Audit Firm: Interview with KPMG Partner

Audit-is-cool presents an excerpt from the Interview of Simon Collins (Chairman & Senior Partner KPMG UK).

Lane Mean: Hi, I am Lane Mean, I am content director of local world newspapers and I am introducing this evening Simon Collins. Simon is the chairman of the KPMG group, one of the big four. The debate tonight is actually being sponsored by the Bristol Post.

Simon you are seen as something of an inspirational leader in accountancy terms in the big four. How have you achieved this do you think? Because you were actually voted in as chairman by your peers, were not you?

Simon: Yes we had a pretty full blooded election, so it‘s a real democracy. 600 partners chose who they wanted to lead the firm for the next five years.

Lane Mean: So why do you think you won that?

Simon: I think you would have to ask the 600 truthfully but I think you the sort of messages I think were important to the partners were about a clear sense of purpose and direction about where the business goes, where it fits in society and a very big theme for me was how we put trust and respect back into business and the accountancy profession and KPMG.

Lane mean: And how do we because, I mean I am not bracketing you in the same way as bankers, but a lot of mistrust in the financial area is not there?

Simon: I think there is a huge amount of mistrust, I think broken is the only way to put it between business generally and society and I think there is a number of reasons    for that .We have got in almost every industry there is an example of behaviors that you cannot hold up and say that‘s what good business is. So whether it’s pharmaceuticals and rivalry, whether it’s horse meat, whether it’s liable miss–selling, whether its tax, every industry has got something that damages trust. So I think we have got a long slow journey to claw that back through good behavior and actually concentrating on doing the right.

Lane Mean: But how can you hope to do that because you have got loads and loads of partners have not you?

Simon: I don’t think that in a sense is the difficult bit, I mean certainly for us as a firm we have integrity and responsibility really close to our hearts and frankly the partnership model is really good. I don’t think I have got a single partner who does not care passionately about leaving the business in better shape than they find it and so doing the right thing, I think comes naturally.

Lane Mean: Yeah I mean the right thing, so what is right thing for a member of the “big four” like KPMG?

Simon: The right thing is to advise clients responsibly, to behave with integrity, to be a true commercial animal. I make no apology for profit being a big part of what we are trying to achieve to be sustainable business you have to make profit you have to be successful, but to be sustainable and to pass on a better business you also have to have at least a benign footprint in society, better still if business can actually contribute to society and leave good behind.

Lane Mean: Is it ethical to advise people to dodge tax do you think?

Simon: No if you ask question like that, no. Is it ethical to take advantage of legislation that   specifically encourages companies to locate in the UK and to take advantage of tax breaks yes. So I think where we get into trouble in part of that trust equation is when there is a lack of clarity about what we‘re talking about. Genuinely agree just bad behavior in tax planning is immoral, just outright wrong  and we condemn  it, the big accounting firms will have nothing to do  with it , utilizing tax breaks that are specifically put in place by government to compete  internationally, to encourage investment and people to come here and do business is a really good thing  to do. Good things to do for society at large and we get mixed up with that.

Lane Mean: But when we see companies going before select parliamentary committees as we have done and being frankly terribly embarrassed, I am not saying that you are involved with any of those people ,but it’s not good is it when the public sees that?

Simon: No it’s really bad for trust  but I think what we  have got to look at is several  things , you have got to look  at whether companies have been lawful and then whether politicians and society like the outcome of them being lawful, so if you look at some of big companies in the news for paying low headline rates of corporation tax ,that looks on the face of it  something that doesn’t work  for  society, but they have got  there without a breach of law at all, and in fact  in many cases they have  got there  specifically taking advantage of  things the government,  successive governments  have intended them to do. If society and government does not  like the result of that , which is that company X only pay 5p in the pound corporation tax, for me and for the profession. I think that’s a problem for legislators and not a problem to parcel out to tax advisers.

Lane Mean: No, now the day after the election, the budget rather, not the election, we are talking, I mean if you were in number 11.What would you do in terms of your first budget if it was yesterday? Have you got some thoughts on that?

Simon: I think that I wake up many days grateful. I am not in number 11 or politics generally, and I think one of big problem on number 11 anytime. NOW or recently is being not a great deal of money or flexibility to do things. it seems to me what the chancellor was looking to do, was to encourage growth in the economy to make the cake bigger and actually to get Britain exporting again, manufacturing again, and to the extent the limited money available was directed in those directions, actually I think it was a pretty decent budget for business.

Lane Mean: what about the grey vote, now lots there wasn’t there? Lots to encourage people retired people, to vote for the coalition in a year’s time?

Simon: I don’t know about voting, I think there was a lot for savers and there probability is, I think you’re right ,there’s probably a correlation between savers and the grey pound and so on .I think there was a lot there to actually encourage saving and actually investment indirectly as well and I think again you know that goes around in a virtuous circle for me with encouraging investment in industry and growth in manufacturing and so on ,so I don’t know ,I am sure, you’d have to ask the chancellor what his political ambitions were around those things, but from an economics point of view I think they made perfect sense.

Lane Mean: So what are you advising your clients from today on about how they see the next couple of years? Because you know we are going into election in a year’s time you will have a view about that?

Simon: Well it’s not so much political thought what we have got .we have got 24 offices up and down the country ,we look after companies from relatively small companies right through to the multinationals what we are seeing is a definite uptick in sentiment .definitely a more positive feel from our clients up and down the country .manufacturing, export, every, one feeling a little bit brighter .The growth figures support that ,job creation support s that ,so I think for the first time in quite a few years we have got what I would describe as a “benign back cloth “for business to plan .now we have also got some uncertainties we have still got very topical things around the Ukraine and political uncertainty, geo-political uncertainty if you like, Scottish independence is worrying people it’s not much that business should have or does have an outright view of right or wrong it’s simply uncertainty .So we have got, now we are in march, we have got general election next may. Business does not like uncertainty. On the other hand it’s learnt to cope with it, and I think overall watch for uncertainty, but invest into that “benign back cloth”.

Lane Mean: And what about you? You have got a five year plan.   I guess in your head? You are an accountant, accountant plan, so what’s the five years plan?

Simon: The five year plan, if you start at what I think of as sort of 70,000 feet, the five year plan is to leave behind a better business after my period of leadership than I inherited, and I think all leaders should have that in mind. I want to leave the business prouder, financially stronger and with a better footprint in the communities what you referred to earlier, than I found it.

Source

Complete Interview can be watched at the following link.

https://www.youtube.com/watch?v=Jg6_RlcZBV4

http://www.kpmg.com/uk/en/about/aboutkpmg/kpmgfoundation/pages/simon-collins.aspx

i-Monday: Every Person is Important

“Without realizing it, we fill important places in each other’s lives. It’s that way with the guy at the corner grocery, the mechanic at the local garage, the family doctor, teachers, neighbors, coworkers. Good people who are always “there,” who can be relied upon in small, important ways. People who teach us, bless us, encourage us, support us, uplift us in the dailiness of life. We never tell them. I don’t know why, but we don’t.

And, of course, we fill that role ourselves. There are those who depend in us, watch us, learn from us, take from us. And we never know.

You may never have proof of your importance, but you are more important than you think. There are always those who couldn’t do without you. The rub is that you don’t always know who.”

This quote teaches us that every person we encounter in our lives is important. We might not see it or understand it right away, but eventually, we will. And, later on, we will begin to understand that we are equally as significant in the lives of those around us as well. Even if we don’t know how or why we are important, or to who exactly we are important to, we need to know that we are; everyone is.

From: This quote is from “All I Really Need to Know I Learned in Kindergarten”, written by Robert Fulghum is an American Author, and the book from which the quote is from is how he came to fame. “All I Really Need to Know I Learned in Kindergarten” was all about seeing the world from a child’s eyes, which became a worldwide phenomenon when it became published in 1988.

Picture reference:

https://upload.wikimedia.org/wikipedia/commons/thumb/1/1a/Robert_Fulghum.jpg/547px-Robert_Fulghum.jpg

Week-end: Work-Life Balance

Work life balance is a concept including proper prioritizing between work (career and ambition) and lifestyle (health, pleasure, leisure, family and spiritual development/meditation). It is a concept that supports the efforts of employees to split their time and energy between work and the other important aspects of their lives. It is a daily effort to make time for family, friends, community participation, spirituality, personal growth, self-care, and other personal activities in addition to the demands of workplace. Effective work-life balance encourages employees to work harder and discourage them from quitting their jobs. Work life balance means something different to every individual, but health and career experts share some tips to help you find the balance that’s right for you. The key to avoid burning is to let go of perfectionism, says executive coach Marilyn Puder-York PhD, who wrote the official Survival Guide. As life gets more expanded its very hard both neurologically and psychologically to bring perfection. She recommend dedicating a few chunks of time each week to self -care, whether its exercise, yoga or meditation. First identify what is most important in your life and then draw firm boundaries’ so you can devote quality time to these high priority people and activities.

Puder-York concluded the work life balance by saying that “When I talk about balance, it does not mean completion and achievement of every task, but it mean that you will get a time for self care, so that your body, mind and soul are being refreshed.”

Sources: 

http://www.forbes.com/sites/deborahlee/2014/10/20/6-tips-for-better-work-life-balance/

Audit Method: The Unrecorded Liability

Liability is defined in Conceptual Framework of International Financial Reporting Standards as “a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits”.

There can be many instances where management will be prone to not record a liability due to various reasons. The management may not record a current liability to improve its current ratio and present its liquidity position higher. Management may also skip to record a long term liability at year end to improver it debt to equity ratio. A high current ratio and low debt to equity ratio makes it easy for the management to obtain new financing for the company.

Auditor should verify the unrecorded liability by applying the following procedures:

• Vouch a sample of cash disbursements recorded just after year end to receiving reports and vendor invoices. In a voucher system, a voucher is not prepared until the requisition, receiving report, and sellers invoice are reconciled with the purchase order.  Auditors search open files for unmatched documents.
• In searching for unrecorded payables, the auditor would look at disbursements made after year end to see if they should have been, and were, properly recorded as payables at year end.
• Tracing a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal will enable the auditor to determine that the purchases were properly recorded.
• Analytical procedures.  Accounts payable turnover is very important.   Unusual relations should be investigated.
• Cash disbursements cutoff test.  Test if cash disbursement and accounts payable reduction are reconcilable. Inspect the last checque written and trace it to the accounts payable subsidiary ledger. Reviewing subsequent cash disbursements enables the auditor to detect items purchased before year end but not yet recorded, i.e., unrecorded accounts payable.
• Purchases cutoff test tests to determine if goods for which title has passed or not passed are appropriately accounted for. FOB shipping point and FOB destination are critical to this test.
• Trace subsequent payments to recorded payables.  Match checques issued subsequent to year end with the related payable.  Checque should be issued only for payables that existed on the balance sheet at year end.  Any checque that cannot be matched may represent an unrecorded liability at year end.
• If confirmations are used, small and zero balances should be sampled as well as large balances.  For example, if orders are placed with a vendor on a consistent basis, a confirmation should be sent to the vendor regardless of the balance due at year end.

Practice

The auditor should check for all the audit assertions while verifying unrecorded liabilities. Valuation assertion will verify whether accounts payable are valued in accord with GAAP/IFRS? Presentation/Disclosure assertion will verify whether the accounts liability balances are properly presented and disclosed? Accounts payable should be listed as a current liability.  Purchases should be listed in the calculation of cost of goods sold. Unusual transactions involving accounts payable should be disclosed, such as related party transactions involving accounts payable. Obtain a management representation letter with assertions relating to accounts payable and purchases.

Audit News Briefing: 15 December 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

December 8, 2015

Accountancy Age

Audit firm governance code to champion quality and transparency

Based on the feedback from early-year consultation of the Audit Firm Governance Code provisions held by FRC – the role of independent non-executives was revealed to be significant but could be further strengthened. Moreover, investors require more direct appraisal from NED regarding firms’ audit performances.

FRC CEO, Stephen Haddrill said: "The audit firm governance code has led to an enhancement in governance of the major firms who have put significant effort into adopting its key provisions… Above all it creates, through the independent non-executives, an independent voice and challenge at the heart of the firms, which is of particular importance in view of their public interest responsibilities. The proposed new provisions will strengthen this voice further, provide clarity about the code's purpose particularly in relation to audit quality and encourage further transparency to investors."

Please follow link for details: http://www.accountancyage.com/aa/news/2438245/audit-firm-governance-code-to-champion-quality-and-transparency

December 7, 2015

PwC

PwC appointed as auditor to probe Vatican finances

PwC shall conduct a comprehensive external audit of the Vatican’s accounts. This is to support the Pope in his zeal to excommunicate corruption from the church. The Big Four shall work with Australian Cardinal George Pell who is head of secretariat that was formed to oversee papal finances following a series of scandals.

Please follow link for details: http://www.accountancyage.com/aa/news/2438045/pwc-appointed-as-auditor-to-probe-vatican-finances

December 4, 2015

Accounting Today

U.S.: Litigation Environment Favorable for Audit Firms (for Now)

Law firm Willkie Farr & Gallagher partner, Michael Young, specializes in defending audit firms. He said in an auditing conference in New York that –

“The litigation environment toward the accounting profession right now is about the best I have seen it in more than 30 years of doing this… Litigation against the profession is down, and just as important, the ability of the profession to effectively tell its story, to effectively present its defenses, is better than at any other time while I have been practicing law. But the times are changing, and in fact they have already started to change.”

Much of the litigation in recent years has come from the financial crisis but SEC is sending the message that it is back on the accounting beat, Young warned.

Please follow link for details: http://www.accountingtoday.com/blogs/debits-credits/news/litigation-environment-favorable-for-audit-firms-for-now-76616-1.html

Audit Firm: KPMG Staff Arrested in Tax evasion Investigation

Her Majesty's Revenue and Customs-HM Revenue and Customs or HMRC is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support, and the administration of other regulatory regimes including the national minimum wage.

Four partners at the Belfast office of KPMG have been arrested in connection with suspected tax evasion. HMRC officials visited the global accountancy firm's city Centre office on Wednesday and detained the men. They are Jon D'Arcy, Eamonn Donaghy, Arthur O'Brien and Paul Hollway, the firm's most senior staff in Northern Ireland.

KPMG said it is cooperating with the investigation and the four men have been placed on "administrative leave". The firm added that it does not have "any indication that this investigation relates to the business of KPMG or the business of our clients". The firm added that it does not have “any indication that this investigation relates to the business of KPMG or the business of our clients”.

HMRC said: “Officers arrested four individuals from Northern Ireland [on Wednesday] in connection with suspected tax evasion. We can’t comment further.”

KPMG has been at the fore of a campaign to persuade the Treasury to grant Northern Ireland special corporation tax status. Among the other KPMG executives arrested on Wednesday was Paul Hollway who is the firm’s head of corporate finance in Ireland. Mr Donaghy is KPMG's head of tax in Belfast and has been heavily involved in the campaign to have corporation tax powers devolved to the Northern Ireland Executive. As well as their work for KPMG, the four men are directors of a property investment company called JEAP Ltd. The firm suffered heavy financial losses when the property market crashed in 2008. However, it is unclear at this stage if that forms part of the HMRC investigation.

Additional Thoughts

Tax evasion and tax avoidance are issues which require the utmost care and attention from the auditors and authorities as economy can suffer huge losses due to this. Auditors should be very careful and should look out for transactions and other matters which may indicate the possible tax evasion. Moreover while providing taxation consulting services to its corporate clients the auditors should ask for all the pertinent information from clients to avoid any chance of the possible tax evasion.

Sources:

• http://www.bbc.com/news/uk-northern-ireland-34931675
• http://www.theguardian.com/business/2015/nov/26/kpmg-partners-arrested-hmrc-tax-evasion-inquiry

Audit News Briefing: 3 December 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

December 2, 2015

Accounting Today

SEC Penalizes Grant Thornton for Ignoring Red Flags in Audits

In a statement – SEC’s Division of Enforcement Director Andrew J. Ceresney said that “Audit firms must be held responsible when systemic failures such as inadequate engagement procedures, staffing, or supervision cause the firms’ work to fall significantly short of expected standards, particularly when multiple audits and engagements are involved.”

During audits of two public traded companies under SEC enforcement actions, Grant Thornton and two of its partners disregarded red flags and fraud risks. For improper accounting and other violations, the firm has agreed to pay $4.5 million to settle charges. They admitted wrongdoing and agreed to forfeit approximately $1.5 million in audit fees and interest plus pay a $3 million penalty.

Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/sec-penalizes-grant-thornton-for-ignoring-red-flags-in-audits-76580-1.html

December 1, 2015

PwC

Our focus on audit quality

PwC Assurance Quality Managing Partner Michael Gallagher:

“We understand the importance of maintaining our focus on delivering quality, being transparent about our process, continuously investing in innovation, and further developing the competencies that will allow us to solve important problems.”

PwC leaders are proud of the quality of their audits and, in particular, the progress they have continued to make, such as: 94% compliance rate of audit engagements selected for internal inspection; 99% audit professionals reported receiving consistent messages about the importance of audit quality; and 97% audit professionals reporting that they understand the practice’s objectives regarding audit quality.

The support on transparency, people strategies and new leadership framework to assess PwC professionalism were also discussed.

Please follow link for details:  http://www.pwc.com/auditquality

November 26, 2015

Accountancy Age

Has the value of audit to investors improved post-HBOS?

After the collapse of HBOS, the Bank of England’s 500-page report did not satisfactorily show how or why the failure happened. But it accordingly provided some significant points regarding the value of audit.

Excerpts from Deputy Editor Richard Crump’s Opinion:

“The ultimate arbiter of value around audit will be on how these challenges are articulated to the investment community. As is so often the case - concerns get raised about management assumptions but they never found their way through to the investment community - until a long way down the line… Improvements have been made to how audit is undertaken, so will the enhanced auditor reports complete the task? There is still some way to go for audit to deliver real value to investors.”

Please follow link for details: http://www.accountancyage.com/aa/opinion/2436695/has-the-value-of-audit-to-investors-improved-post-hbos