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Would you do this with your job?

If a company outsources jobs, in some situations it can be seen as good business practice but if an individual outsources his own job then what is that seen as?

Outsourcing is where a company gets another organisation to undertake a job or business function that would have previously been completed in-house. This is often done for cost saving reasons and an illustration of outsourcing would for example be getting another organisation to maintain your payroll.

A while ago there was the first example I’d heard of an individual outsourcing his own job.

Verison is one of the leading telecoms companies in the US and their security team provided details of a case study where an employee by the name of “Bob” who was a top developer had actually outsourced his own job to China without his employers knowing about it.

In other words, he had received his salary from his employers but had personally paid for somebody else to do his job at a cheaper rate without his employer knowing about it!

He was paid in excess of USD 100,000 for his job and yet he was paying a Chinese consulting firm less than 20% of that to do the job for him.

According to Verison a typical day for Bob was:

9:00 a.m. – Arrive and surf Reddit for a couple of hours. Watch cat videos (!!)
11:30 a.m. – Take lunch
1:00 p.m. – Ebay time.
2:00 – ish p.m Facebook updates – LinkedIn
4:30 p.m. – End of day update e-mail to management.
5:00 p.m. – Go home

Despite not actually doing any of the work himself his performance reviews were excellent and he had been regarded as the best developer in the building.

So, in summary – he was paid a pretty good salary and all he did was play around on the internet.

All his real work was outsourced by him to a Chinese company. He paid them whilst his employer paid him 5 times the amount that he had paid the Chinese company.

Bob lost his job but it does raise an interesting debate as when a company outsources it’s seen as a clever move but when an individual outsources their own job they end up losing that job.

Anyway, whilst you’re thinking of that particular point I’d like to mention that the next blog article will be written by a Chinese company but please don’t tell my employer.

Meanwhile I’m off to watch some cat videos…

KPMG partners cheated in exams.

Ethics are pretty important if you’re a partner in an accounting firm. Unfortunately for these guys though they weren’t the most ethical of people as they were involved in cheating in exams.

The cheating was uncovered by the SEC (Securities and Exchange Commission) in the US. They were initially investigating claims that KPMG had altered previously completed audit work after receiving stolen information about what inspections would be conducted by the Public Company Accounting Oversight Board.

During that investigation however they also found that numerous KPMG audit professionals cheated on internal training exams by sharing answers.

Cheating at exams by sharing answers? Surely that would be a junior member?

Actually, no.

The key people involved were (now former) KPMG audit partners.

The investigation stated that former partners Timothy Daly, Michael Bellach, and John Donovan were involved in the cheating.

They had obtained images of questions and answers to the tests from subordinates and then shared them with members of their team.

The tests which were taking place were in connection with ensuring that KPMG audit staff understood certain accounting and auditing principles.

KPMG themselves became aware of potential cheating on the exams and began an investigation. They sent a document preservation notice to all KPMG staff (this basically means not to delete or destroy any potential evidence).

The ex-partners however ignored this preservation notice. They deleted various text messages and denied any wrongdoing to KPMG investigators.

KPMG were obviously not happy with the situation when the truth emerged and the partners soon became ex-partners of KPMG.

The three individuals were also suspended from appearing or practicing as an accountant before the SEC (although they can apply for reinstatement in the future).

KPMG had a pretty bad time of it last year in terms of the stolen PCAOB information and the exam cheating and had to pay a penalty of $50 million.

Steven Peikin, co-director of the SEC’s division of enforcement, said: “Audit professionals play a critical role in the integrity of the financial reporting process and the protection of investors. These actions reflect our commitment to hold these gatekeepers responsible for breaches of their professional obligations.”

A KPMG spokesperson said “We are a stronger firm as a result of the actions we are taking to strengthen our culture, governance and compliance program.”

KPMG fires unethical partners

Picture the scene – you’re the senior auditing partner of KPMG in America with more than 30 years of experience serving some of KPMG’s most prestigious clients. There are over 9,000 KPMG people in the US who look up to you as the boss.

You receive some leaked information about which of your audits the US audit watchdog is going to examine as part of their annual inspection of how well KPMG perform audits.

Do you:

(a) Disclose this unethical breach immediately, or

(b) Try to keep things quiet and make sure that the audit files of the audits selected are perfect?

Unfortunately for Scott Marcello, the (now ex) head of KPMG’s audit practice in America, he didn’t choose option (a).

The background to the issue is that every year the US audit regulator, the Public Company Accounting Oversight Board (PCAOB) selects a sample of audits to inspect and ensure they have been performed properly.

A former employee of the PCAOB had joined KPMG. A friend of his who was still working at the PCAOB tipped him off about which audits would be selected for inspection this year.

The confidential information was then passed up the KPMG hierarchy until it reached Mr Marcello.

We can only guess what Mr Marcello and 4 other KPMG partners were planning on doing with the leaked information but one thing was for sure and that was they didn’t disclose the leak.

Whilst the 5 partners clearly weren’t very ethical, KPMG as an organisation acted quickly once they found out about it.

The 5 partners were fired and Lynne Doughtie, the chairwoman and chief executive of KPMG was quoted as saying “KPMG has zero tolerance for such unethical behaviour. Quality and integrity are the cornerstone of all we do and that includes operating with the utmost respect and regard for the regulatory process. We are taking additional steps to ensure that such a situation should not happen again”.

The PCOAB publish the results of their inspections and the previous results of the KPMG inspections perhaps give a reason for why Mr Marcello was keen for any help, whether it was ethical or unethical.

In 2014 and 2015, KPMG had more deficiencies in their audits than any of the other Big 4 in America.

38% of their inspected audits in 2015 were found to be deficient whilst in 2014, 54% were found to be deficient.

The Vatican Bank releases their results.

The Institute for Religious Works, or as it’s more commonly known “the Vatican Bank”, has just released its latest set of accounts and they show a sharp increase in profits.

blog-vatican-262x275The bank has just reported net profits of €69.3 million for 2014 which compares very favourably with the corresponding figure of €2.9 million in 2013.

So what has caused the turnaround?

The bank has reported that the improved figures were as a result of a fall in operating expenses together with higher income from trading in securities.

Last year, the management of the bank was replaced as part of a clean up ordered by the Pope to remove corruption in the bank. The reforms also involved the bank bringing in anti-money laundering experts to screen all the accounts to ensure they comply with international laws governing the banking sector and the bank’s new standards for clients. Over 4,000 accounts have now been closed since 2013 and whilst the majority were dormant accounts, 554 accounts were closed because they did not meeting the bank’s new standards.

President of the Board of Superintendence, Jean-Baptiste de Franssu said that “The long-term, strategic plan of the Institute revolves around two key objectives: putting the interests of the clients first by offering appropriate and improved services and by de-risking the activities of the Institute”.

In summary, the bank seems to be doing much better now. If you are interested in opening an account with the bank though it’s worth noting that the use of the bank is limited to clergy, Vatican employees and staff at its embassies. There are now reportedly over 15,000 clients on the banks books.

More details on the Vatican bank’s accounts can be found here.

ACCA or CIMA? …or MICE?

ACCA and CIMA are two of the leading professional bodies and as providers of some of the best finance and business qualifications in the world they have ethics at their core.

If you take a step back though, they are arguably in competition with each other and here’s an important question:

Have they been ethical in their approach to competing with each other?

In my opinion the answer is a resounding yes, and it’s a good example of how competition can and should be undertaken ethically.

Ethical competitive approaches include for example focussing on your strengths rather than deliberately trying to harm or damage your competitors.

If you’re looking for the other extreme though and want an example of how to compete unethically then head over to Philadelphia in America.

Nickolas Galiatsatos, the owner of Nina’s Bella Pizzeria in Philadelphia came up with an extremely unusual and completely unethical approach to winning business from his competitors.

Mr Galiatsatos was spotted by the owner of Verona Pizza, a competing restaurant, heading to the toilet of the competitor restaurant carrying a full plastic bag but then emerged a couple of minutes later minus the bag.

Doing nothing to dispel the stereotypical view of US policemen spending a lot of time at Donut bars and Pizza restaurants, there just happened to be two policemen sat in the restaurant eating pizza at that time.

Further investigation by the police found a number of mice in and around the empty bag in the toilet and when they headed out of the restaurant to find Mr Galiatsatos they found him depositing some more mice around the back of another nearby restaurant.

Mr Galiatsatos has now been charged with criminal mischief, harassment and disorderly conduct as well as cruelty to animals.

Importantly therefore if you’re thinking of ways to get ahead of your competitors please don’t involve bags of mice…

No, honestly it is tax deductible as it’s purely for medical reasons…

The deadline for submitting income tax returns in the UK is in a couple of days on 31 January. According to the UK tax authorities there are still over 2 million returns that need to be submitted.

income tax deadlineThere are no doubt a lot of people hastily getting their figures together to meet the deadline.

Over in the US, one individual took a somewhat unusual approach to claiming deductions in his tax return.

Brooklyn Tax Lawyer, William G. Halby, kept records of his visits to, um how can I say this, but let’s just say certain ladies of the night that provide a certain adult service.

He subsequently claimed the expenses of these visits as tax deductible medical expenses on his tax return.

Mr Halby was quite open about claiming the expenses and as a Tax Lawyer he represented himself at the State of New York Tax Tribunal when the tax authorities argued the expenses were not tax deductible.

Now this wasn’t a small amount which he tried to put in as a tax deduction. Over a 4 year period he claimed expenses of $322,000 for what he felt were for medical purposes.

In one year alone he claimed “medical expenses” on his tax return which were itemised in detail and amounted to over $110,000.

Now this got the accountant in me thinking about these figures and after spending a brief couple of days reviewing some of the New York Agency websites where these ladies advertise their services, I’ve found that the average price for a “consultation” is in the region of $500.

This means that on average Mr Halby made 220 “medical visits” in one year alone.

Undertaking this number of visits and then claiming them on his tax return is arguably proof of both dedication to solving his medical problem as well as maintaining suitable and sufficient records for tax purposes.

All of his expenses were however rejected by the Tax Tribunal. The full text of the Tribunal’s decision can be found here.

Mr Halby is aged 78 and is currently single.

Is it me or is this just nuts?

Anyone that suffers from an allergy knows full well that it can be a very unpleasant experience. One of the more common allergies is when people are allergic to nuts.

food-labelling-lawsAccording to Allergy UK, peanut and tree nut allergy is the most common food allergy in adults and children. The symptoms can range from mild reactions to more serious problems including difficulties in breathing.

It’s a vital safeguard therefore that food products are clearly labelled with their ingredients in case they contain items which an individual is allergic to.

The Food Standards Agency is an independent government department responsible for food safety and hygiene across the UK. They monitor food products and when for example the allergy labelling is incorrect they can force the food product to be withdrawn from sale or recalled to protect the consumer.

They have just issued an alert about some food that was being sold by the supermarket chain EH Booths.

If I’m honest I’m not sure what to say about the warning as by way of background the food that was being sold by the supermarket was bags of monkey nuts. Monkey nuts are peanuts with the shell on.

To quote from the alert:

EH Booths is withdrawing some batches of its Whole Hearted Roasted Monkey Nuts, because the presence of peanuts is not declared on the label. This makes the product a possible health risk to those who are allergic to peanuts.

Or in other words, the supermarket had failed to highlight that a bag of peanuts with their shells on would contain peanuts.

Now, I’m not an expert here but I can’t help thinking that the presence of peanuts in the bag could have been a bit of a clue that the product contained peanuts.

If by any chance you’re not allergic to peanuts but are allergic to milk then you should be ok as long as that carton of milk doesn’t contain any milk.

An ex-partner of KPMG has been a bit naughty…

An ex-partner at KPMG has been a bit naughty. In fact, he’s been more than a bit naughty as he’s been accused of insider trading.

Insider trading is the illegal activity of using information which isn’t in the public domain to make a personal gain or avoid a personal loss.

insider-trading-examplesScott London was a partner at KPMG in the US and led their LA audit practice. Two of their major clients were the nutrition supplement giant Herbalife and the leading footwear company Skechers.

It’s been alleged that Mr London passed on price sensitive information to a golfing friend of his who then subsequently made more than $1.2 million in illicit trading of shares ahead of merger or earnings announcements (in other words, the golfing friend bought shares at a low price knowing that the share price would increase as soon as the information he was secretly given was released into the public domain).

The US Securities and Exchange Commission charged Mr London and his golfing buddy with insider trading on non-public information.

As soon as KPMG found out about this Mr London was fired and quickly became an ex-partner in the firm.

A statement from Mr London was published in the Wall Street Journal where he apologised “for any harm that results to KPMG”. He went on to say that “I regret my actions in leaking non-public data to a third party regarding the clients I served for KPMG”.

It’s not looking very good for Mr London as the authorities will no doubt come down heavily on him.

It’s unfortunate for KPMG as well as due to Mr London’s illegal activities their independence on the audits of Herbalife and Skechers had been compromised. As a result they have resigned as auditors of both Herbalife and Skechers.

When is a foot not a foot?

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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…

Should this former Deloitte accountant become a doctor?

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One of the key attributes of finance and business people should be ethical behaviour. Note that I say “should be” as not everyone seems to agree with this approach.

Former Deloitte UK employee Nahied Kabir seems to have a slightly different view of what is acceptable in terms of ethical behavior.

Here’s a quick multiple choice question for you to see how ethical you are compared to Mr. Kabir.

Question – You’re struggling a bit with your professional exams and your employer’s policy is that if you don’t pass your exam within 2 attempts you’ll lose your job. Do you:

a) Focus your efforts on passing your exams. Or,

b) Focus your efforts on forging two doctor’s certificate.

Now, in my opinion (and hopefully in your opinion as well!) the correct answer is (b) (a).

Alas for former Deloitte employee Mr. Kabir he chose option (b).

In summary, Mr. Kabir failed an exam twice and at a meeting to discuss terminating his employment contract with Deloitte he produced a forged doctor’s note.

Deloitte let him sit the exam again and he passed this time. He then had a further 3 exams to sit and you guessed it he failed all 3.

At the next meeting to discuss things with Deloitte he claimed that he failed due to the ill health of his mother. He then produced a second forged doctor’s note from another doctor claiming his mother was suffering from ill health.

Proving that as well as being a pretty rubbish accountant he was also pretty bad at forging letters, the forged letter from the second doctor was exactly the same as the forged letter from the first doctor with the exception of only 4 words!

It’s probably no surprise to you that Mr. Kabir is now no longer working with Deloitte and the accounting body he was sitting his exams with (ICAEW) have published their report on the disciplinary action they took against him.

Again, it’s probably no surprise that he was “declared unfit to become a member of ICAEW”.

There’s no news yet whether Mr. Kabir is planning a successful career as a bank note forger…

Should a PwC partner blame the junior staff?

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If something goes wrong on an audit, whose fault is it? Is it the partner’s fault or the junior member of staff’s fault?

Over in Australia, the Sydney Morning Herald newspaper has provided some interesting commentary on a legal case that is currently taking place concerning an audit undertaken by PricewaterhouseCoopers (PwC).

The background to the case is that shareholders in a company called Centro are claiming that PwC misled and deceived them by failing to properly disclose that the Centro group had billions of dollars of short-term debt that needed to be refinanced in 2006 – 2007.

The lead PwC partner on the audit, a gentleman by the name of Stephen Cougle, is facing a bit of a grilling in court at the moment.

Under cross-examination yesterday in the Australian Federal Court, Mr Cougle denied trying to “bury” one of the errors by putting it in the small print notes at the back of the accounts.

According to reports, he said “when one of his PwC colleagues told him in late August that a $1.1 billion bridging loan had been wrongly classified as a long-term debt in the unaudited, preliminary accounts, he suggested Centro might need to disclose it publicly. When Centro declined this idea, he decided one option was to point to the discrepancy in a note to the final accounts”

According to Mr Cougle though he did not try to “bury it”.

Whether or not it was satisfactorily disclosed will be a decision for the court and that decision is not expected until the end of May

However, one thing for sure is that a number of the junior PwC staff members who were on the audit are probably not currently the best of friends with Mr Cougle.

Despite being the lead partner on the audit, he has already “declined to accept any responsibility for the accounting debacle” and has “blamed junior staff.”

Now blaming junior staff for an error in the accounts that you signed off on is in itself an interesting point to debate. After all, there is a well-known saying that you “can delegate work but you can’t delegate responsibility”.

The outcome of this case will be very interesting for auditors around the world. Not least for guidance on who is the best person to blame if there is an error on your audit…

The Big 4 don’t appear to be happy about this…

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We blogged earlier this year about Michel Barnier, the EU internal market commissioner announcing plans to issue new laws which would dramatically impact the “Big 4” (namely Deloitte, Ernst & Young, KPMG and PwC.)

Well, these changes have now got a bit closer as the draft law has just been released.

In an attempt to reduce conflict of interest and to introduce more competition into the industry the main proposal of the draft law includes the requirement for the Big 4 firms to separate their auditing and consulting divisions in the EU.

This is a pretty big issue as in simple terms if the law becomes final it could prevent the Big 4 “audit firms” from providing any non audit related services such as consulting, providing tax advice or running training courses.

This could see a major restructuring of the audit profession.

Other provisions in the draft law include banks being banned from insisting that a company uses a Big 4 firm if they are to be lent money by the bank (at the moment a number of banks make it a requirement for a company to be audited by a Big 4 firm before they will release significant loans.)

There is also a proposed requirement for audit firms to be rotated every 6 to 12 years.

Perhaps unsurprisingly the Big 4 are reported to be against any changes to the current rules (after all as the saying goes, “how many turkeys would vote for Christmas?”).

I’m pretty sure though that the “mid tier group” of auditing firms that are below the Big 4 in terms of size such as BDO, Grant Thornton and Mazars would maybe take a different view to the Big 4 and be in favour of Mr Barnier’s views as this could open up a number of opportunities for them.

Before everyone that works at a Big 4 company starts rushing to rearrange the office furniture though it’s worth noting that the law at the moment is only draft and the EU states and the European Parliament have to provide the final sign off before the law becomes a reality.

How would you feel if you were called a liar on Oracle’s website?

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Meet two companies – Oracle and Autonomy.

A lot of you will probably have heard of Oracle but probably less of you have heard of Autonomy.

Oracle is a business software and hardware systems company whilst Autonomy develops search software.

Oracle’s Chief Executive is Larry Ellison and Autonomy’s Chief executive is Mike Lynch.

Interestingly enough Oracle’s CEO has recently accused Mr Lynch of lying or in his words of telling “whoppers”.

So, what’s the story behind all of this?

The story began a couple of weeks ago when Oracle’s Elison said that he thought Hewlett Packard had overpaid when they had paid £7bn to buy Autonomy and that Mike Lynch from Autonomy had earlier this year offered to sell Autonomy to Oracle but Oracle had turned it down as they felt it was too much.

Autonomy’s Lynch then said that any discussion of him talking to Oracle about them purchasing Autonomy was “inaccurate”.

Now the previous sentence is quite important as seeing that Autonomy was quoted on the London Stock Exchange, if there was any kind of sales process taking place then Autonomy were required to notify the Stock Exchange about it.

No such notification took place.

After Mr Lynch said that any talk of him discussing a potential sale to Oracle was inaccurate, Oracle responded in quite a dramatic way.

They posted a statement on their website (with the nice webpage address of Oracle.com/PleaseBuyAutonomy) and they didn’t hold back.

Amongst other things, they released PowerPoint slides of the meeting that Mr Lynch attended and the Oracle statement is entitled “Another Whopper from Autonomy CEO Mike Lynch”.

The statement then goes onto say amongst other things:

“Autonomy CEO Mike Lynch continues to insist that Autonomy was never ‘shopped’ to Oracle.  But now at least he remembers and admits to meeting with Oracle President Mark Hurd and Doug Kehring, Oracle’s head of M&A, this past April.  But CEO Lynch insists that it was a purely technical meeting, limited to a ‘lively discussion of database technologies.’  Interesting, but not true.  The slides Lynch showed Oracle’s Mark Hurd and Doug Kehring were all about Autonomy’s financial results, Autonomy’s stock price history, Autonomy’s Price/Earnings history and Autonomy’s stock market valuation.  Ably assisting Mike Lynch’s attempt to sell Autonomy to Oracle was Silicon Valley’s most famous shopper/seller of companies, the legendary investment banker Frank Quattrone.  After the sales pitch was over, Oracle refused to make an offer because Autonomy’s current market value of $6 billion was way too high.

We have put Mike Lynch’s PowerPoint slide sales-pitch up on the Oracle website – Oracle.com/PleaseBuyAutonomy – with the hope Mike Lynch will recognize his slides, his memory will be restored, and he will recall what he and Frank Quattrone discussed during their visit to Oracle last April. Yesterday, the Autonomy CEO did not remember having any meeting with Oracle.  Today, he remembers the April meeting and inaccurately describes how it came about and what was discussed.

The Statement continued but the key message appears to be that the two individuals are probably not the best of friends and somehow I don’t think the two CEOs will be sending each other Christmas cards this year.

Who earns the most out of a PwC or Deloitte partner and who’s suing Deloitte for $7.6bn?

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The Financial Times or FT as it is generally known, is a great newspaper.

First printed way back in 1888 by James Sheridan and Horatio Bottomley, the FT specialises in business and financial news.

You can find a lot of information in the FT.

Information ranging from share prices to the latest business activities can all be found within the paper’s famous light salmon coloured covers.

They have also recently highlighted some interesting figures about the average partner remuneration in the UK firms of PwC and Deloitte.

In the year to 30 June 2011 the average profit share for each PwC partner in the UK was a healthy £763,000.

In the previous year to 30 June 2010, Ian Powell, the Chairman of PwC, received £3.6 million. The latest figures show that he managed to increase this amount to £3.7 million in the year ended 30 June 2011.

But what about PwC’s fellow Big 4 partners from Deloitte?

Even though the Deloitte figures are not entirely comparable with PwC’s due to differences in the treatment of past pension obligations, the results are interesting and it’s not all good news for Deloitte partners in the UK.

This year saw their average profit share fall by 13%. They now have to scrape by with £758,000 per year compared to the £873,000 that they had the year before.

Whilst figures are available for the UK Deloitte partners they are not currently available for the Deloitte partners from over in the US.

My guess though is that the US Deloitte partner’s profit shares may well be reduced this year though as money may be held back for potential legal fees after it was announced today that Deloitte in the US are being sued for the princely sum of $7.6 billion.

They are accused of failing to detect fraud during their audits of a US mortgage firm which went out of business during the US housing crash.

A Deloitte spokesman was quoted in the press as saying the court claims were “utterly without merit”.

Tesco – “Every Little Helps”. Especially someone else’s shares…

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Share incentive schemes are a good way to motivate and reward senior executive employees.

As far as I’m aware though there are very few supermarket checkout operators that find themselves eligible for £100,000 worth of company shares as part of their remuneration package.

Mr Jeffrey Adams who worked on the checkout at Tesco’s Burton-on-Trent store in the UK though thought otherwise.

Back in 2002 he received some 44,000 shares in Tesco’s from the company that runs Tesco’s executive remuneration share plan.

These were meant for Mr Adams but alas not the Mr Jeffrey Adams that worked at the checkout in Burton-on-Trent but instead, Mr Jeff Adams who is the Chief Operating Officer of Tesco’s Fresh and Easy business in America.

Now what did Mr Adams (the checkout operator) do when he received the shares?

Did he do he honest thing and report it to his employees straight away?

No he didn’t.

Instead he sold the shares and made a profit of £100,000.

His ill-gotten gain remained secret for 7 years until Mr Adams (the Chief Operating Officer) tried to cash them in and found that the shares were nowhere to be found.

Mr Adams (the checkout operator) didn’t really appreciate the paper trail that exists when shares are sold and when he was arrested he claimed that they were left to him by his grandfather.

Mr Adams (the checkout operator) no longer works for Tesco and was last week jailed.

The judge said “You have to serve a prison sentence for £100,000 of dishonesty. You have shown no remorse and gave no plea of guilty.”

If you found this item interesting you may also like:

Which is worse. A $3 billion fraud or taking $100 and giving it back the next day?

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Taylor Bean & Whitaker were one of the largest privately held mortgage lenders in the US.

Paul Allen was their CEO and involved in all the key areas of the business. Unfortunately for a lot of people Mr Allen also became involved in the fraud which led to the Taylor Bean business being closed down with 2,000 people losing their jobs.

The fraud also contributed to the collapse of Colonial Bank in the States after they purchased hundreds of millions of dollars of Taylor Bean mortgages.

Two major European banks also suffered as BNP Paribas and Deutsche Bank lost nearly $2 billion as a result of buying various corporate paper from Taylor Bean which was not suitably backed up by collateral.

A $3 billion fraud with thousands of people losing their jobs. Clearly a serious crime.

The end result was that Mr Allen was jailed for just over 3 years.

Meanwhile at the other end of the spectrum in terms of crime against financial institutions and the financial amount involved, a teller at Capital One bank in the States was approached by Roy Brown who put a hand under his jacket, claimed it was a gun and demanded money.

The teller handed Mr Brown 3 piles of money but he only took one $100 bill.

Mr Brown then had a change of heart and the next day handed himself into police and told them that his mother didn’t raise him that way.

He was homeless and told police that he needed the $100 to attend a detox centre.

Despite Mr Brown’s dramatic change of heart he was subsequently sentenced to 15 years in prison for the robbery.

So in summary, $3 billion and 3 years vs. $100 and 15 years…

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Would you steal £30m from ING Bank?

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How much would you try to steal from your employer if you work for ING bank and you’re an accountant?

Hopefully most of you would not try to steal anything from your employer but if you were a lady by the name of Rajina Rita Subramaniam who worked for ING in Sydney, Australia for 20 years then the temptation was just too much.

So what did she steal?

A few pens? Maybe some yellow post-it stickers?

Nope, not even close.

According to press reports in Australia Rajina is about to plead guilty to defrauding ING of an astonishing AUS $45 million (approx. £30 million).

The sharp eyed amongst you will probably guess that she didn’t take if from the petty cash til.

She allegedly siphoned off millions of dollars from the company into a number of private accounts.

Rather than hold on to the stolen money for a rainy day she spent the money on a variety of items including beachside apartments and diamond jewellery (oh, and rather bizarrely some Michael Jackson memorabilia).

Even ignoring the items such as luxury properties she had outside her office, Police allege that she had over 600 pieces of jewellery as well as 200 perfume and make-up items in her office at the ING building where she worked.

Whilst Ms Subramaniam was temporarily one of the wealthiest people in Australia I don’t think she was one of the brightest. Surely it must have been obvious that when a normal bank employee started having the lifestyle of a Saudi Prince there would be certain suspicions raised.

After all, how many of her colleagues also had luxury properties looking over Bondi Beach and wore a Bulgari diamond necklace worth nearly £1 million.

According to prosecutors, the thefts came to light when staff at Bulgari saw that the accountant was paying for luxury items via direct transfers from ING accounts.

It’s not clear from the reports whether Ms Subramaniam wore a Michael Jackson diamond studded single glove to meetings in the office.

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Is it acceptable for a client to hold your audit files hostage?

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It seems that Deloitte has had a spot of bother in dealing with one of its Chinese clients.

When they initially won the audit for Longtop they were no doubt very pleased.

Longtop Financial Technologies Ltd., to give it its full name, is a Hong Kong-based maker of financial software. In 2007 it raised $210 million in a US IPO underwritten by Goldman Sachs and Deutsche Bank.

Things haven’t been going too well recently though. Their share price has plunged by 56% since last November reducing the company’s market value by more than $1 billion.

They have also just lost their auditors as Deloitte has just resigned.

Auditor resignations aren’t that unusual but in Deloitte’s resignation letter that was submitted to the U.S. Securities and Exchange Commission there are a few items which to put them in non technical language, sound “extremely dodgy”.

The full resignation letter submitted to the SEC can be found here but some extracts of the letter showing the highlights (or lowlights) of some items that Deloitte identified at Longtop are as follows (note that the bold emphasis on certain words was made by us):

[Start of extract from  resignation letter]

As part of the process for auditing the Company’s financial statements for the year ended 31 March 2011, we determined that, in regard to bank confirmations, it was appropriate to perform follow up visits to certain banks. These audit steps were recently performed and identified a number of very serious defects including: statements by bank staff that their bank had no record of certain transactions; confirmation replies previously received were said to be false; significant differences in deposit balances reported by the bank staff compared with the amounts identified in previously received confirmations (and in the books and records of the Group); and significant bank borrowings reported by bank staff not identified in previously received confirmations (and not recorded in the books and records of the Group).

In the light of this, a formal second round of bank confirmation was initiated on 17 May. Within hours however, as a result of intervention by the Company’s officials including the Chief Operating Officer, the confirmation process was stopped amid serious and troubling new developments including: calls to banks by the Company asserting that Deloitte was not their auditor; seizure by the Company’s staff of second round bank confirmation documentation on bank premises; threats to stop our staff leaving the Company premises unless they allowed the Company to retain our audit files then on the premises; and then seizure by the Company of certain of our working papers.

In that connection, we must insist that you promptly return our documents.

[End of extract of resignation letter]

I have to say that my initial observations are that Deloitte did the right thing in resigning!

Longtop however have released a press release in connection with the resignation and included the statement that they have “initiated a search for a new auditor.”

Somehow I’m not convinced that the other top auditing companies will be rushing out to win Longtop as a client.

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It took 26 years to find out that he’s not an expert…

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One of my friends is a TV producer and he’s recently been working on a documentary that just amazed me and I thought you may enjoy hearing of.

In 2007, Gene Morrison was convicted of a number of serious offences, including perjury.  The reason for this is that he had successfully posed as an expert forensic scientist for some time, having taken some money from people and having even appeared repeatedly as an expert witness in court.

When I say “some time”, I could be more precise: I mean 26 years.

When I say “some money”, I mean over a quarter of a million pounds.

He was one of the favoured expert witnesses used in the Manchester area by the UK’s Crown Prosecution Service.  Why?  Apparently he had a good reputation.  How reliable is reputation as a way to assess somebody’s competence?  Read on…

As my friend was telling me this story, my mind turned to audit standards. In particular, my mind turned to ISA 620 Using the Work of an Auditor’s Expert.

In criminal investigations where forensic evidence is important, it’s clearly necessary to obtain expert testimony.  The same applies with specialist areas of accounting that require non-accounting knowledge.  Either the auditor can prove the necessary skills themselves, or can commission an expert.

The problem here is that where evidence comes from somebody who is less expert than they claim to be, evidence that appears to be reliable is actually then worthless. Good quality forensic evidence is destroyed by being handled by a charlatan.

Doctor Gene Morrison MSc PhD (or to give him his full list of titles, Gene Morrison) had run his own company, with the grandiose title of Criminal and Forensic Investigations Bureau (CFIB) on the basis that he obtained the work, then secretly contracted it out to unwitting genuine experts.

He collected the cash, claimed the work as his own and kept almost all of the cash. His knowledge of forensic science appeared to come exclusively from the complete box set of the CSI: Crime Scene Investigation TV shows.

Astoundingly, it appears that in the 700 or so investigations where he provided expert evidence, not one lawyer meaningfully verified his credentials.  His statement that he was an expert appeared to be enough to be considered sufficient.  He appeared as a witness in court many times, somehow bluffing his way through cross examination.

The criminal trial against him was thorough, and the jury found him guilty of 20 of the 21 charges against him.

An auditor following ISA 620 could almost certainly not have been hoodwinked even once by Mr Morrison’s scam.  ISA 620 requires an auditor to verify the existence and quality of any qualifications an expert claims to hold.  Critically, it also requires that the auditor know enough about the subject material to discuss the matter with the expert and reach a concurring opinion with them.  This would surely be impossible with somebody who didn’t know a thing about the subject matter under discussion

He was eventually caught out when privately commissioned by some desperate and grieving parents who wished to know more of the circumstances of the sudden death of their son.  Their dissatisfaction with the bewildering contents of his report caused them to conduct some cursory investigation of their own; shortly followed by a phone call to the police.

Mr Morrison was sent to prison for five years.

One of my friends is a TV producer and he’s recently been working on a documentary that just amazed me and I thought you may enjoy hearing of.

In 2007, Gene Morrison was convicted of a number of serious offences, including perjury. The reason for this is that he had successfully posed as an expert forensic scientist for some time, having taken some money from people and having even appeared repeatedly as an expert witness in court.

When I say “some time”, I could be more precise: I mean 26 years. When I say “some money”, I mean over a quarter of a million pounds. He was one of the favoured expert witnesses used in the Manchester area by the UK’s Crown Prosecution Service. Why? Apparently he had a good reputation. How reliable is reputation as a way to assess somebody’s competence? Read on…

As my friend was telling me this story, my mind turned to audit standards. In particular, my mind turned to ISA 620 Using the Work of an Auditor’s Expert.

In criminal investigations where forensic evidence is important, it’s clearly necessary to obtain expert testimony. The same applies with specialist areas of accounting that require non-accounting knowledge. Either the auditor can prove the necessary skills themselves, or can commission an expert.

The problem here is that where evidence comes from somebody who is less expert than they claim to be, evidence that appears to be reliable is actually then worthless. Good quality forensic evidence is destroyed by being handled by a charlatan.

Doctor Gene Morrison MSc PhD (or to give him his full list of titles, Gene Morrison) had run his own company, with the grandiose title of Criminal and Forensic Investigations Bureau (CFIB) on the basis that he obtained the work, then secretly contracted it out to unwitting genuine experts.

He collected the cash, claimed the work as his own and kept almost all of the cash. His knowledge of forensic science appeared to come exclusively from the complete box set of the CSI: Crime Scene Investigation TV shows.

Astoundingly, it appears that in the 700 or so investigations where he provided expert evidence, not one lawyer meaningfully verified his credentials. His statement that he was an expert appeared to be enough to be considered sufficient. He appeared as a witness in court many times, somehow bluffing his way through cross examination.

The criminal trial against him was thorough, and the jury found him guilty of 20 of the 21 charges against him.

An auditor following ISA 620 could almost certainly not have been hoodwinked even once by Mr Morrison’s scam. ISA 620 requires an auditor to verify the existence and quality of any qualifications an expert claims to hold. Critically, it also requires that the auditor know enough about the subject material to discuss the matter with the expert and reach a concurring opinion with them. This would surely be impossible with somebody who didn’t know a thing about the subject matter under discussion

He was eventually caught out when privately commissioned by some desperate and grieving parents who wished to know more of the circumstances of the sudden death of their son. Their dissatisfaction with the bewildering contents of his report caused them to conduct some cursory investigation of their own; shortly followed by a phone call to the police.

Mr Morrison was sent to prison for five years.

What’s in a name? Ask Julian Assange.

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Trademarking your name and logo is normally the preserve of businesses but WikiLeaks founder Julian Assange has just submitted an application to trademark his name.

The 39 year old computer hacker who is currently fighting extradition to Sweden over allegations of rape and sexual assault, has recently applied for the trademark on his name through London-based law firm Finers Stephens Innocent.

If the application is successful , he will own the trademark to his name for the purposes of “Public speaking services, news reporter services,  journalism, publication of texts other than publicity texts, education services and entertainment services.”

He is not the only well known individual that has trademarked their name. Sarah Palin, the US politician, has applied for similar trademark protection for both her and her daughter Bristol Palin.

Now if any of you happen to be called Julian Assange but are not the Mr Assange that founded WikiLeaks,  then don’t worry, you won’t have to change your name. The trademark will only prevent others from advertising and selling the same kind of materials using the Julian Assange name.

‘Tis the season to be jolly (plus of course to fight with elves…)

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Christmas is fast approaching and for a number of companies this is their busiest time of the year.

It is also a time of opportunity. Or at least that’s what brothers Henry and Victor Mears thought was the case. In terms of legality and ethics though their business plan left a lot to be desired.

Two years after their ill fated Christmas business collapsed within days of opening they are currently in court facing a number of charges.

The background to the case is that they established a Lapland-style theme park in the New Forest region of the UK.

Their business plan indicated that they would make in excess of £1 million. With thoughts no doubt of the success of other theme parks around the world such as Disneyland and Lego Land they got hard to work on the Lapland-style park.

Promotional materials for the park advertised Christmas festivities including a bustling Christmas market, real log cabins and a variety of real “Christmas animals”.

All in all it promised to be a true Christmas spectacle for the parents and their excited children that planned to visit the park.

The promotional materials were so successful that nearly 10,000 advance bookings were made online.

Unfortunately for the crowds that turned up the reality of the park left a lot to be desired.

The ice rink didn’t have any ice in it. Instead of ice skaters gliding over the ice there was a muddy puddle. The real Christmas animals were pet husky dogs that were in such a bad condition that they were reported to the RSPCA (Britain’s animal welfare charity).

The other “real animal” on show was a plastic toy polar bear which had been placed a distance away in amongst the trees.

All in all it was a spectacular failure.

Businesses fail for a variety of reasons but this one never really got off the ground.

There’s a big difference between having a couple of pet dogs, a puddle and a plastic Polar bear compared with a Christmas extravaganza Lapland theme park.

The park was only open for 6 days before closing. The company behind it was subsequently liquidated with creditors owed £850,000.

Some people may feel that the only real highlight of the 6 days that the park was open was the far from traditional Christmas scene where some of the parents started fighting with a number of Father Christmas’s elves.

The end result is that the brothers have been charged with 8 counts of misleading customers. The brothers deny all charges against them.

The ExP authors will be taking a break from this blog for the festive season but we all hope that you have a fantastic holiday break and we’ll be back blogging in January!

It’s a Relentless exercise to choose the name of your business…

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When small businesses choose their business name, the reasons are often personal.  Business names are often a homage to somebody or something special to the business owner.

A fish restaurant, for example, could well be named after a boat that the owner is sentimentally attached to.

This all seems reasonable, but it’s best to choose a boat that isn’t called something like “TGI Friday”, or “McDonald”.

Scott Matthews, aged 24 and from the south coast of England, recently learned this.  His restaurant is called “Relentless”, apparently after his father’s sturdy fishing boat.

He says that the logo was simply made up by typing “Relentless” into his word processing software, using an old English script.  He chose a black background because he likes black backgrounds.

Recently, he heard from the Coca-Cola company, who have an energy drink with a similar brand name and similar logo.

Mr Matthews claims that his first contact from Coca-Cola came in the less than cosy form of a seventeen page legal document demanding that he change the name and signage of his business.

His reaction appears to have been rather assertive and rather shorter than 17 pages.  He’s not saying entirely what he said, but we’re guessing it could pithily be summarised in two words.

This is an example of the civil wrong of “passing off”.  If a product has a similar name to another product and is likely to imply endorsement or some other form of customer confusion, then it’s possible to petition a court for an order to mandate the party who got the name second to change their name.

Of course, the court does not necessarily grant such an order.  There has to be some evidence of customers being likely to be confused by the similarity.

It’s hard to imagine somebody opening a can of energy drink and being crestfallen at the non-emergence therefrom of a steak and lobster dinner, for example.

However, it’s possible to imagine somebody being attracted to a restaurant because of an apparent association with a better known product, such as an energy drink.

It seems that both Mr Matthews and the Coca-Cola company intend being somewhat relentless in this case.  We will let you know what happens if we’re able to find out.

Who can really be trusted to keep a secret? Accountants or lawyers?

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When you speak with your lawyer, you can say almost anything and be confident in the knowledge that the lawyer will be able to preserve the confidentiality of your discussion.

Most people probably assume the same thing when having discussions with their accountant, especially in the context of discussing tax planning opportunities with a tax advisor.

Unfortunately, English readers should pay careful attention to the decision in a recent case, R (on the application of Prudential PLC) v HMRC, EWCA Civ 1094 if you would like the full legal citation.

This Court of Appeal decision stated that client privilege only extends between a lawyer and a client.  This means that any discussion between a client and an accountant cannot be guaranteed to be confidential.

This is an English legal case, which is binding in England and Wales only, but the judgment is based on common law, so is likely to be highly influential in jurisdictions based on the English system globally.

As the accountancy and legal professions increasingly compete, especially in the area of tax advice, this gives a significant advantage to the legal profession over the accountancy profession.

Who would you rather seek advice from: a lawyer who you are confident cannot be compelled to reveal the content of your discussion, or an expert accountant who is unable to promise confidentiality?

If you talk to a lawyer about this then they may well say they were pleased that they had this advantage over accountants.

Note of course though that if they felt like it they wouldn’t have to disclose what was said in your conversation…

That’s some obligation – it will take 180,000 years to repay it…

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Yesterday, the so called “Rogue Trader”, Jerome Kerviel, whose unauthorised trades cost his former employer Societe Generale vast losses was sentenced.

Whilst this has got a serious element to it (he was jailed for 5 years) it also has a certain element of farce. As well as the jail sentence he was ordered to pay compensation to his former employer.

Now, this wasn’t any “normal” compensation we’re talking about here. It was the princely sum of €4.9 billion. Yes, Mr Kerviel was told that he has to pay nearly €5,000,000,000 to his former employer.

Based on his annual earnings before going to jail it would take him nearly 180,000 years to pay that amount! Societe Generale have sensibly announced that they will not be pursuing the money.

Control environments don’t generally strike students as the most scintillating area of their studies.  A number of ACCA and CIMA Papers however place considerable emphasis on controls, using Sarbanes-Oxley and the COSO frameworks.

Respecting controls might slow down an employee’s daily work routine and may feel sometimes like a constraint on innovation and enterprise.  Sometimes, it may be tempting to circumvent controls, especially if it generally appears to result in making quicker profits.

Anybody tempted to do this might be interested to note the Paris court’s decision to sentence Mr Kervie.  Although the hapless gentleman alleged that the bank had been complicit in allowing him to trade beyond his authority limits, this seemed to be little defence in either showing innocence or getting a more lenient sentence.

The lesson seems to be fairly clear.  Even if the tone appears to be one of disregarding controls because management don’t take them seriously, if anything then goes wrong, management will most probably not agree that controls were considered to be unimportant!

The safest thing to do is to assume that any controls are meant to be respected, even if it doesn’t feel that way.

It could literally be your “get out of jail” card.

Do you own a iPhone or is it a Hiphone, an Ephone or a Ciphone?

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On Saturday Apple officially launched the iPhone 4 in China. They also opened up two new flagship stores in Shanghai and Beijing.

China is the world’s largest mobile market with more than 800 million subscribers so it would seem to make sense that Apple sell their products there.

Why has is taken them so long to launch the iPhone 4 in China though? After all, the iPhone 4 was originally launched in the US back in June and in countries such as Australia, Netherlands and Singapore in July.

The handsets themselves are manufactured in China so it’s not as though they haven’t had any experience of doing business in the country.

There are various reasons why companies have phased product roll outs in different countries. The sheer scale of a “global launch” for a company like Apple would be extremely challenging. Having sufficient inventory in stock on global launch day would not only be a logistical nightmare but would probably be physically impossible.

An additional challenge for Apple is that they need to agree matters with their strategic communication service providers in each territory (in other words, the mobile phone operator they will be partnering with in each particular country). This also takes time.

Anyway, from now onwards we’ll be seeing the iPhone 4 in China but anyone that has been to China recently though could be forgiven for thinking that the iPhone 4 has already been in the country for a while.

A significant issue for Apple is the increase in the number of iPhone clone companies.

As well as clone companies that produce illegal fake copies of the phone there are also businesses that produce reasonable quality phones which are very similar to the iPhone. They are designed so that they try not to break any patent protection that Apple has set up. I’m sure though that Apple’s patent lawyers are monitoring these products very closely!

A quick search on the internet for example shows websites selling products such as the HiPhone, the Ephone and the Ciphone. With prices starting at less than $100 there will be a significant number of people opting for these items.

Oh, and in case you were wondering the photo above is of the Hiphone.

Look out for two prostitutes, £3.7 million of stolen cash and a 58 year old accountant at your local Toys R Us store.

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Toys R Us is one of the largest toy store chains in the world.

It’s very successful and has nearly 1,300 stores around the world. What it didn’t have though was a strong internal control system in their UK purchase ledger department.

Between 2006 and 2008, married father of two and accounts payable manager Paul Hopes made over 20 illegal payments ranging from £100,000 to £300,000 to bank accounts of fictitious toy suppliers in the Far East which he had set up himself.

The £3.7 million of illicit money was then spent on various items. One of Mr Hopes favourite methods of spending the money was on Wednesday nights when he would regularly entertain 2 prostitutes at luxury hotel suites.

As well as paying for their time and energy he also bought them a string of luxury cars including a Bentley, Toyota Land Cruiser and a BMW M3 (incidentally, his wife was at the time driving the family Ford Mondeo).

In total he spent nearly £2.5 million on the two prostitutes.

It all came to a sticky ending for Mr Hopes though as he was sentenced to 7 years in jail.

What is interesting about the sentencing is that under the Proceeds of Crime Act the Judge ordered Mr Hopes to repay £3.4 million of the £3.7 million stolen. If he fails to repay the £3.4 million then an additional 10 years will be added to his 7 year sentence. At the end of the 17 year sentence he will still be obliged to repay the £3.4 million.

Now, remember that Mr Hopes is an Accountant so I’m sure he’s an expert in double entry but even the best bookkeeping skills won’t be able to make “income” of £3.7 million minus “expenses” of £2.5 million equal a balance of £3.4 million.

I guess he’s hoping that these two particular ladies are now desperately trying to find him every Wednesday evening to give him the money back.

If you’re going to buy shares in Skype then watch out as the Sky could be the limit.

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The internet telephone company Skype is planning on raising $100 million via an IPO (Initial Public Offering) on New York’s NASDAQ later this year.

Skype is probably the best known “internet telephone company” and users can make free Skype-to-Skype calls. Paid for calls to mobiles or landlines can also be made.

$100 million however is a significant figure and the filing documents submitted on Monday show that in 4 of the last 5 years the company lost money. In addition, the proportion of Skype’s customers that use the paid for services is also relatively small (8 million out of total registered Skype accounts of 560 million) so arguably there’s a real risk that it may be a significant time before the company is well into profit making territory.

The IPO submission documents must also show any identified risks and there is an interesting one present with Skype.

If you look at page 30 of the IPO submission document it was revealed that BSkyB, the owner of Sky TV in the UK, is in a long running dispute with Skype over the use of various trademarks. There is a view that Sky and Skype could be confusing for certain individuals especially given that BSkyB are promoting their telephone services alongside their Sky TV services.

It’s a case of watch this space to see what happens next.

Of course, free phone calls are one thing but if Skype ever started showing free television programmes then that’s when things would get really exciting.

How can you make a salary of £26,000 stretch to buying a horse riding business, a holiday home, luxury holidays and a Range Rover costing £45,000?

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It seems that not all accountants are 100% honest.

Whilst the vast majority of accountants are  trustworthy there were two court cases in the UK this week that resulted in jail sentences for accountants.

Gary Gordon, who previously worked for the Big 4 firm PricewaterhouseCoopers, stole £45,000 from his employer UK Mission Enterprises. He rather unimaginatively simple diverted the cash into his own accounts.

He apparently had a gambling habit and didn’t appreciate the amount of money that he had stolen. He’s been jailed for 16 months.

£45,000 however pales into insignificance when compared with £1.3 million which was the amount that Tracey Laws stole from her employer Inchcape Limited.

Inchcape Limited is the parent company of a number of motor trading companies in the UK and for nearly 10 years Laws wrote 75 fraudulent cheques totaling £750,000 to her own horse riding school (which she had set up with money that she had already been stolen from her employers). She had also fraudulently transferred over £500,000 to her husband’s decorating company.

Despite having a maximum annual salary of £26,000 during her time with Inchcape she managed to buy a horse riding school, a holiday home, luxury holidays and a brand new Range Rover.

It wasn’t these mis-matched spending habits that caught her out though. Her crime was uncovered by accident when one of the motor trading companies was changing payment systems and two employees noticed a cheque made out to West Acres Stables (the stables owned by Laws).

These two observant individuals noticed that the handwriting looked very much like the handwriting of Tracey Laws. It turned out that it was her hand writing and the end result was that Laws was jailed for four years last week.

No doubt there are new internal controls in place at Inchcape and looking on the bright side for Laws she will at least save her annual accountancy membership fees going forward and she will also have her bed and breakfast supplied free of charge by Her Majesty’s Government for the next few years.

If you wear a business outfit to work then surely getting dressed in the morning is overtime?

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There was an interesting court case in Germany this week. Not only for people that follow employment law but also for people that have to wear certain outfits to work.

German Policeman Martin Schauder was awarded an extra 7 days of holiday a year after arguing that the time he spent changing into his uniform each day was part of his job. He therefore claimed that this time was part of his work time.

He stated that it took him 15 minutes every day to get his police outfit on and 15 minutes to take it off. These extra 30 minutes a working day amount to an extra 45 working hours every year.

The court in Germany agreed with the policeman and told his employers to either pay him the overtime or to give him holiday.

The police force have unsurprisingly said that they are going to appeal against the decision.

Now, if this case is upheld then it raises some interesting opportunities for me. As an accountant who meets clients then I am expected to be dressed smartly. My personal choice of clothes for the office however would be shorts and a t-shirt so the fact that I have to wear a tie surely means that the time it takes me to do my tie up is overtime.

This varies from a sleepy 1 hour plus on a Monday to a speedy sub 1 minute on a Friday. Adding this all up will amount to a significant sum of overtime money and this is before I take into account the time taken to tie up my shoelaces instead of slip on my preferred choice of footwear of flip flops.

Should Michael Jackson have had more of a bond with David Bowie?

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It’s one year since Michael Jackson died.  In the year since his death, his estate has made earnings of £670 million.

Given that he was allegedly in serious financial trouble at the time of his death, this must be the source of a certain amount of posthumous frustration to Mr Jackson.  His ability to spend the money has been significantly impaired in the period since the money started to roll in, on the grounds of his no longer being alive.

This is a quandary well known to many pop stars.  The murder of John Lennon in 1980 sparked a sudden and deep revival of his career.

I can’t help but wonder why none of Michael Jackson’s advisors pointed him in the direction of the Bowie Bond.

David Bowie issued bonds in 1990 that were secured on the future income to be earned from songs that he had written up until that date.  This is a simplification of course, but that’s the big picture.  By doing this, David Bowie was able to get the benefit of some of his post death earnings while he was still alive.  He is a smart business operator as well as enormously popular song writer, it seems.

The Bowie bond has been influential in business since it was issued.  In practice, I personally used it as the backbone of market data to help in the divorce settlement of another well known musician.

Its influence amongst accountants is significant, though less so with the pubic at large. Rock stars probably don’t shout about it because valuation and securitisation of intellectual property isn’t really very rock and roll.

ACCA exam tips released today but this individual won’t be running free range over the exams…

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A mixture of intelligence, hard work and dedication are needed to ensure success in the exams. No training company knows for sure what will actually be in the exams next month but our tips identify areas which we believe you should have covered particularly well.

For those of you sitting audit, ethics or law papers the following case shows an individual who clearly didn’t show intelligence, hard work and dedication.

Organic and free range eggs are becoming more popular in the UK with a premium being paid as a result of the expense of feeding the chickens with natural produce and letting them roam free.

An individual by the name of Keith Owen was recently jailed for 3 years as a result of mis-describing eggs as free range when they were in fact battery hen eggs. The judge also made Owen surrender the £3 million profit he made and stated that it was “a carefully planned and executed fraud by false accounting” (false accounting by altering records to hide the fact that the eggs weren’t free range).

The scale of the fraud was phenomenal. He defrauded all the major UK supermarkets, including Tesco and Sainsbury, as well as numerous small shops by selling them approximately 100 million (yes, one hundred million) battery eggs as free range eggs.

The fraud started to come to light when it was noticed that the number of free range eggs sold by his company was more than could be laid in all the farms in the UK.

There were also complaints from a number of lorry drivers that would drop off consignments of battery eggs at his factory, be told to wait a few hours and then pick up some free range eggs to be delivered elsewhere. The free range eggs were suspiciously of a similar quantity to the battery ones that had been dropped off a few hours earlier with the only difference being a new label on the packaging!

Now, I don’t know whether Mr. Owen ever considered attempting the ACCA exams but in terms of “intelligence, hard work and dedication” then somehow I just don’t think so.

Do you know your cucumbers from your mussels?

Students studying law topics often worry about the need to quote cases in their exam answers, but their can be little doubt that the ability to do so can only enhance the quality of your answers and the impression that you create with the marker.

UN Case 48

In this case, a German buyer of cucumbers (from a Turkish seller) sought to obtain a price reduction on the grounds that the cucumbers supplied were not of the specified quality under the terms of the contract.

The buyer’s application was dismissed on the grounds that they had waited too long in notifying the seller as to the non-conformity of the goods. This was because they were inspected by the buyer’s representative in Turkey, but the notification was not given until the cucumbers actually physically arrived in Germany seven days later.

UN Case 84

This was a truly international contract for sale of goods, in that it involved the sale of New Zealand mussels, by a Swiss seller to a German buyer.

On delivery to Germany, the Mussels were impounded by the German authorities, as they did not comply with German regulations in that they had too high a cadmium content, and so the buyer refused to pay for the goods.

It was held that the buyer had to pay for the mussels, as they would have been classed as fit for human consumption under Swiss law and there was no way in which the Swiss seller could have been aware of the stricter German regulations, in the absence of notification of this to them by the buyer.

Auditors cleared in landmark negligence case

This was one of the headlines that recently caught my eye, remembering that auditor’s liability is one of the few ‘new topics’ in ACCA P7.

In August 2009, the UK Law Lords on a split decision (3:2) upheld an earlier ruling by the Court of Appeal in a multi-million pound action brought by the liquidator of Stone & Rolls (a commodity trader) against their auditors Moore Stephens.

The Law Lords ruled that the auditors were not liable for failing to detect a £58 million fraud perpetrated over a number of years.

The fraud involved the CEO of Stone & Rolls, a Croatian businessman called Zvonko Stojevic, using the firm as a means of defrauding banks by means of a letter of credit scam.

The split decision perhaps provides less clarity than the auditing profession might have wished for in relation to the court’s view on an auditor’s liability for the detection of fraud.

The senior Law Lord, Lord Phillips, said “It does not seem just that in these circumstances, Stone & Rolls should be able to bring about a claim that it had set about inducing.”

Lord Manse, dissenting said “the world has sufficient experience of Ponzi schemes ….. for it to be questionable policy to relieve from all responsibility auditors negligently failing in their duty to report on such companies’ activities.”

We could be seeing a whole number of new claims against auditing firms worldwide as companies go into liquidation in the current economic crisis.

What’s your view on this case? Who knows the examiner might ask you!

Nice car, shame about the usage…

As promised, the blog will be used to build up your database of decided cases for ACCA F4 purposes and increase your CLOUT in the F4 exam room.

Case 190 1997

The defendant, an Austrian seller of imported Italian cars, sold a Lamborghini Countach to the plaintiff, a Swiss buyer. The seller, however, was not able to make delivery of the car to the buyer.

The court held that as the car was purchased for personal use (if I had one I wouldn’t let anybody else drive it!), in accordance with Article 2(a), the CISG did not apply to the case.

However, the court indicated that the CISG could have been applied to the case if the fact that the seller ‘neither knew nor ought to have known that the goods were bought for any such use’ had been proved by the buyer.

What kind of dog are you?

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Way back in 1896 in the famous Kingston Cotton Mill Case, was Lord Justice Lopes suggesting that auditors need a dog licence?

The facts of this case were basically that an action was brought against the auditors of the company for negligence, in failing to detect a fraud which involved the management of the company wilfully overstating the value of the company’s inventory.

In finding that the auditors were not guilty of negligence, the Judge famously said the following:

“An auditor is not bound to be a detective, or … to approach his work with suspicion, or with a foregone conclusion that there is something wrong. He is a watchdog, not a bloodhound.”

The Oxford English Dictionary provides us with the following definitions:

Watchdog: ‘A dog kept to guard private property.’

Bloodhound: ‘A large hound with a very keen sense of smell, used in tracking.’

It’s a long time since 1896 and nowadays, there is perhaps more a way of thinking that auditors should be a little bit less of a sleepy old watchdog, and rather more of an active bloodhound.

Make sure that you are up to date on an auditor’s responsibility for detection of fraud.

Looking for a good bedtime read?

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Reporter Norman C. Miller won a Pulitzer Prize in 1964 for his reporting on the De Angelis story.

Tino De Angelis was the ‘brains’ behind ‘The Great Salad Oil Swindle’ (the name of the book).

This case showed quite clearly that attendance at stocktaking by an auditor, will not provide, in itself, sufficient appropriate audit evidence on which to base the audit opinion.

I have always found one of the most interesting ways of studying internal control systems and auditing procedures is by looking at reports on frauds, indicating where things have gone wrong in real life.

Last time I looked on Amazon there were some copies of one of my favourite books available, alternatively perhaps try your local library.
Happy bedtime reading!