Posts

Who audits the auditors?

It’s a great life being an auditor. You visit your clients and can ask as many questions as you like.

After all, your job is to confirm the accounts are showing a “true and fair view” or to be more precise, your job according to “International Standard on Auditing (ISA) 700, Forming an Opinion and Reporting on Financial Statements”, is to “form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.”

So, that’s the job of the auditors.

Who checks the quality of the audits though?

In the UK, the Financial Reporting Council (FRC) undertakes annual quality inspections of the largest auditing firms in the UK including Deloitte, EY, KPMG, pwc and a number of mid tier firms.

The latest annual report has been released and whilst there has been an improvement in the performance compared to previous years with 67% of all audits inspected in 2014/15 being assessed as either good or only requiring limited improvements, 33% of the audits inspected fell below the highest standards set by the accounting regulator and were classified as either requiring improvements or significant improvements.

Let’s just pause there for a moment.

What this is saying is that one in every three audits undertaken by the leading accounting companies in the UK have been classified as needing improvements or even worse, needing significant improvements.

Three of the more common issues identified in the report were:

  • Insufficient scepticism in challenging the appropriateness of assumptions in key areas of audit judgement such as impairment testing and property valuations.
  • Insufficient or inappropriate procedures being performed. This is common to many areas including revenue recognition.
  • The failure to adequately identify the threats and related safeguards to auditor independence and to appropriately communicate these to audit committees.

The FRC do however appear to be trying to improve things and have introduced various initiatives.

For example, they now “require firms to develop action plans to address the weaknesses identified in individual audit engagements and firm-wide procedures”. In conjunction with the development of these action plans they now require firms to undertake a detailed rootcause analysis of the factors contributing to the issues arising from the inspections and those action plans together with the related analyses will then be subject to follow-up inspections.

A copy of the report can be found here.

The FRC also prepared individual reports for the Big 4 and they can be found on the following links:

Deloitte

EY

KPMG

pwc

Is it clothing or a blanket?

If you’ve just had a baby the concept of taxation is probably one of the last things on your mind but for anyone who has purchased a SnuggleBundl for their baby there is an interesting link to taxation.

blog-Snugglebundl-268x275According to the manufacturers the SnuggleBundl is “the world’s first lifting wrap for babies. This beautiful multi-award winning hooded baby garment ties at the front and the soft, strong handles on this wearable wrap let you lift and lay your baby so gently that they’ll stay sleeping”.

It seems that they have been selling very well and there have no doubt been lots of parents, babies and possibly very small adults who are extremely pleased with the warmth and comfort of the SnuggleBundl.

The tax authorities though had different things on their minds. They were more concerned as to whether the SnuggleBundl was baby clothing or was a blanket.

And the reason the tax authorities were so concerned about the classification was because of?

Well, the reason was all down to VAT. As is the case in a number of countries, the UK tax authorities do not levy VAT on children’s clothes. They do however levy VAT at 20% on blankets.

The tax authorities claimed the product was a blanket whilst the company claimed it was clothing.

The simple difference was that if it was classified as clothing it would be sold for £34.99 whereas if it was classified as a blanket it would be sold for £41.99 (£34.99 plus 20% VAT of £7).

This difference in price would have a major impact on the number of SnuggleBundl’s sold as it’s a big difference for a parent if they have to pay £34.99 or £41.99 for the item.

Given that in both of these cases the company would end up with the same amount of money, it was obvious why the company wanted it to be classified as clothing (if the item was classified as a blanket and sold at £41.99 the £7 VAT would need to be paid over to the tax authorities by the company leaving them with £34.99).

In what no doubt caused a huge sigh of relief the company (plus a few happy gurgles by some babies) the company won the case and the courts found that the product was in fact clothing and not blankets.

The directors of the company can sleep peacefully now…

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.

You don’t want everyone to know about it…

We all do it every day at the office but I’ve never heard of anyone publicising it in the way this gentleman did.

blog-mic-275x275Everything at the city council meeting in Georgetown, Texas was completely normal and serious until Mayor Dale Ross broke away from the meeting for a bathroom break.

Nothing unusual there I hear you say.

Unfortunately for the mayor though, during his haste to go to the bathroom he forgot that he was wearing a wireless microphone.

Thirty seconds after leaving the panel and just as Rachael Jonrowe was talking about friends and family members who had contracted antibiotic resistant diseases, the Mayor can be heard urinating and then flushing afterwards courtesy of the microphone which he left on.

It’s a valuable lesson for all of us if we were ever to wear a wireless microphone at an event and it was too much for Ms Jonrowe who despite her best efforts couldn’t control her laughter.

What was also interesting was that there was no sound from the microphone of the Mayor washing and drying his hands. Maybe he was so keen to rush back to proceedings that he simply forgot to wash its hands??

Mistakes happen but unfortunately for Mayor Ross the meeting was being streamed over the Internet.

This though was not the type of “live streaming” that anyone was expecting.

The video of the event can be seen below.

It’s a good idea to start walking in the office…

Do you sit at a desk when you’re at work?

If you do, how long do you spend sat there before you get up to move around?

blog-walking-in-office-275x275If you sit at your desk and work on your computer without moving around then I’ve for some unfortunate news for you because a sedentary lifestyle where you sit at your desk without moving around is bad for you.

Researchers at the University of Utah examined the health, exercise and nutrition records of over 3,000 Americans over a 3 year period and on average they spent 34 minutes sitting or lying down per hour whilst working.

Ignoring the question as to what were they doing lying down it will come as no surprise that the more time they spent on sedentary activities the more likely they were to die during the study.

Swapping sitting with standing up appeared to make no difference to the risk of death but what did make a difference was replacing 2 minutes sitting with 2 minutes of walking around

2 minutes of walking around per hour instead of sitting down reduced the risk of death by 33%.

So, the trick is to make sure you walk around for a couple of minutes an hour whilst at the office.

Of course, if those 2 minutes are spent walking to the vending machine to stock up on crisps and chocolate to eat at your desk there may not be that much of a benefit…

Should you be able to get this benefit at work?

How much do you get paid? My guess is it’s not as much as the chief executive of WPP.

Sir Martin Sorrell (pictured) is chief executive of the advertising business WPP and his annual pay has just been revealed in the company’s annual report.

blog-sirmartinsorrell4-275x275His total pay was £42.98 million. In case you think that’s a typo – it’s not. He received nearly £43 million in pay.

As well as being the chief executive, Martin Sorrell is the founder of the company.

The company has grown significantly since it was founded in 1985 and it is now quoted and part of the FTSE 100 (the largest 100 companies on the London stock market).

As a result of being quoted there are numerous corporate governance requirements which need to take place. One of these is the disclosure of the directors’ remuneration policy in the published accounts. 

Following the publishing of his remuneration package in the accounts it became apparent that one element of his package was very unusual.

Included within his remuneration package of $43 million is a payment to him in respect of his wife’s travel expenses. Now his wife’s travel expenses which were paid by his employer were pretty significant and definitely amounted to more than the occasional taxi journey. In fact, they amounted to £274,000!

That’s not a bad amount for travel expenses is it?

So, should you suggest to your boss at your next salary review that you should receive a travel allowance for your husband or wife?

My guess is that if you do, the response to your request would be fairly brief and probably include a rude word or two…

Dividends – do you want them in cash or clothes?

Despite being one of the best known names on the retail market, Marks & Spencer is unusual.

Finland - M&S Helsinki Event Zone 3M&S is unusual in that it has got a very high proportion of individual shareholders.

Whilst a lot of other companies have major corporate shareholders such as pension and investment funds, M&S has over 190,000 private investors who between them hold 30% of the shares.

M&S has just announced an extremely novel idea involving these individual shareholders and their next dividend payment. The individual shareholders will be offered the chance to exchange their dividends for M&S vouchers at a 10% discount. In other words, they can exchange a dividend of £900 for M&S vouchers of £1,000.

That’s a very nice idea.

It’s optional and not compulsory so if individual shareholders still want to receive the dividend in cash they can.

Shareholders however who are interested in buying items from M&S get more for their money and from M&S’s point of view, given that their gross profit margin is more than 10%, they will still be making a profit on items that they sell to holders of these vouchers.

All in all a very innovative idea which works well for all parties.

Will we see this idea spreading to other companies when considering their dividend payments?

Probably not a good idea to do this before an interview.

Interviews can be stressful occasions. The best you can do though is to be as prepared as possible, be confident and answer questions as well as you can.

Unfortunately for this particular individual though, no matter how well he performed in the interview he was never going to get the job.

tube stationMatt Buckland was on the tube in London heading to the office. Anyone that has been on the tube in rush hour will know that it gets very crowded but generally people can get in and out of the train without too much drama.

Matt got to his station and was waiting for the doors to open to get off the train when a gentleman behind him started pushing and trying to get past him.

Matt politely told the other individual that he was getting off at that station but the other guy just ignored him, pushed him out of the way and then turned to him and rather aggressively told him to, how can I say it, but perform an act on himself which as far as my understanding of biology goes would be physically impossible.

Anyway, the grumpy individual carried on his way and Matt headed into the office where he was due to interview some people for a job.

In a fantastic coincidence, one of the people that Matt was interviewing that day was the grumpy guy who had told him to “go forth and multiply with himself” on the tube.

Brilliant! A rude person pushes past you and swears at you but you then meet them again a short while later to decide whether or not they should be offered a job at the company you work for.

Needless to say the individual didn’t get the job and as a learning point from this it’s best not to be rude to too many people on the way to an interview.

Would you like to do this at lunchtime?

What do you normally do at lunchtime?

Do you grab a bite to eat and head back to your desk to continue working (or at least pretend to work whilst playing on the internet)?

cat in the officeDo you grab some fresh air outside the office to recharge your batteries?

A recent initiative between the app based taxi service Uber and an animal rescue organisation has resulted in what I think would be a fantastic way to spend your lunch break and also to recharge your batteries.

You can get a kitten delivered to your office for 15 minutes between midday and 4 pm.

Yes, a real live cute fluffy kitten!

What a great way to de-stress the office – adorable kittens arrive for 15 minutes of playtime in the office.

The kitten visit costs approximately £20 and they can be ordered vie Uber’s app. All the proceeds go to the animal rescue centre.

Everyone here in the office was getting excited when they heard the news but sadly the service isn’t currently available in the UK (at the moment it is only available in Australia and America).

I think it’s a brilliant idea though – it can help de-stress the office, the cat’s rescue centre gets additional revenue and if you happen to fall in love with the kitten the kitten may well find it’s new “forever home” rather than have to stay at the cat’s rescue centre.

It also has an added benefit if you happen to dislike a colleague in your office who is allergic to cats…

Who needs champagne for a celebration?

Gin and tonic is a drink that has caused a number of hangovers over the years but for two individuals it is going to make them very wealthy.

tonic waterGin is often credited with being a traditional English drink but the first recorded date for the production of gin was actually in the Netherlands in the 17th Century.

One of the key ingredients of tonic water is quinine.

Quinine is said to have many medicinal purposes and was first discovered by local tribes in Peru and Bolivia. Some people claim that quinine has medicinal purposes which helps various ailments including malaria.

The bringing together of gin and tonic happened in the early 1800s when British army officers in India were using quinine in an anti-malarial capacity and decided to hide the bitter quinine taste by mixing it with tonic water and then hiding the taste even further by adding gin.

The drink “gin and tonic” then came into existence.

Fast forward to 2005 and the company Fever Tree which was set up by Charles Rolls and Tim Warrillow produced their first bottle of upmarket tonic water.

Fever Tree tonic water has been selling very well since then and the company is now being quoted on the AIM (AIM is the Alternative Investment Market which is a sub-market of the London Stock Exchange and allows smaller companies to float shares with a more flexible regulatory system than is applicable to the main market).

The Fever Tree company has been valued at £154 million. That’s not a bad valuation for a company that’s selling tonic water.

There will no doubt be happy faces at the company and the success of the flotation will be toasted by a glass or two of champagne. Or should that be a glass or two of gin and tonics?