Dispatch (UK/ROW edition)
| by Paul Gosling 12 Jun 2007 Topic: News |
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improve information flow between audits, says FRC Greater co-operation between incoming and outgoing auditors is needed, the Financial Reporting Council's Market Participants Group (MPG) has concluded in its interim report. This would be a practical and important step in promoting competition and choice in the audit market, the MPG believes. The MPG also recommended steps to increase the influence of non-Big Four firms on standard setting bodies. It wants those drawing up rules on ethical standards to consider whether they indirectly discriminate against smaller firms. The Financial Reporting Council (FRC) should help make companies' audit committees better aware of the capabilities of all firms, assisting them to consider auditors outside the Big Four. Regulators and legislators should adopt an overt policy objective of promoting audit choice in drawing up rules, says the report. The MPG suggests greater shareholder engagement in the choice of auditor, with the FRC engaging with investors' groups to produce good practice guidance on shareholder engagement in auditor appointments. Boards should be required to disclose to shareholders any contractual obligations they have that limit their choice in appointing an auditor. Consultation on the paper will now be conducted by the FRC, on behalf of the MPG. Grant Thornton, the firm most likely to benefit from the MPG's proposed measures, gave the recommendations a cautious welcome. Steve Maslin, head of external professional affairs at the firm, said: 'This is helpful because the paper could be a first step towards a widely agreed definition of audit quality against which audit firms can benchmark themselves and be assessed by the market. It should also help the FRC to take a leading role in the international debate, which is important because much of the UK system of audit regulation and the wider governance framework are a model from which many other economies would benefit.' But Grant Thornton expressed concern at the lack of clarity over how consultation on the paper would now be undertaken. It called for this to include shareowners and users of audits. The Big Four has inched closer to becoming a Big Five - or at least a Big Four and a Third - with the establishment of an enlarged Grant Thornton UK, through its merger with RSM Robson Rhodes. Grant Thornton's expanded firm becomes the fifth largest in the UK, with a combined turnover of about £375m, overtaking BDO Stoy Hayward. The merged practice, which should be in place for 1 July, hopes to break the £0.5bn turnover mark within three years. It will have over 300 partners and a staff of 4,400. However, Grant Thornton UK remains much smaller than the Big Four firms, which all have turnovers of £1bn-£2bn. The Big Four will still dominate the audit market for the biggest companies, currently auditing all but seven of the FTSE350. Michael Cleary remains chief executive of the enlarged Grant Thornton. He said: 'RSM Robson Rhodes represents a perfect fit for Grant Thornton, boosting the firm's expertise and reputation in financial services, property and construction, health and education and public sector work. It is also a boost to our efforts to break down those market perceptions which would not naturally associate Grant Thornton with the larger public audit market. We are now gearing ourselves to stimulate competition and offer stakeholders greater choice in this space. This deal stretches our existing dominance as the adviser and auditor of choice on AIM, and more than doubles our presence on the FTSE.' David Maxwell, currently managing partner at RSM Robson Rhodes, argued that the merger 'boosts our dominant role on AIM [Alternative Investment Market], that of leading auditor within the public sector and biggest auditor of stock market companies outside of the Big Four'. tax credits must be urgently reformed, says ACCA ACCA has called for a thorough reform of the UK's tax credits system, after publication of the latest highly critical review from the House of Commons' Public Accounts Committee. The report concluded that the levels of overpayments, error and fraud were much higher than Parliament was led to expect when the system was approved, yet HM Revenue & Customs (HMRC) has still not developed an adequate response. A staggering £5.8bn in overpayments were made in the first three years of tax credits, which were introduced in 2003. This represents over 12% of the total payments of £47bn. The rate of error and fraud is the highest in any UK government activity. Online fraud has been a particular problem - the failure to comply with the Government's own internet standards has led to large-scale frauds by organised crime gangs. Non-fraud overpayments mostly resulted from the structure of tax credits payments. Entitlement is based on past earnings and as incomes rise, so claimants have to notify changes in circumstances and repay overpayments. More than £500m of overpayments have had to be written off. Recovery of overpayments often causes serious hardship to claimants on low incomes and creates an administrative burden on HMRC. To reduce these difficulties, the threshold for income increases that can be ignored has been greatly increased from £2,500 in a year to £25,000. In turn, this has increased the total cost of tax credits by £500m a year. Edward Leigh, chairman of the Public Accounts Committee, said: 'Billions of pounds, far more than those who thought up the system ever envisaged, are still routinely overpaid to claimants. Very large amounts have to be written off. And the attempts to recover overpayments from genuine claimants have caused significant suffering to many vulnerable families.' Leigh added: 'HMRC seems incapable of mounting a credible and effective response to the flood of money being wasted in this way.' Chas Roy-Chowdhury, ACCA's head of taxation, echoed the criticisms. 'HMRC's lack of timely and relevant information about tax credit overpayments is very disappointing,' he said. 'It means HMRC cannot assess its effectiveness in combating tax credit fraud and errors. The UK taxpayer has a right to know how much this system is costing them. There is a real sense of déjà vu with this report - a year ago, ACCA called for better planning, co-ordination and management to tackle overpayment and fraud in the UK's tax system. And we find ourselves saying the very same today.' new record for personal insolvencies A 23.9% increase in personal insolvencies in the first quarter of this year compared with 2006 has caused concern about whether it is being stoked by the growing Individual Voluntary Arrangement (IVA) industry. Some 30,075 people became bankrupt or entered into an IVA in the first quarter. This includes a rise of 10% in bankruptcies, but it means a 47.6% increase in IVAs. PKF has claimed this is a symptom of widespread misselling of IVAs. Philip Long, one of PKF's insolvency practitioners, claimed that most of those who entered into IVAs last year will fail to meet the conditions of their IVAs, forcing them eventually into bankruptcy. He said that many commercial debt counsellors were persuading clients into IVAs, rather than bankruptcy, which was often more suitable. 'No one is arguing that bankruptcy is a good thing, but the reality is that, in the majority of cases, the terms of IVAs are too much for most people in serious debt to cope with,' said Long. 'Ultimately, they end up fighting to make repayments, but fail and end up in their original position. The disgraceful thing is that there is an industry that is profiting hugely from arranging IVAs against their clients' best interest. That is morally reprehensible.' Mike Gerrard, head of personal insolvency at Grant Thornton, said that despite recent rate rises imposed by the Bank of England, personal borrowing remained too high. 'The fact remains that many in the UK are still hooked on spending on credit,' he said. The firm pointed out that a continued growth in personal insolvencies looked likely, as borrowing became more expensive. The cost of an average 25-year standard variable rate repayment mortgage of £100,000 has increased by £530 a year, while the utility bill will have risen by about £225, calculated the firm. KPMG predicts that more than 130,000 people will become insolvent this year. The average debt levels for people entering into IVAs exceed £50,000. A guide which explains the problems associated with entering into an IVA has been published by the credit ratings agency Experian, and can be downloaded online at www.experian.co.uk/learningzone Much of Europe, including the UK, will become cashless within 10 years, according to predictions from Visa. Visa has a vested interest in making the prediction a reality, but the claim resonates with recent analysis of market trends from Datamonitor and with actual uses of emerging technologies. The success of Oyster, London's contactless prepayment card for travel tickets, has shown the potential for its technology. Some 70% of Londoners now use Oyster. VisaEurope is responding by extending the roll-out of contactless payment points across London by October and in the rest of the UK and much of Europe next year. 'VisapayWave', as the system is now being called, will be popular for use in coffee shops, newsagents, bars, carparks, vending machines and at fast-food outlets, predicts the company. A very different technology has had a profound impact in recent months as an alternative not only to cash, but also because it bypasses banks. In Africa, in particular, mobile phones have become widely used to transfer money. This system is proving popular for emigrés from many parts of the world to send remittances home. Now, in the UK, all five mobile phone operators are collaborating with a system enabling merchants to accept payment through customers' mobiles, with payments processed either as reductions from prepaid balances, or as debit entries on customers' accounts. OneBip, which has developed the platform, says that it now has over 600 online traders signed-up to accept payments through mobiles, and more than 20,000 individuals involved in trials of the scheme. Electronic purchases conducted online are also likely to increase further, with new technology being released by Visa and the banks to provide chip and PIN authorisations for 'cardholder not present' transactions. Customers are to be sent card readers into which they will input their PIN numbers when authorising transactions online or by phone. Taxpayers and tax advisers have been warned by the UK's HM Revenue & Customs (HMRC) to act quickly in notifying details of any offshore accounts not previously disclosed. All intentions to disclose must be made by 22 June, with full disclosures and related payments made by 26 November. Any offshore account holder known to HMRC who does not make a disclosure in time will be subject to investigation after 9 July. HMRC has obtained details of thousands of holders of offshore accounts by using statutory powers, winning court judgments and through the European Savings Directive to obtain offshore account information from the major banks. Most accounts affected will be those held in the Channel Islands. Those held in Switzerland will remain secret because of national privacy laws. Grant Thornton predicts that HM Treasury will obtain up to £5bn from the move. It will allow disclosures of previous non-payment of due taxes, in return for the submission of tax arrears, plus interest and a 10% penalty. Those who do not come forward but are detected will be subject to full arrears payments, interest and at least a 30% penalty rising to possibly 100%. Chas Roy-Chowdhury, ACCA's head of taxation, said: 'This is a situation of HMRC not going after soft targets. These are people who are tax evading. This is their best chance to come clean and they should take it.' He warned that those who persist in not complying may not only have to pay arrears of tax, interest and penalties, but may find themselves investigated over possible evasion of other taxes, including income tax and VAT. Steve Besford, head of tax investigations at the tax adviser Chiltern, warned that those who do not make voluntary disclosures may find HMRC asking questions very soon. '9 July is the first date on which HMRC can be assured that all notifications have been processed and the appropriate “no enquiry” signal posted to the taxpayer's computer record,' said Besford. As offshore account information has already been risk-assessed by HMRC, cases for investigation will be distributed to local offices, Civil Investigation of Fraud Offices and Special Civil Investigation Offices immediately after 9 July, he predicted. PKF added its warning that HMRC has been given extensive information on companies' and trusts' accounts held offshore, which will also be investigated. ACCA has published guidance to members which is available online at www.accaglobal.com/allnews/publicinterest/2007/NEWSQ2/News/2948370 in brief...
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