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Big auditors have penetrated the state & organised their own accountability

prem sikka 4“The big auditors have not only penetrated the state but have become part of the state and have organised their own accountability off the political agenda”.

So writes Professor Prem Sikka director of the Centre for Global Accountability at the University of Essex (Accountancy) in a recent article.

Extracts

By colonising bodies such as the International Auditing and Assurance Standards Board and the UK’s Financial Reporting Council, big accounting firms control the production of auditing standards. Various international auditing standards, codes and related pronouncements, for instance, cover about 3,000 pages but remain silent on auditor accountability to the public.

The public bears the cost of audits and audit failures, but has no right to see audit files or to make an assessment of the quality of audit work. Legal cases show that, even despite an admission of negligence, auditing firms escape liability because under UK law they do not owe a “duty of care” to any individual shareholder, creditor, employee, pension scheme member, or any others affected by their negligence.

The silence of the auditors at distressed banks is well documented though this has resulted in little effective action. No auditing firm has returned the fees for dud audits. Earlier this year, nearly six years after the banking crash, the Wall Street Journal reported that a US auditing regulator found more than one in three audits inspected were considered to be deficient and did not provide enough evidence to enable auditors to reach a conclusion.

Who will audit the auditors?

What should we do with producers who routinely deliver faulty goods and services? Producers of cars, food, medicines, aeroplanes and even financial products are forced to compensate injured parties, recall their goods and face the possibility of being forced out of business. But such niceties do not apply to the auditing industry.

IFIAR logoA damning report was produced by the International Forum of Independent Audit Regulators (IFIAR), an organisation representing audit regulators of 49 jurisdictions, including Australia, France, Germany, Italy, Japan Spain, UK and the US. This IFIAR report was compiled from the audit inspections carried out by national regulators and focuses on audits of major listed companies. The audit market for these companies is dominated by the Big Four accountancy firms – Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PricewaterhouseCoopers – and smaller rivals Grant Thornton and BDO. Their combined global revenue is around US$120 billion and the “too big to close” syndrome continues to prevent effective regulatory retribution.

Auditors will continue to audit the very transactions that they themselves have created

The post banking crash auditing reforms recently announced by the EU require that financial institutions and listed companies change their auditors every 10-24 years, something which will not prevent collusive relationships between companies and auditors. The EU will impose further restrictions on the auditor’s ability to sell consultancy services to their clients, rather than imposing a complete ban. So auditors will continue to audit the very transactions that they themselves have created.

Minimalist reforms are welcomed by the auditing industry, but do not address the problems identified above . . .

Auditors should owe a “duty of care” to all stakeholders who have reasonably relied on audit reports. The consumer rights revolution which applies to even mundane things like toffees and potato crisps also needs to apply to producers of audit opinions. All auditor files should be publicly available so that interested parties can make their own assessment by considering the composition of the teams, time spent, horse trading with company directors and conflicts of interests.

The above proposals can stimulate competition and hnf and thus create incentives for accounting firms to escape the cycle of institutionalised failures. No doubt, auditing firms would oppose any proposals that strengthen their public accountability, but the reforms can save them from their own follies.

Read the whole article here: https://theconversation.com/big-auditors-must-be-made-accountable-to-the-public-25766

Without curbing corporate power the G8 have no chance of combating tax avoidance

Prem Sikka is one of the academics from around the world attending the Belfast G8 Pre-Summit conference organised by the School of Politics, International Studies and Philosophy, Queen’s University Belfast and the G8 Research Group at the University of Toronto.
G8  venue

G8 venue

 

A day earlier he had written: “Corporate power is so deeply embedded in neoliberalism that politicians have failed to consider its corrosive effect. I will be highlighting that in my talk”.

The “capture” of the state by economic elites
Professor Sikka

Professor Sikka

In his Conversation article, “Without curbing corporate power the G8 have no chance of combating tax avoidance”, he reflects that one of the recurring themes in social sciences is the “capture” of the state by economic elites. This enables them to advance their economic interests, shape public policies and choices. He adds:

“This is nowhere more relevant than in debates about tax avoidance, a key item on the agenda for next week’s meeting of G8 nations in Ireland . . . one thing it won’t discuss is the colonisation of the state by economic elites, a key reason for the continuing failure to tackle organised tax avoidance.

“In recent months, multinational corporations, such as Google, Apple, Microsoft, eBay, Apple, Vodafone, HSBC and Amazon have been hitting the headlines for their tax avoidance and other anti-social practices.

“The Big Four accountancy firms – PricewaterhouseCoopers, Ernst & Young, Deloitte and Ernst & young – have been grilled by the UK parliamentary committees for devising and marketing tax avoidance schemes, many of which have been declared to be illegal by the courts. Yet the same economic interests play a key role in devising and enforcing UK tax laws”.

He gives two examples of damaging legislation

First a new piece of tax legislation known as the Patent Box which came into operation with effect from 1st April, drafted by a working party consisting entirely of representatives of major corporations, including GlaxoSmithKline, Rolls-Royce and Shell.

The controlled foreign companies (CFC) is another piece of legislation crafted by corporate interests. The working parties crafting the legislation included representatives from Diageo, Tesco, Vodafone, Shell, Rio Tinto, GlaxoSmithKline, Kraft, Cable and Wireless, HSBC, Prudential and Avia. All have a vital economic interest in securing compliant tax laws. There was no representation from any civil society organisation, trade unions or critics.

The combined effect of the CFC and the Patent Box legislation could reduce corporate tax bills by about £5 billion a year, at a time when ordinary people are facing massive hardships.

From 1st July 2013, a General Anti-Abuse Rule (GAAR) will come into effect. This requires HMRC to apply a ‘double reasonableness’ test. Sikka asks: “Who will decide whether the state of affairs is reasonable? The procedure is that HMRC will have to put its request to a panel of so-called independent experts . . .  most likely to consist of directors of companies and accountancy firms . . . A recent advertisement invites unpaid individuals to sit on the GAAR panel. Inevitably they will come from corporations who can continue to pay them whilst on secondment to HMRC . . .Thus the tax avoidance industry and companies implicated in tax avoidance will be in a position to shackle HMRC”.

In common with many others the UK state is too close to corporate interests

No fight against tax avoidance is ever going to be effective until there is some distance between big business and the tax authorities, but in common with many others the UK state is too close to corporate interests.

Curbing corporate power and realigning political institutions to the needs and concerns of ordinary people should be on the agenda of G8, but regrettably it will not be and tax avoidance is likely to remain rampant.

Prem Sikka is Professor of Accounting, Essex Business School at University of Essex – see the university website for an account of his message.

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