KPMG Found To Be Untruthful - Whither Professional Standards?

 

The Financial Reporting Council (FRC) published a summary of a tribunal that found a senior partner at KPMG had presented an “untruthful” defence during a disciplinary hearing.

The FRC hearing was convened to investigate KPMG’s misconduct during the sale of bedmaker Silentnight to a private equity fund. The tribunal found that partner David Costley-Wood failed to co-operate with the accounting regulator’s investigators. 

During August of this year, KPMG was fined £13m and incurred costs of over £2.75m for its role in placing Silentnight into a insolvency process during 2011 that allowed private equity firm HIG Capital to acquire it without the burden of a £100m pension scheme liability.

KPMG’s lack of objectivity and “obvious” conflict of interest was the latest in a string of public humiliations including lawsuits and disciplinary complaints relating to audits the firm carried out at Carillion, Rolls-Royce and Conviviality, the owner of Bargain Booze.

This latest sanction was a huge financial hit for the Big Four firm. The tribunal report states that for the first time ever, the tribunal found a respondent had advanced dishonest evidence. 

Costley-Wood, who faced fines of £500,000 for his involvement in the original case, claimed that Silentnight faced a “burning platform” prior to the debt sale agreement. However, the tribunal stated: “The defence put forward by Mr Costley-Wood in relation to the burning platform was a construct invented by him to assist in his defence.”

The FRC said mounting an untruthful defence “seriously risks undermining the regulatory system [and] compounds the original failings”.

Not unreasonably decent, professional, honest members of the ICAEW are asking why the shameful behaviour of the larger firms is not being addressed adequately by the ICAEW.

One to get our blood boiling on a Friday @cheapaccounting @DellaHudsonFCA KPMG offers 'untruthful' defence in Silentnight tribunal https://t.co/beE1CZJZCf

— Simon Denton (@SimonDenton2) October 15, 2021

The subject of ethics brings to mind my application for the role of the ICAEW's Ethics Examiner in 2005. 

As I noted in 2005 I was invited for interview on 19th October, along with 24 other candidates who had applied for the other 11 papers. Prior to the interview I was sent the 5 page Ethics syllabus to read through, together with some other information and a training disc.

I had a one to one 20 minute interview, then a 45 minute panel interview. Seemingly I was the only person to specify Ethics as my first/only choice of paper.

I was told that I would hear by the end of the month, and that if chosen I would have to make a decision quickly; as work on the paper would start in November.

I received an email on the 1st of November which stated that since the interviews the ICAEW had rethought the approach to Ethics, and that there may well not be an assessment of the kind envisaged.

As such no Ethics exam team would be appointed.

Well then!

Tax Investigation Insurance

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Izza Calls on Members To Maintain Ethical and Professional Standards

An important message regarding professional and #ethical standards during this difficult time. Now more than ever, ICAEW Chartered #Accountants must lead by demonstrating the highest standards and maintaining #trust.#COVID19 #icaewCOVID19https://t.co/LY1ngmnOv4

— Michael Izza (@MichaelIzza) April 30, 2020

Tax Investigation Insurance

Having a Solar Protect Tax Investigation Insurance policy at your disposal means that should you be one of the many 1000's of businesses or individuals that are selected by HMRC each year to look into your tax affairs your own accountant (your tax return agent) can get on and defend you robustly.

You have the peace of mind knowing that your accountant's (your tax return agent) fees will be paid by the insurance without any Excess for you to find.

Tax Investigation Insurance is an insurance policy that will fully reimburse your accountants (your tax return agent) fees up to £100,000 if you are subject to enquiry by or dispute with HMRC.

A Solar Protect policy will enable your Accountant (your tax return agent) to:

• Deal with any correspondence from HMRC
• Attend any meeting with HMRC
• Appeal to the First-tier Tribunal or Upper Tribunal
• Having the security of knowing that fees will be met in full will enable your Accountant (your tax return agent) to defend your position robustly
• Premiums are Annual Premiums.
• Premiums are inclusive of 12% IPT. 
• Premiums and IPT are due in full in advance / at commencement of scheme.
• There is a NIL excess on all policies.

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Flexible Ethics For Bankers

One in eight banks say it is difficult to progress in their careers without "flexing ethical standards": https://t.co/U8kH7Hnktc via @FT

— Sally Percy (@SallyPercy) March 14, 2017

Seemingly, in the banking profession, ethics are to be flexed!

Bank auditors take note!

Can Accountants Be Trusted? - Misleading Debate

Economia has a rather misleading headline wrt a debate between Mark Spofforth, partner, Spofforths, and former ICAEW president and Ian Fraser, financial journalist and author of Shredded: The Rise and Fall of RBS.

The debate entitled "Can accountants be trusted?", aside from degenerating into a seemingly ill tempered slanging match, actually centres around the activities of large accounting/auditing firms rather than the activities and ethics of accountants per se.

A far more appropriate headline would have been "Can large firms be trusted?"

Next time economia might consider using the services of an invigilator in order to keep the debaters on topic, and calm.

ICAEW's Helpsheet On Aggressive Tax Avoidance

The ICAEW has issued a Helpsheet to remind its members of the terms of its own Code of Ethics and its guidance on professional conduct in relation to taxation. The Helpsheet focuses on the "aggressive end" of the tax planning spectrum and provides practical guidance.

It is sad to see that the ICAEW appears to be running scared wrt the tax avoidance witch-hunt orchestrated by dog whistle politicians and the media.

The helpsheet quite correctly states:

"Tax is a question of law and it’s the Government’s job to decide what legal tax planning arrangements it wishes to prevent."

However, it then goes on to imply that members should take a "moral" decision on behalf of third parties (ie clients)  wrt the "morality" or otherwise of legal (subject to a challenge in the courts) arrangements that may or may not reduce their business expenditure (ie taxes).

It would be far more constructive, and beneficial to the nation's finances, if the ICAEW were to set the agenda and push for a simpler tax system which would in effect make these schemes obsolete.

An Opportunity Lost - Michael Izza Gets Stuck On K2

Michael Izza (CEO of the ICAEW) has published a blog post today entitled "Chartered accountants and tax evasion". Oddly though his first sentence deals with tax avoidance, not evasion, specifically the Times campaign against tax avoidance.

He goes on to say:

"I believe that there is no place for our profession in the creation or maintenance of these sorts of tax schemes...

In these difficult times, any ICAEW Chartered Accountants who are engaged in the kinds of schemes highlighted in The Times need to look at themselves in the mirror and ask – am I upholding the honour and reputation of ICAEW Chartered Accountants and am I seen to be doing that? If the answer is no then they need to ask themselves whether they want to belong to our profession or not? "

Sadly Michael has missed an opportunity to stand up against the media and political witch hunt that is threatening both legitimate tax avoidance and the profession itself.

Instead of calling for the simplification of the tax system, which would kill many complex tax avoidance schemes stone dead, he kowtows to the pressure of the media and political witch hunt and implies that the ICAEW wants members who offer legal tax schemes which the ICAEW does not approve of to leave the ICAEW.

As Jason Selig commented the other day on the ICAEW Group discussion about tax avoidance on LinkedIn:

"How is this a moral question?- there is no "right" or "wrong" about paying tax. 

Is it moral to save for a pension or open an ISA or invest in an EIS scheme? 

All of them save tax and if it wasn't for the tax break you wouldn't do them. A tax adviser is under a "moral" obligation to offer these kind of schemes to clients and warn about the ramifications, tax investigation, exposure in the media of actually doing them. 

To fail to offer the schemes where relevant would be potentially negligent. 

You may find them repugnant - as do I in some of the more aggressive schemes such as K2, and my advice to clients is not to enter into them - but that's not my call it's the client's - the fact is it's legal and fully disclosed on the tax returns - if HMRC want to challenge there is a legal process that allows them to do so. "

As I noted the other day on my HMRC site:

"Avoidance is a perfectly normal human thing to try to do, the politicians are not in a position to lecture the rest of us on 'morality'." 

The media and politicians lecturing us on morality is as natural as a cat walking on its hind legs.

Ethics

Visit the ICAEW's Community page on Ethics.

As at the time of writing there were zero posts/comments!

'Nuff said!

Hat tip to Dennis Howlett for pointing that out.

This reminds me of an article about Ethics that I published in 2005.

Newsflash Ethics Coming Soon To ICAEW :)

@ICAEW_talk ICAEW Talk

@craigjwillis @dahowlett @finnern In my haste to set up the ethics blog, created the category before the blog was ready. It's coming soon

Running Scared II - A Question of Ethics

Further to my earlier article today about the dispute between Mike Pallot and the ICAEW.

It seems that the ICAEW managed to pay Mr Pallot the £1500 twice by mistake.

Fortunately for the ICAEW (which did so much to block Mr Pallot receiving a refund), Mr Pallot is ethical and told them that they had paid him twice!

Ethics should of course work both ways, so I look forward to hearing that the ICAEW has told all the members who are overpaying their subs that they are entitled to a refund and that their subs have been reduced accordingly to suit their circumstances.

Running Scared

Accountancy Age report a rather interesting story about a long running and acrimonious dispute between Mike Pallot (a retired PwC senior partner) and the ICAEW.

Mr Pallot was awarded £1,500 against the institute in a small claims court for overpaid subscriptions. He successfully argued that the ICAEW's subscription notices failed to make it clear that he was due a reduced subscription due to his retirement.

He is quoted:

"The ICAEW certainly seems to have gone to great lengths not to set a precedent by refunding me the amounts I paid as a result of what I see as a clear lack of transparency on its part, although I am at a loss to understand why it didn't seek to settle my claim in a sensible way before the matter reached court."

The case, and the fact that the ICAEW went to so much trouble to try to avoid setting a precedent, gives rise to a number of questions:

1 Why did the ICAEW not simply settle out of court?

2 Why did the ICAEW waste so much time and money on trying to prevent the claim succeeding?

3 How much money did the ICAEW waste by being so intransigent?

4 What is the potential liability facing the ICAEW from back claims made by retired members, and others (eg unemployed), who now realise that they have been overpaying their subscriptions?

5 If the ICAEW knows the answer to 3, why hasn't it done the ethical thing and alerted the members who have overpaid that they are owed a rebate and that they are overpaying their subs?

It seems to me that the ICAEW is running scared, I advise all members to double check their subscriptions.

Reputation

I see that The Guardian has taken a snide sideswipe against accountants, in its coverage of its row with Tesco over tax avoidance.

"As is often the way, the tax had no sooner been introduced than some companies engaged smart accountants and lawyers to work out ways of avoiding what parliament had clearly intended....

But fleet-footed accountants and lawyers were still nimbler, knowing that UK tax legislation is rarely retrospective. A casual reading of the Treasury's repeated statements on SDLT avoidance can leave no doubt as to its frustration at the lengths to which companies would go to outwit the law - and at the sums draining away from the exchequer as a result."

Seemingly, the negative subliminal message being drip fed by the Guardian is that "smart" accountants are rather "devious" and are depriving the government of its "legitimate right" to collect as much tax as it wants.

The Guardian needs to remember that, as I have said before on www.hmrconline.com, tax avoidance is not illegal; we all avoid tax each year by using personal allowances.

The need to avoid tax would be considerably reduced if Brown simplified the tax system.

The ICAEW needs to launch a counter offensive, and counteract the Guardian's negative spin about our profession.

Ethics - ICAS Leads The Way

ICAS is leading the way when it comes to ethics:

- They introduced a dedicated ethics exam in 2007
- They are considering a voluntary ethics "test" for CPD
- They are considering introducing an annual ethics statement for members
- In 2008 they will publish a number of case studies of ethical dilemmas experienced by ICAS members

Source "Bean Counters or Business Leaders?"

ICAEW does not even have a dedicated ethics exam, why not?

Why is the ICAEW lagging behind ICAS when it comes to ethics?

Best Practice

It seems that, according to Dennis Howlett, the ICAEW does not believe that its members need to follow best practice.

Quote:

"Best practice does not have to be followed by members."

Has the ICAEW taken leave of its senses?

Look East

The ICAEW is looking Eastwards as it attempts to increase its size. It has announced a deal with the Chinese Institute of Certified Public Accountants (CICPA) to award credits to each other's examinations.

An agreement will mean that CICPA members, who have passed all five subjects of the CPA Uniform Exams, will be awarded credits in the professional stage of the ICAEW's ACA qualification.

Richard Dyson, ICAEW president, said the agreement between the two parties is "one more step forward in helping to create a global accountancy profession".

Size of course is not everything, quality is the key issue.

Dyson, as if anticipating the above comment, went on to say:

"By providing mutual credits for prior learning, we are making it simpler for members of both the ICAEW and CICPA to achieve qualifications which will enable them to work in each other’s territories."

So long as this does not dilute the ICAEW brand, or expose the ICAEW to ethical problems, then in theory this agreement should cause the ICAEW no problems.

The devil is in the detail.

Ethics

I see that the ACCA have launched an ethics module as part of a drive to make ethics pervasive in the ACCA's exam syllabus.

Given that the ACCA believes that it is important to have a separate ethics module, and ICAS is introducing more ethics courses to its CA syllabus, why did the ICAEW abandon its plans for a separate ethics exam in 2005?

Ethics

Accountants and business leaders in Scotland are to receive more ethics teaching from the Institute of Chartered Accountants in Scotland in an effort to improve public trust in financial reporting.

The institute also plans to introduce more ethics courses to its 'CA' qualification, in order to restore the public's trust in the financial services industry and business ethics as a whole.

This is precisely why the ICAEW should not have abandoned its plans in 2005 to have a separate ethics exam.

Inspiring Confidence?

Why did the ICAEW need to recruit 125 more staff in 2006?

Why do they need to put the fees up by 4%, given that they show a net income of almost £1M in 2006?

Why did the ICAEW backtrack on the setting a separate ethics paper?

Ethics and The World Bank

It looks like the World Bank could do with a lesson in ethics and effective corporate governance.

Happy to oblige!

Ethics

Despite a recent report in Accountancy Age, quote:

"The ICAEW is revamping its syllabus for 2007, with a focus on ethics and allowing employees to choose modules relevant for their trainees".

It seems that the ICAEW will not be setting a separate Ethics paper in the revamped syllabus. This is somewhat baffling, as in 2005 the ICAEW had decided that the subject of Ethics was so important that it deserved a separate paper.

Whilst Ethics can be covered to a limited extent in the other papers, the ICAEW has sent entirely the wrong signal to the world by not setting a specific paper on the subject.

Ethics

The International Federation of Accountants (IFAC) has a released a new information paper on ethics education in the accountancy profession.

The paper is designed to stimulate discussion and debate on the subject of ethics education.

The framework laid out by IFAC emphasises the development of ethics knowledge and ethical sensitivity at an early stage in pre-qualification education, before enabling students and professional accountants to demonstrate their ethical judgment and decision-making skills. It also reinforces the need for accountants to make an ongoing commitment to ethical behavior.

Meanwhile, the ICAEW, has put off its ethical examination until 2007.

Enough said!

Breaching The Walls of The Bunker

Executives around the world believe that it takes companies slightly more than three years to recover from a crisis that damages their reputation.

That at least is the conclusion drawn from to market research carried out by Burson-Marsteller.

The research is based on the opinions of 685 business "influentials" - CEOs, senior executives, financial analysts, business media and government officials in 65 countries.

It shows that quickly disclosing the details of a scandal or corporate misstep should be management's top priority, as it begins the process of restoring corporate reputation.

The latest research conducted by the firm took a closer look at the crisis
management strategies that a company should use to protect, manage and build its reputation.

According to the market research, the top ten crisis management turnaround strategies are:

-Quickly disclose details of the scandal/misstep (69%)
-Make progress/recovery visible (59%)
-Analyse what went wrong (58%)
-Improve governance structure (38%)
-Make CEO and leadership accessible to the media (34%)
-Fire employees involved in the problem (32%)
-Commit to high corporate citizenship standards (23%)
-Carefully review ethics policies (19%)
-Hire an outside auditor for internal audits (18%)
-Issue an apology from the CEO (18%)

Deborah Bowker, chair of Burson-Marsteller's U.S. Corporate/Financial Practice said:

"A crisis can have a devastating impact on a company's reputation in terms of its profitability, credibility, competitive position, and ability to retain and attract top performers.

However, companies can lessen their recovery time and be welcomed back into the fold, with their reputation restored, if they follow a few well executed and integrated turnaround strategies."

Bearing in mind the long list of recent disasters that the ICAEW have inflicted on the membership, and the brand value, of the ICAEW; including, but not limited to, the following:

• The failed merger


• The unseemly public row with ICAS over the name


• Poaching members from other bodies


• Using the services of Media Strategy, a PR company that breached the Code of Practice of the Association of Professional Political Consultants


• Postponing the new exam syllabus until 2007


• Not introducing and ethics paper until 2007


• The Durgan Debacle


• The failure to publish the results of the investigation into the Durgan Debacle


• The failure to conduct an independent review/investigation into the causes of the Durgan Debacle

Do you not think that the ICAEW should take heed of the above advice from Burson-Marsteller?

I certainly do!

The question is, are the ICAEW open to advice from outside the Moorgate Place bunker?