It may seem obvious that auditors sell audit opinions. But that’s like saying top restaurants only sell calories.
Published on: 10 Feb 2014
I was having an interesting discussion with a group of students on Friday about a previous blog entry concerning “truth and fairness”.
It’s important to remember that an auditor does not make an absolute promise of accuracy.
The existence of audit risk means that a competent auditor will occasionally issue an audit opinion that proves to be inappropriate; most frequently because an unqualified opinion has been given when a qualified opinion would have been more appropriate.
We stake our reputation as a profession on perceived failures being very rare. This means that we need to make sure we’re using tools that are up to the task.
In order to state whether financial statements give a true and fair view, it is necessary to have a system of GAAP that adequately defines truth and fairness. It appears that the spectacular failure of Lehman Brothers in the USA happened as a result of window dressing financial statements, but which complied with US GAAP.
In a highly globalised market for audit services, perhaps we need to more explicitly state true and fair as true and fair (EU) and true and fair (USA)? This is attempted already within ISA 700 by stating “..true and fair view in accordance with…[insert system of GAAP]”.
However, reputational damage happens to the profession globally as a result of perceived weaknesses in one nation’s system of GAAP.
Maybe we need to amend the wording of the audit opinion to make this clearer?
Published on: 06 Feb 2014
…wear a tie.
Japan is famous for the long hours that some of their office workers undertake but there is now an invention that will maybe ease things a little bit for hardworking office staff.
A new tie called “Nemuri Tie” is now on sale in Japan.
Nemuri Tie means pillow tie in Japanese and if the advertising is anything to go by it will enable hard pressed office workers to grab a quick sleep at their desk.
It’s a relatively simple design in that it’s a normal looking tie but it’s got an inflatable pillow in it which can be blown up to provide a handy place to rest your head when you fancy a nap.
It can be inflated when the user is wearing it so there’s no need to keep on taking your tie off and putting it back on every time you fancy a sleep.
The Sleep Tie is currently on sale for just under £20.
It’s not clear whether the tie is stain proof for anyone that dribbles in their sleep.
Published on: 02 Oct 2013
I’ve been a qualified accountant for a fair few years now.
I had the pleasure of bumping into my first auditing lecturer last week. It was at a business mixer event and even though it was a long time since we last saw each other he really hadn’t changed that much.
We got talking and I reminded him of something that he told me that I’ve remembered ever since and to me is a great way of explaining what is meant by “True and Fair”. Those of you that have studied financial reporting papers will be aware of the importance of “True and Fair” in connection with financial statements.
In summary, financial statements should provide what is generally understood as a true and fair view of the reporting entity’s financial position, performance and changes in financial position.
I always remember my lecturer telling me the story of the ship’s captain that was having a problem with his first mate who was always drunk. In the end the captain wrote an official entry in the captains log saying “Today, the first mate was drunk.”
The first mate was upset about this and the next time he took charge of the ship when the captain was asleep, he wrote in the log that “Today, the captain was sober”. This of course implied that on other days the captain wasn’t sober as he was drunk.
Now, the statement “today, the captain was sober” was clearly true but I’ll leave it up to you to decide whether or not it was fair!
Published on: 08 Jun 2013
Have you ever dropped a cup of coffee at work? What about spilling a glass of water?
Maybe a more interesting question to ask a forklift truck driver that (currently) works for the Kerry Logistics in Australia is “have you ever dropped a container full of 462 cases of a customer’s wine that were worth £664,000 and all the bottles were smashed?”
Unfortunately for this unlucky forklift truck driver the answer is yes.
The container held 2010 Mollydooker Velvet Glove Shiraz bottles of wine produced by winemaker Sparky Marquis which sell for £122 each.
Mr Marquis told reporters that he was “gut wrenched” that the wine bottles had been smashed. The container held one third of his winery’s annual production and was destined for delivery to the United States.
There are two important business lessons to be learnt from this.
Firstly, always make sure that valuable items are insured. Sensibly the wine was insured so the winemaker won’t be out of pocket.
Secondly, there’s no harm in having a sense of humour.
Mr Marquis was quoted as saying that when the logistics company opened up the container “they said it was like a murder scene.” With a touch of classic Australian humour he added “but it smelled phenomenal”
Author Robert Louis Stevenson once wrote “Wine is bottled poetry”.
I can imagine the words that came out of the forklift driver’s mouth when the container was dropped were anything but poetry.
Published on: 12 Apr 2013
It doesn’t matter if you’re a famous film star or not. If you don’t pay your taxes you could get into a lot of trouble.
Wesley Snipes, the famous star of films such as the Blade Trilogy and White Men Can’t Jump hasn’t starred in any films during the last 3 years.
And the reason why?
Well, the reason is that he’s been in jail since 2010 after not paying tax on $37 million of earnings.
Despite being able to defeat terrorists and vampires in his films he was unable to beat the US tax authorities and was convicted of federal tax evasion. The photo of Mr Snipes above is his mug shot courtesy of the United States Marshals Service.
For the last 3 years he has had to swap film premieres and glamorous parties for the confinement of a US prison cell.
It’s an interesting point but people often get the terms “tax evasion” and “tax avoidance” confused and think they are the same thing.
In fact the two phrases mean different things and in the UK for example tax evasion is where a person evades paying tax by illegal ways such as non declaration of income. Tax avoidance on the other hand is where a person minimises his or her tax liability in a legal way (whether or not it is in an ethical way though is a different matter altogether!).
Mr Snipes was convicted of tax evasion back in 2010 and has just been released from prison although he remains under house arrest until July when he will be free to start his film career again.
One thing he should probably do first though before he starts his film career again is to find a good tax accountant to make sure that he settles all his tax liabilities correctly on any of his future earnings and doesn’t evade any tax.
Published on: 28 Feb 2013
But how far can this computer use go? Will they be able to predict when accounting fraud is going to take place as opposed to tracking transactions that have already occurred?
The film Minority Report starring Tom Cruise was based around software that could predict when a crime was going to happen and the culprits would be arrested before they actually committed the crime. Although this film seemed well and truly within the realms of science fiction, two police forces in the UK have recently begun trials of a sophisticated computer software package which aims to predict where and when future crimes are likely to occur.
The software is known as Crush (Criminal Reduction Utilising Statistical History) and is used to identify potential crime hotspots based on a variety of data including crime reports, offender profiles and strangely enough even weather forecasts.
Once these upcoming crime hotspots have been identified then the police can allocate resources accordingly.
The system is produced by IBM and the UK tests are based on a successful roll out of the software in the US by the Memphis police force which resulted in a reduction of serious crime by 30%.
Back to auditing though and will the next step be predicting when a fraud is likely to occur using statistical analysis based on industry, profit movements, director’s personal life and spending habits (plus the weather of course)?
Given the reliability of some computers though, one thing for sure is that is if you happen to live in a town called “Syntax Error” then you may have a surprise visit from a Tom Cruise lookalike with a briefcase and a calculator.
Published on: 24 Jan 2013
Fast food is big business but for Subway, the world’s largest restaurant chain with 38,000 restaurants in 100 countries, something isn’t quite big enough.
Subway is famous for their “Footlong” sandwiches whose name implies should be a foot long (12 inches / 30 cm).
Their “Footlong” has been the backbone of their advertising for a number of years and any company’s advertising should be accurate and shouldn’t be misleading.
Well up step Australian Subway customer Matt Corby who purchased a Footlong and measured it before eating it. He then took a photo and posted it on Subway’s Facebook page with the request “subway pls respond”.
The photo is shown above and as can clearly be seen the Footlong isn’t in fact a foot but is 1 inch short at 11 inches.
Was this evidence that Subway had been deliberately misleading their customers by calling it a Footlong when it should have been called an “11 inch long”?
Does the extra inch matter?
Well, things took off quickly on Facebook and there were soon more than 100,000 likes and over 5,000 comments to Matt’s post. The shock discovery that the Footlong was an inch short of bread soon spread around the world.
Subway quickly supplied the following statement to the Chicago Tribune newspaper:
“We have redoubled our efforts to ensure consistency and correct length in every sandwich we serve. Our commitment remains steadfast to ensure that every Subway Footlong sandwich is 12 inches at each location worldwide.”
Is this going to be a good enough solution to the problem of the missing inch of bread?
Unfortunately for Subway within hours a number of lawsuits were filed in America in connection with the missing inch.
One of the lawsuits filed by Mr Buren from Chicago for example is claiming that the Footlong sandwich product is false advertising and as a result he is suing the company for $5 million.
Now, I’m an accountant and not a lawyer but if he’s successful the $5 million will buy an awful lot of 1 inch pieces of bread…
Published on: 29 Oct 2012
One of the general duties of company directors is to exercise reasonable skill, care and diligence.
Three directors by the name of Robin Reichelt, Stephen Nathan and John Gibbs were clearly not exercising any of these attributes though.
Whilst on the face of it their plan to reclaim VAT on the purchase of a hotel sounded ok, in reality there were a number of things which didn’t quite work or to put it more bluntly, a couple of things which were completely illegal.
The background to the situation was that one of their group companies sold a lease to a central London hotel to another of their group companies.
The company that “sold” the hotel went into liquidation after selling it and the company that bought the hotel then submitted a claim for a refund of over £200,000 of related VAT.
The whole thing was completely illegal however as not only did they not pay the VAT in the first place (so had nothing to claim back) but the hotel didn’t even belong to the group company that had claimed it had sold it!
So, in summary they claimed to have sold a hotel that they didn’t even own to another group company and claimed back VAT that had never been paid. What could possibly go wrong??
Well, they will have several years in jail to contemplate what went wrong and to plan their next great money making idea…
Published on: 12 Oct 2012
McLaren are one of the top Formula One motor racing teams. They are not only experts at ensuring cars are driven fast around racing circuits but they are also experts at ensuring that £34m fines are tax deductible…
Back in 2007 McLaren were fined £34 million pounds because it “had possessed and in some way used proprietary information belonging to Ferrari, and had thereby breached the rules of the FIA’s International Sporting Code to which McLaren was contractually bound”.
Or to put it another way, they had cheated by photocopying an 800 page technical document belonging to Ferrari that detailed the designs of the 2007 Ferrari cars.
Formula One’s governing body, the Federation Internationale de L’Automobile (FIA), weren’t happy about McLaren taking this approach and ordered McLaren to pay a £34m fine which they duly did.
The interesting thing though is that in their UK company tax return McLaren claimed a tax deduction for the fine.
In the UK as well as most countries around the world, fines are not tax deductible. This means that the expense does not reduce the level of profits on which tax is calculated.
McLaren argued though that this particular fine was tax deductible (i.e. the expense could be used to reduce the level of profits on which tax was applied). They said that it wasn’t a statutory fine for breaking the law (which would be non tax deductible) but instead was a fine imposed by their governing body and as such was a genuine business expense incurred in their trade which should be tax deductible.
The UK tax authorities understandably didn’t agree with this viewpoint and the argument went to an independent tax tribunal who surprisingly agreed with McLaren and said that the fine was tax deductible.
A surprising decision and there’s no truth in the rumour that the head of the independent tax tribunal is currently driving around in a McLaren…
Published on: 26 Sep 2012
Here’s an interesting question. If you resign from your job, what should your resignation letter look like?
Should it be simple, brief and straight to the point or should it be sent to the whole office and include various accusations about your boss including a certain, how shall we say it but, adult liaison in a meeting room with a colleague?
Well if your name is Kieran Allen then the second option appears to be the correct answer.
Mr Allen used to work for MEC, one of the leading media agencies in London. Yesterday he resigned and his resignation letter contains some pretty juicy accusations.
Now whilst this isn’t the first resignation letter that contains some juicy accusations it is the first resignation letter with juicy accusations that has gone viral on the Internet and as a result has been seen by millions around the world.
To avoid a knock at the door from some lawyers, I’ll keep the manager’s name anonymous (although if anyone wants to see the full letter then a simple search on the Internet will reveal it!) but Mr Allen claimed that he left MEC after 2 1/2 years of “loyal service” because of the treatment he received from his manager.
Mr Allen claimed he was forced to take time off work due to stress after being overloaded with work by the manager and he claimed the manager made him feel like a complete outsider on his return.
We’ve all been overloaded with work at some stage or other so this is initial claim isn’t that exciting.
The more interesting accusations though were when he claimed in his letter that the manager “regularly made sexist and other bigoted remarks” and “took a female colleague out for a drink on the day he interviewed her, then took her back to the MEC offices that night and had sexual relations with her in the meeting room on the 3rd floor”.
Mr Allen then went on to say that all of these allegations were “common knowledge throughout the team”.
Some people will applaud Mr Allen for his resignation letter whilst others (no doubt including his manager) will say that he should have kept his issues to himself.
Either way there are some serious lessons to be learnt from all of this. For example, it’s probably advisable to make sure you knock on the door of the meeting room on the 3rd floor at MEC before opening it…