themselves facing criminal liability and, in some circumstances, extradition to the country in which the bribe was paid. It is therefore vital that companies implement strong anti-corruption compliance policies and training programmes.’ In the face of the conflicting trends of more bribes yet stronger legislation prohibiting them, many companies have established training programmes for executives to try to end the practice. The study found that 76% of US corporations are running training programmes, compared with 48% of UK and 24% of French companies. A second study, produced by anti-corruption lobbyists Transparency International, found that businesses based in India, China and Russia are the most likely to pay bribes, as they strive to compete against large and established companies. But people questioned in Africa pinpointed businesses in France and Italy as those most likely to make illicit payments. £18.5m assets taken from ‘innocent’ computer chip trader A trader in computer chips found not guilty last year of VAT carousel fraud has agreed to forfeit assets worth £18.5m in a landmark deal with the UK’s Assets Recovery Agency and Ireland’s Criminal Assets Bureau. Dylan Creaven was director of Silicon Technologies, with offices in London and Ireland. Agreement to the transfer of assets, including a luxury home in Marbella and race horses, was made through third-party mediation, preventing the need for expensive and lengthy court hearings. The settlement is without acceptance of wrongdoing by Creaven. Creaven was acquitted of criminal charges that he played a principal part in an international missing trader VAT fraud. The jury accepted that Creaven was unaware of frauds conducted through his company. More asset recoveries where prosecutions for VAT fraud are unsuccessful or ruled out are now likely. Asset recovery can be approved by the courts on the basis of the balance of probabilities, rather than the criminal legal test of beyond reasonable doubt. But HM Revenue & Customs (HMRC) hopes that carousel and missing trader VAT fraud will be cut by the selective introduction of reverse charging. This was to have been introduced in the UK in October, but now seems likely to be approved by the EU for adoption in December. Traders who buy or sell mobile phones, handheld computers, games consoles, PDAs, computer chips, satellite navigation systems and MP3 players will have to adopt reverse charging. Under reverse charging, only the final link in a chain of supply transactions will be subject to VAT, with purchasers instead of sellers accounting for VAT. An HMRC spokesman said it recognised that reverse charging is difficult for accounting software providers. ‘We accept, therefore, that many affected businesses will not be fully equipped – from day one of the reverse charge – to operate the new rules via their normal accounting systems because these will not have been upgraded,’ said HMRC. These businesses will be expected to adopt interim arrangements involving manual systems, with HMRC taking a ‘light touch’ to enforcement where reverse charging systems are not properly adopted, providing there is no loss of revenue and the transactions do not form part of a chain. John Whiting, tax partner at PricewaterhouseCoopers, said that tackling VAT fraud was ‘proving difficult’. ‘Conceptually, it’s easy – introducing a new mechanism for things subject to carousel fraud,’ he added. ‘But how do we define those things and how do we set-up a mechanism that is not too burdensome for those running it? It will be quite challenging to run. Missing trader fraud is difficult to stop, unless you go fully to reverse charging.’ in brief...
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