I often believe that society at large does not get best value for money from auditors.
That’s not to say that we deliver bad value for money. Quite the contrary in fact; audit work does not attract especially high fees, has high costs of provision and very high insurance costs as a result of fairly high risk of litigation.
All of these factors conspire to mean that audit work is often not undertaken by smaller firms of accountants at all – the risk/ return profile is just not good enough.
Today, I noticed that the UK government had committed to spending up to £10 million for urgent research by eminent scientists into why the population of bees and other pollinating insects is rapidly falling. Answers are needed soon – bees play an essential role in the food chain that we all depend on.
There are significant amounts of money spent on government research and enquiries. For example, the results of an enquiry into the “Bloody Sunday” killings were announced last week. This enquiry had reportedly cost £100 million in fees, with a further £91 million in disbursements. It had also taken fourteen years to reach its conclusions.
Now, I rather doubt that most auditors have the scientific skills necessary to determine the reason for bees’ decline, but I suspect that they do have the skills necessary to identify the key assertions by witnesses to the Bloody Sunday killings, obtain and evaluate sufficient, appropriate evidence and then reach a conclusion.
This process is often known by an alternative name of “auditing”. Our skills are already used in forensic investigations. I wonder why people don’t think to use us in other situations where establishing facts is so critical?
With our innate focus on VFM audit and the natural sense of urgency that comes from having to report on financial statements within a matter of months, I can’t help but wonder if auditors would have been able to do the job for less than £191 million and sooner than fourteen years.
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2010-06-23 22:20:442010-06-23 22:20:44Auditors are good at lots of things but could we spot what’s happening to the bees?
BP chief executive Tony Hayward was grilled yesterday by the US Congressional panel.
The failure of the Deepwater Horizon drilling platform has been a catastrophe for lots of people. Stakeholders ranging from individual fishermen through to major shareholders have all been severely impacted.
Being natural accountants though, we couldn’t help but think how this would affect the accounts, given that it may well inspire some future exam questions.
The most obvious effect is the impairment of the well itself. Only the hardware is currently recognised in assets, since the value of the reserves is too uncertain to be recognised as an asset. Rigs cost vast amounts of money however and this is a significant impairment.
Similar drilling arrangements will also require major safety upgrades. This would cause an impairment, but no provision, since BP could always simply close down a well.
Then there is goodwill. BP grew to its vast size by organic growth and by acquisition. This activity may well have been through an acquired subsidiary. This is pretty solid external evidence of an impairment and so goodwill must be written off. Lots of goodwill needs to be written off.
Fines are a near certainty. The White House has been careful to ensure that the world knows that the $20 billion payment to a trust to settle damages is not a full and final settlement. This means that an estimate of likely costs will need to be made and disclosed in a very transparent way. BP and BP’s lawyers would probably prefer to avoid that transparency of how much they think this is going to cost them.
A number of years ago, IAS 10 was amended to require that only dividends that were legally required to be paid could be shown as liabilities. Many people commented on how this was not true and fair, since it was unthinkable that large companies could ever change their minds about dividends that had already been proposed. Well, BP changes that a little, given that they have agreed to skip this year’s dividend to shareholders, in response to huge pressure from wider stakeholders such as affected communities and the President of the United States. It turns out that companies do sometimes change their minds about dividends before the cheques get sent out!
What about recoverability of insurance proceeds? That one is simple; BP did not have insurance we believe. Ouch. Dare we breathe the words “going concern”?
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2010-06-18 05:34:462010-06-18 05:34:46IFRS 911: Accounting for environmental catastrophes? The BP oil spill illustrates a number of issues in IFRS. Here are just the first few we thought of..
On the way into the office this morning I was stuck in traffic next to a Peugeot 207 vehicle which was identical to the model to the left except that it was red rather than white.
If you’re heading to the ACCA UK stream tax exams on Monday then do you care if this vehicle is a car or a van?
The vehicle is certainly a nice looking Peugeot 207 and whilst most people would say it’s a car the fact that it doesn’t have side windows behind the driver and passenger doors makes it almost certain to be treated as a van by the tax authorities.
The good news is that you’re NOT going to be examined on the detailed rules of what is a car and what is a van (or lorry or truck for that matter) so should you care about the distinction between cars and vans?
The short answer is that yes, you should care!
I’m personally pretty certain that the exams on Monday will include a capital allowance computation which involves cars or commercial vehicles such as lorries or vans.
There are some new rules being examined for the first time by the ACCA this session (see chapter 5 of our F6 ExPress notes for a quick summary) so I think this has got a good chance of being examined.
In summary, vans and lorries are commercial vehicles and are therefore eligible for the AIA and FYA within capital allowances. Cars on the other hand do NOT qualify for the AIA or FYA (unless a low emission car which gets a 100% FYA).
Also, don’t forget to look out for the CO2 emission rate of the car as if it’s >160g/km then it only gets a 10% WDA as part of the special rate pool.
On the VAT side of things then VAT can be reclaimed on lorries and vans unlike with cars where it is not possible to treat the VAT as input VAT.
Being a tax tutor I’m one of those strange people that find all of this interesting and apologies to any of you that don’t share my excitement at discussing the distinction between cars and lorries…
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2010-06-02 11:25:112010-06-02 11:25:11If you’re heading to the exams next week then do you care whether this is a car or a van?
I’ve just come back from a short trip to the States. Whilst in most European countries VAT is taken for granted, in the US there is considerable debate over whether a VAT system should be established.
Although there is no VAT in the US at the moment, there are in fact sales taxes present in a number of states. What is interesting is that in some shops the sales tax is shown on the price of the goods on display whilst in others the sales price is not shown on the display but instead is added at the checkout. Studies have shown that in the US people are less likely to purchase a product if the sales tax is shown on the displayed price rather than added at the checkout.
However, whilst this is interesting every good student of ACCA or CIMA knows that the price shown in the UK on business to business transactions is net of VAT (i.e. VAT exclusive – excluding VAT) whilst goods for sale to the public are generally shown gross of VAT (i.e. VAT inclusive – including VAT).
On the subject of VAT in the UK, there was a recent change announced to the VAT filing system. In an attempt to reduce the level of filing of paper VAT returns, from April 2010 all businesses with an annual turnover of £100,000 or more will have to file VAT returns electronically and also pay VAT online. In addition, any business registering for VAT on or after 1 April 2010 will also have to file and pay online.
From an environmental point of view this is good news as the amount of paper that is used for paper return completion and submission is huge.
So, is the paperless office coming closer?
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2010-03-22 00:15:522010-03-22 00:15:52You’ll save paper but not VAT after 1 April.
Previous blog entries have highlighted the distinction between tax avoidance (legally minimising the tax liabilities) and tax evasion (illegal methods of avoiding tax).
HM Revenue and Customs have recently announced a new weapon in their fight against people who illegally evade tax. The tax authorities have said that people who have committed tax evasion on or after 1 April 2010 will now not only have to settle the tax owed, pay interest on tax and suffer potential penalties but they will now also face the prospect of having their names and addresses put up on the Revenue’s website for everyone to see.
This will apply to people that have deliberately evaded tax of more than £25,000.
There’s a saying that “all publicity is good publicity” but I’m not sure that being publicly exposed as a tax cheat is something that a lot of people will be looking for in terms of good publicity!
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2010-03-10 15:19:432010-03-10 15:19:43All publicity is good publicity but surely it should be avoided (evaded?) in this case?
Taxation and football have been in the news this week in the UK.
First of all we had winding up orders threatened on Southend, Cardiff City and the Premier League team Portsmouth on Wednesday. If a winding up order happens the clubs as corporate entities will be liquidated. In simple terms this means that the football clubs cease to exist.
The courts have allowed all of them a “stay of execution” but it’s not a great deal of time. Portsmouth, for example has to prepare a “statement of affairs” by 4pm next Wednesday.
The reason for the winding up order on Portsmouth is that HMRC (the UK tax authorities) took them to court over an unpaid tax bill of over £7 million. Whilst there are lots of emotional and community issues behind winding up a football club, HMRC take the view that it is simply another business that despite repeated requests has not settled its debt.
Another tax / football story in the press this week was yesterday when Harry Redknapp, the Tottenham Hotspur manager, was charged with tax evasion. He allegedly evaded tax on a payment made to him in Monaco. The case was adjourned to April.
This leads to a point which students often get confused about. Namely, the difference between “tax evasion” and “tax avoidance”.
“Tax evasion” involves methods of illegally reducing tax liabilities. “Tax avoidance” however is legitimately minimizing tax liabilities. It should be noted though that “tax avoidance” doesn’t sound particularly legitimate (even though it is) so a number of advisers are now referring to “tax avoidance” as “tax mitigation”!
All of this could be of little interest to the supporters of Portsmouth though if they are wound up next Wednesday. We shall wait and see.
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2010-02-12 04:02:052010-02-12 04:02:05Avoiding or Evading? Do the tax authorities care…
Well it only seems like yesterday that we posted about the 31 October deadline for submitting the hard copy paper income tax returns. Today is 29 January and perhaps more importantly if you’re a UK tax payer who has yet to submit your Income Tax Return, Sunday is 31 January.
The deadline for submitting your UK tax return electronically is 31 January following the tax year in question. So for example, the deadline for submitting your tax return electronically for tax year 2008/09 (6 April 2008 to 5 April 2009) is 31 January 2010 – i.e. this Sunday! If you haven’t submitted your tax return yet then you’ve probably got a busy weekend ahead of you.
If you’re in the UK then there really is no excuse for forgetting the deadline. Moira Stewart, who worked for the BBC for over 30 years, has been fronting a campaign by HMRC to remind tax payers about the deadline. TV, radio and press adverts have been bombarding us in the UK for the last month or so.
What surprises a lot of people though is that when a tax payer registers for the online service they are sent details of their user name and password through the post. HMRC take up to 7 working days to register site users so if you were planning on spending this weekend doing your electronic tax return but have yet to register on the HMRC site then unfortunately you will receive the £100 fine for late submission as you won’t be registered before the 31 January deadline and hence won’t be able to submit the return before the deadline.
What is also important to remember is that 31 January 2010 is also the deadline for paying any outstanding amounts of tax for 2008/09. Payment of any outstanding tax after this date will be liable to interest.
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2010-01-29 03:48:452010-01-29 03:48:4531 January or (31 January minus 7 days) deadline?
First of all congratulations to all CIMA students that received their exam results yesterday and were successful. Your hard work paid off so very well done! We’ve heard from a number of you that were successful and those are always the best type of emails to receive from students!
If your results weren’t as expected though and you didn’t pass then better luck next time.
Various papers have performance management within the syllabus. A rather unusual method of managing performance was recently reported by the press.
Japan’s Keihin Express Railway Co., in an effort to promote a friendlier customer service, has implemented something called “smile scanners” at its stations to assess the smiles of their employees!
Employees have to look into a camera every day and have their smiles scored by a computer that analyses their facial features and gives feedback. The quality of the smile is reportedly rated on a scale ranging from 100 to zero.
Is it effective? Can the scanner distinguish between an artificial and a genuine smile? The jury is still out.
While we at ExP love technology, we’re not sure we would submit to such assessment, at least not before our morning coffee!
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2010-01-22 02:16:342010-01-22 02:16:34CIMA results and performance with a smile…
As we start the new year people who are not students of UK tax maybe mistakenly assume that we have just finished a fiscal year on 31 December and have started a new fiscal year on 1 January.
As good tax students we know however that this is not true! The fiscal year (tax year) for individuals in the UK ends on 5 April and starts on 6 April. For companies the financial year start on 1 April and end on 31 March although remember that companies are free to choose their accounting period end.
Other countries have an assortment of fiscal year ends. Individuals in Japan and UAE for example have a fiscal year ending on 31 December. In the US the fiscal year ends on 30 September and in Australia it’s 30 June. This is all very interesting but don’t worry it won’t be examined.
However, what is important with regard to the start of the year is that all of us here at ExP would like to wish you all a very Happy New Year and all the very best in your exams, professional and personal lives for 2010.
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2010-01-06 20:04:432010-01-06 20:04:43We’ve just passed 31 December. So what?
I just read that Royal Caribbean have recently entered the World’s largest passenger ship – the Oasis of the Seas – into service. It is enormous, with elevators to carry passengers up and down the 18 passenger decks. To my old fashioned tastes, it looks rather like a floating housing estate, but I think that’s just age.
Whilst watching an online tour of the ship, I found myself being rather accountant-like about it. What’s it’s design life and is its useful life going to be shorter? Do cruise ships go out of fashion before they become too unreliable to sail? Will it generate more revenues in the early years than the later years? So should sum of digits/reducing balance depreciation be used instead of straight line? Of the cost of £800 million to build it, how much is down to the hull of the ship itself and how much to the decoration? The decoration is no doubt ideal for its target customers just now, but it’s bound to look hopelessly dated in twenty years’ time. So what’s their policy for “unbundling” the ship into separate components and depreciating each over a different life?
There is much criticism of ship owners sending their decommissioned ships to developing countries to be broken. As a cruise company, this ship will no doubt not suffer that fate, as to do so would damage the company’s public relations. So there might be a constructive obligation to decommission the ship in about 30 years’ time at a loss. Have they recognised that as a liability and discounted to present value? They should have done, because IAS 37 requires it.
Finally, the interview with the CEO of the company starts by admitting that 2009 has been “horrible” and 2010 doesn’t look much better. Evidence of impairment right at launch perhaps? IAS 36 only allows companies to project revenues five years into the future when valuing assets (unless an extension to this period can be justified). Will the global recession be over by then?
So whilst other people see a big ship, I see a floating cocktail of accounting and audit issues. Is this normal?
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2009-12-02 18:17:002009-12-02 18:17:00Is it a boat? Is it a plane? No, it’s the world’s biggest non-current asset?
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