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It’s 2010 so should a Witch pay income tax or not? Well, according to the Romanian government…

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“Double, double toil and trouble, fire burn, and cauldron bubble” so goes the famous Witch’s chant from Act 4, scene 1 of Macbeth but was a similar chant taking place last week when a potential Witch Tax was rejected by the Romanian Senate?

Like many countries around the world Romania suffered badly during the recession. In an attempt to balance the books the government has undertaken cuts in public sector wages as well as raising the VAT rate.

In a somewhat unusual move last week though, Alin Popoviciu and Cristi Dugulescu, two members of the ruling Democratic Liberal Party drafted a law whereby Witches would have had to produce receipts for the services they performed and hence be taxed on them.

Now whilst the image of Witches queuing up to submit their tax returns may cast an unlikely picture there are a number of interesting issues.

First of all then surely they are just self employed individuals? From a tax point of view they are no different from for example a self employed builder or a self employed accountant who both have to pay income taxes.

Admittedly, from a non tax point of view it probably elicits some interesting expressions on the face of the person who asks them what they do for a living but back to tax and there would be some questions that needed to be answered:

What about Witches training courses? Surely they would be a tax deductible expense?

Would the costs of keeping a black cat be considered a personal expense or an expense of the business?

What about the purchase of a new broom. Would it be a capital or revenue expense?

In another move which no doubt came as a complete surprise for all concerned, fortune tellers were told that they were to be held liable for any incorrect predictions that they made.

The Witches and fortune tellers needn’t have worried too much though as Romania’s Senate voted down the proposal on Tuesday.

Popoviciu allegedly claimed that the lawmakers didn’t implement the law as they were frightened of a Witches’ curse being made on them.

Benjamin Franklin once famously said “In this world nothing can be said to be certain, except death and taxes.”

Maybe the Senators that voted down the Witches tax in Romania were concerned that the two would be combined.

If you go to the bank today be careful in case you Kop some abuse for being a toxic asset.

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On Saturday Wayne Rooney the England and Manchester United footballer was dropped for the game against Everton.

According to the Manchester United manager Alex Ferguson, he was dropped so that he wouldn’t have to endure excessive abuse from the Everton fans (whilst the married Mr Rooney has recently gone through a barren patch of scoring on the pitch he was reported in the press last week as having scored off the pitch with a number of prostitutes).

So, the Everton supporters didn’t have the opportunity to direct their witty chants towards Mr Rooney.

The Accountants amongst the Everton supporters though must now be looking forward to when they play their neighbours and fierce rivals, Liverpool.

Last week it was reported that Liverpool FC’s loan with the Royal Bank of Scotland (RBS) had been reclassified and moved to RBS’s toxic debt division. In other words the £260 million loan is now within the “bad bank” part of RBS which was created to put all their toxic assets from the recent worldwide financial crisis.

Even though RBS were reportedly getting £1million interest per week on the loan it is now considered clear that they have severe doubts over whether they will get their money back.

We blogged a couple of months ago about the going concern risk with Liverpool FC and this latest news can only add to the excitement.

One thing’s for sure though and the toxic debt division of RBS won’t be very sympathetic with Liverpool and will be looking to recover their money as soon as possible. A quick sale of the football club at a knock down price is expected.

Now, all you accountants in the Everton crowd get your singing voice ready and altogether “You’re toxic and you know you are, you’re toxic and you know you are….”

PwC in the UK have just released their results. So how much did each partner make?

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PricewaterhouseCoopers is a great company. It’s one of the top companies in the world and it’s also a truly global company. The latest reported figures show over 160,000 PwC people working around the world including 8,500 partners.

On Monday PwC released their UK results for the year ended June 2010.

So, how did they do?

First of all the good news. Their turnover in the UK rose 4% to £2.33 billion.

Their profit before tax in the UK however fell 3% to £665 million.

This fall in profit was put down to some significant investment during the year including recruiting 1,750 staff, appointing 57 new partners and moving into a new environmentally friendly office in London (incidentally, there’s a previous blog entry on the proximity of a PwC office to a Ernst & Young office here).

As maybe a positive sign on their view as to which direction the economy is heading they also stated that they were planning on creating 800 new jobs in the UK over the next year as well as continuing with their significant graduate recruitment by taking on 1,200 new graduate level joiners.

Now onto the exciting bit that I’m sure lots of people are interested in and that is what is the average payout for each of the 820 PwC UK partners?

Although it was down by 2% on the previous year it was still a healthy average figure of £759,000 per partner.

PwC’s UK chairman, Ian Powell, was reported as receiving £3.6 million.

A previous Ernst & Young award winner (allegedly) held meetings in his underwear, Deloitte resigned and there’s no sign of the cash anywhere…

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Two weeks ago we blogged about Deloitte’s decision to resign as auditors of American Apparel due to amongst other things, problems with stock valuation.

Yesterday, the investor relations department of American Apparel released a press release which included the disclosure that “the Company believes that it is probable that as of September 30, 2010, the Company will not be in compliance with the minimum Consolidated EBITDA covenant under the second lien credit agreement”.

In simple terms this means that it may default on some of its loan payments. This is obviously bad news for all stakeholders of the business as the company may simply not have enough cash to stay in business. Their share price fell by 22% in late trading yesterday.

This is quite a fall from grace for the company and its charismatic founder and CEO, Dov Charney. Back in 2004 at the height of the company’s success Mr Charney won the Ernst & Young Entrepreneur of the year award.

Mr Charney is one of the real characters of the fashion industry in America and in the past has faced sexual harassment claims as well as allegedly attended interviews and company meetings in his underwear (no doubt American Apparel underwear).

The situation today though is that the company is in negotiations with its creditors to amend the loan agreement to ensure they can stay in business.

It’s looking like the decision by Deloitte to resign was indeed a sound decision. The new auditors, Marcum, will no doubt have some challenges ahead but one thing’s for sure and that is they should issue their invoice to American Apparel now and start chasing up payment straight away.

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.

If it’s “Dress Down Friday” today at Deloitte would you look good in American Apparel clothes?

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It was announced recently that Deloitte has resigned as auditor of American Apparel.

American Apparel is the largest clothing manufacturer in the United States.  The company has expanded substantially outside the USA in recent years, meaning that a material proportion of their sales and inventory happen in territories where US GAAP is not the local requirement.

This appears to have created some problems.  The company was previously audited by Marcum LLP, but it changed auditor to Deloitte on 3 April 2009.  Deloitte had reported an audit opinion and opinion on corporate governance compliance.  These gave an opinion that the company did not have staff outside the USA who were adequately trained in inventory valuation (presumably in inventory valuation in accordance with US GAAP rather than IFRS) and that controls over inventory outside the USA were below the standard that Deloitte considered to be fit for purpose.

Marcum, the previous auditors, had expressed an adverse opinion on the corporate governance report in the financial statements for 2008.  Some saw this as a critical event in the replacement of auditor with Deloitte.

Resigning as auditor is a drastic step that is likely to have an adverse impact on the company’s share price.  American Apparel’s share price nose dived by 25% when the stock market heard of the news of Deloitte’s decision to resign.  Presumably this is because investors have new doubts about the reliability of the company’s historical financial information and future prospects.

As for the name of the proposed replacement for Deloitte?  Apparently, the company’s favoured option is a firm called Marcum LLP…

Vodafone and their involvement with CFC (no, not Chelsea Football Club)

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There’s a pretty good chance that either you or somebody you know has used a Vodafone network.

Vodafone are the world’s largest mobile telecommunication network company and last week they announced better than expected results for the quarter ended 30 June 2010 with revenue rising for the first time since the recession began (rising by 4.8% to £11.3 billion for the 3 months).

Also announced was an agreement with the UK tax authorities over a Controlled Foreign Company (CFC) investigation that dates back to 2001.

In simple terms, CFC is a set of rules which prevent UK companies from avoiding tax by the use of subsidiaries in tax havens around the world. If for example a company pushes profits into a subsidiary in a low tax jurisdiction it would avoid paying the higher rate of tax on these profits in the UK. The UK tax authorities can counter this by applying CFC legislation.

The Vodafone case was a complicated one involving a holding company in Luxembourg. It had made a provision of £2.2 billion for settlement of the dispute but has now agreed to pay £1.25 billion to settle all outstanding CFC liabilities to date as well as reach agreement that no further CFC obligations will occur under current legislation.

This is not only good news for Vodafone but also a number of other multinationals that are currently in negotiations with the tax authorities over CFC issues. It also reportedly signals a more flexible approach by the tax authorities as the new UK government has stated that they wish to make the UK open to international business. Over recent years a number of companies have moved operations away from the UK to for example, Ireland where there is currently no CFC legislation in place.

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.

Is this the real Willy Wonka? After all he bought enough chocolate on Friday to make over 5 billion bars of chocolate.

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Anthony Ward, a British financier who set up hedge fund Armajaro Holdings, bought a huge chunk of chocolate on Friday.

To be precise, he spent over £650 million buying 241,000 tonnes of cocoa beans.

This was the highest single purchase of cocoa for nearly 15 years and happened as cocoa bean prices rose to their highest level for 23 years. On news of the purchase cocoa futures for July delivery jumped by 1.5%.

The trade took place on Liffe (the London International Financial Futures and Options Exchange), a market which trades contracts in commodities such as sugar, coffee and cocoa.

As well as the sheer size of the transaction the strange thing about it was that Mr. Ward’s company has actually taken delivery of the cocoa. This is very unusual as the vast majority of cocoa transactions normally involve traders exchanging option or futures contracts without actually taking possession of the beans.

So why has he purchased so much chocolate?

He’s a very astute and wealthy businessman who reportedly lives in a £10 million house in Mayfair, London.

The speculation is that he is stockpiling huge volumes of cocoa in order to be in a strong negotiating position. Harvests in the cocoa heartlands of Ghana and Ivory Coast have recently been weak and there is an increase in demand for chocolate in the Chinese and Indian markets.

It looks like chocolate prices are on the rise so what better excuse for me to stock up on some chocolate before the price rises. Somehow though I don’t think my stockpile will be anywhere near Mr. Wards…

What will make Ernst & Young different from the rest of the Big 4? Will it be an Executive Decision or…

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According to reports this week, Ernst & Young will be the first of the Big 4 to appoint non-executive directors to its global advisory council.

This is a major move for the accountancy profession.

The profession has been under increasing regulatory pressure for a while now and the decision to appoint non-execs is reportedly in response to the new audit firm governance code that was published earlier this year.

The revised Ernst & Young advisory council structure will in broad terms mean that Ernst & Young will have a board structure which is similar to the multi-national companies that are their clients. Their remit will include monitoring strategy and risk.

Their global advisory council currently includes 36 senior partners. These partners will soon be joined by 4 non-executive directors drawn from the business and regulatory world.

The names of these non-execs will be disclosed later this year and although I’m not a betting man I’d probably have a wager that their CVs will not include the names of Deloitte, KPMG or PricewaterhouseCoopers.