The global body for professional accountants

This month’s stories include progress on IFRS, bank risk profiling postponed by IT issues, Vodafone’s fair tax promise, EU mandatory audit rotation, and KPMG’s Link acquisition

IFRS GAP CLOSING

International Financial Reporting Standards (IFRS) have become the de facto global language for financial reporting, according to the latest findings from the IFRS Foundation. Research into their use in 122 countries reveals ‘substantial progress’ towards the global adoption of IFRS. Nearly all the jurisdictions studied have publicly committed to IFRS, and IFRS is already required for all or most domestic listed companies in 101 of the 122 jurisdictions. Michel Prada, chairman of the IFRS Foundation Trustees, said: ‘The vision of global accounting standards has been publicly supported by almost all international organisations. Twelve years after the reform of the IASC and the establishment of the IFRS Foundation and the IASB, we now have firm evidence of that vision becoming a reality.’

framework support

There has been wide support for the International Integrated Reporting Framework, which was launched in December. City of London Lord Mayor Fiona Woolf said that the framework ‘is underpinned by a new vision for how business goes about business. It is a catalyst that can bring about profound changes in business and investor behaviours.’ Jeremy Osborn, of EY’s climate change and sustainability services, described the framework as ‘a major milestone in the development of corporate reporting’ that ‘will lay strong foundations for sustainable capitalism’. And Larry Bradley, global head of audit at KPMG International, said: ‘It is time to move business reporting beyond merely a discussion of past financial performance.’ The framework was also strongly welcomed by PwC and Deloitte.

anti-greenwash CFOs

Accounting for Sustainability has formed the European CFO Leadership Network to put sustainability at the heart of corporate decision-making. Network members include the CFOs of Sainsbury, Unilever, Danone and Walmart EMEA. Sainsbury CFO John Rogers, who is co-chair of the network, said that it was ‘of vital importance to bring sustainability issues into the heart of corporate governance and accounting’. He added: ‘What used to be seen as greenwash needs to become as natural to company finance teams as it is to CR departments or even NGOs.’

KPMG global cheer

KPMG reported 3.7% growth in global revenues in the year ending September 2013, driven by strong performances from its audit, tax and advisory divisions. The strongest growth was recorded in the Americas, where revenues rose by 6.7%. Advisory revenues rose globally by 6.5% and tax by 4.2%. The firm hired 45,000 people in the year, adding an extra 3,000 partners and staff, bringing total partners and staff to a record 155,000.

it delays profiling

Regulatory assessments of risk exposure at the world’s largest banks have been delayed by weaknesses in banks’ IT systems. The Basel Committee of banking regulators from 27 countries is attempting to compare risk profiles of the major banks and had intended to complete the process by the end of next year. However, the committee said it was now clear that IT systems at 10 of the 30 largest banks cannot provide the necessary aggregated information. Despite the problem, the Basel Committee will now extend its focus to mid-tier banks.

PwC/BOOZ merger

Partners in consulting firm Booz & Company have approved its merger with PwC. The transaction is expected to conclude in March. PwC said the merger will give it a more comprehensive consultancy service, covering strategy development through to execution. Dennis Nally, chairman of PwC International, said: ‘The combination of PwC and Booz & Company will create the stand-out professional services organisation in the world, working with a full range of stakeholders to build trust and solve important problems from strategy through execution.’

ANALYTICS ACQUISITION

KPMG has acquired Link Analytics, a US-based analysis applications consultancy. The deal is intended to assist KPMG’s capacity to provide data and analytics services, providing more support for clients’ growth plans, acquisitions, loyalty schemes and performance outcomes. ‘Data and analytics continue to fundamentally transform core business processes and decision-making for our clients,’ said John Veihmeyer, chairman and CEO of KPMG in the US and chairman of KPMG International’s Americas region.

Vodafone tax pledge

Vodafone has pledged its commitment to country-by-country taxation and paying its fair share of taxes. The telco has now published its second country-by-country breakdown of taxes paid and its economic contributions.In recent years, Vodafone has faced criticism by India’s tax authority, which has been seeking capital gains tax payments related to the company’s acquisition of Hutchison’s operations in India in 2007, although the Indian Supreme Court ruled in 2012 that the country did not have the jurisdiction to levy the tax sought.

eu rotation deal

An audit reform  compromise has been agreed by the European Parliament and EU member states introducing mandatory audit rotation every 10 years. Public interest entities – such as banks, insurers and listed companies – will be permitted to renew audit tenure no more than once. Joint audits will be encouraged and action taken against perceived conflicts of interest involving audit firms, with tax advice by auditors prohibited and a cap on audit firms’ provision of other non-audit services.

US AUDIT FIRM WORRY

The US Public Company Accounting Oversight Board is concerned about the risk of conflicts of interest from the expansion of audit firms’ consulting arms, its chairman James Doty has said. PCAOB is to call in the Big Four to discuss the relationship between audit and consultancy operations. Doty said of the links: ‘We simply can’t be unaware of the implications for independence, objectivity, scepticism, audit quality.’

EU AUDIT database

Audit regulators from across the EU have set up a single database to collate information from audit firm inspections. The private database will contain inspection findings for the 10 largest European audit networks: PwC, KPMG, Deloitte, EY, BDO, Grant Thornton, Nexia, Baker Tilly, Mazars and Moore Stephens. The database will include reviews of selected audits of listed companies, banks and insurers, with the objective of raising the quality of audits.

JPM FINED $1.7bn

JP Morgan has agreed to pay a $1.7bn penalty for failing to spot the Madoff fraud. The bank avoided criminal prosecution under the deal with the US Attorney’s Office. It accepted it had failed to operate adequate money laundering controls and had failed to file a suspicious activity report regarding Bernard Madoff. It will also pay a further $350m to the US Office of the Comptroller of the Currency on related matters.

EXTRA €110BN NEEDED

Western Europe’s top 50 banks need another €110bn in capital – 60% of the global €185bn banking capital shortfall – to keep their credit ratings, S&P has warned. The ratings agency said there are wide divergences between the strength of the respective banks’ capital positions and the quality of their capital. It predicts that the European Central Bank’s stress testing this year will lead to further deleveraging and more capital raising by banks.

LIBYA TO ADOPT SHARIA

Sharia finance is set to become the standard for Libya, following a vote by the National Assembly to adopt Islamic law more generally. Economy minister Mustafa Abu Fanas said the government would bring forward legislation to implement sharia finance. No date for implementation was given. The government believes the move could lead to more investment in the country from the Gulf.

EGYPT STIMULUS PLAN

Egypt has upgraded its economic stimulus package by over a billion dollars to $4.36bn, largely financed by loans from Saudi Arabia, Kuwait and the UAE. The budget deficit is already 14% of GDP and public debt stands at 87.5% of GDP. Given the continued political crisis, it seems unlikely that the economy will be able to grow quickly. Before the Arab Spring, Egypt’s economy was growing at 7% a year.

growth for PRAXITY

Praxity, the international alliance of firms, has reported a 10% rise in revenues for last year. Member revenues grew from $3.7bn in 2012 to $4.1bn last year. The biggest growth was in management consultancy, where revenues rose by 28%. Revenues in litigation support grew by 18%, in corporate recovery and insolvency by 13%, in corporate finance by 12%, tax by 10% and audit by 8%. Revenues grew by over 11% in North America and Asia Pacific, 8% in Africa and the Middle East and 7% in Europe.

BITCOIN alert

The European Banking Authority has issued a warning about the use of Bitcoin and other virtual currencies. Risks include a collapse in value, given the lack of any guarantee system. Digital wallets may also be hacked or access lost. And criminals have used digital currencies to launder money and conceal illegal activities and their identities. The EBA suggests users limit holdings to what they can afford to lose, adopt effective security and become familiar with Bitcoin’s business model and trading practices.

TUNISIA REFORM

The International Monetary Fund has told Tunisia to accelerate progress on agreed economic reforms. The warning follows a visit by an IMF delegation in November to review government actions promised as a condition of a $1.7bn aid package awarded last June. An IMF spokesman said: ‘The IMF remains fully committed to supporting Tunisia through financing, economic and financial policy advice, and technical assistance.’ He added that the IMF is aware of the political tensions that create difficulties for the implementation of economic reforms, but that some progress had been made on financial services, tax and investment policies.

Compiled by Paul Gosling, journalist

Last updated: 6 Feb 2014