Where do I stand on the Budget and Alistair Darling?
Here's some thoughts. He was calm, composed, he did not look overly flustered. There was no hint of panic, no histrionics, no playing to the crowd. Alistair Darling looked and sounded like a man under control.
And lets hope he is because the country is submerged in a economic mire.
But what appeared to be missing from this Budget was a strategic direction, a vision of where we were and the way we would climb out of the trouble we're in. Composed though Darling was, what he might have tried to do was inspire us.
That didn't happen. And that's a pity because, as one tax expert explained to me just before the speech began, what Darling really needed to do is fill us - the country, consumers and business - with confidence. Because economics is a confidence game. Convince us that everything is alright and we will go out and buy a new TV, a fridge, the red leather sofe we've always loved and, if we're feeling particularly reckless, we might even buy a new car on a finance deal. If our confidence is reciprocated a bank might even lend a considerable sum of money to move home, start a new business or support the one we're already running.
What I didn't get from Darling was that electric bolt of confidence that told me we were going to be OK. Sure, he said we would start to emerge from recession later this year. But sadly the claim had the ring of over optimism about it. He didn't really say it like he believed it. It was merely another statement that was read off his papers. Capital allowances, loss relief, maintaining small business tax at 21% - all his measures to protect the tax base - there was a lot going on under the surface, but there wasn't anything that said: 'This will turn the tide.' In fact there was precious little reasurance. There was nothing that said: 'This is how we will protect jobs.' Or: 'This is how we will inspire you go out and do business.' These landmark policies, these moments that might illuminate a route through the gloom were missing.
The downturn in GDP this year, -3.5%, and this year's budget deficit, £175bn, militates against an uplift in mood.
This even might become known as the Budget in which the chancellor fiddled. There are almost 100 notes on specific measures included in the Budget. Bits and pieces of avoidance, bit of this, bits of that. So many small fragmented things that at first it was almost impossible to make sense of it all. Let's hope this Budget doesn't become known as the Budget in which Alistair Darling fiddled while the economy...well, you know the rest.
If I take some solace from the Budget it is this. After bank bail outs, nationalisation, multi-billion pound guarantees, quantative easing, two G20 summits and countless other measures and meetings, Darling and the government may already be feeling that they have done all the big stuff that will help. there was nothing very much left for the Budget to do. The house had been built, all that was left was to tidy it up. Now, it is just a matter of time to see how the policies work out. It's just a matter of time to see if confidence will return. Which brings me to the place where I started. Confidence. It's a great trick if you can pull it off.

April 22, 2009 | Permalink | Comments (1)

I cannot help but love some of the fantasy that goes into the Budget book each year.
This year's is a case in point. In case you hadn't heard so concerned is the government to protect its tax revenues it's going to make finance directors personally sign-off on their company's tax calculations. OK, that's understood.
But then the Budget book throws a bucket full of mirkiness over the issue by claiming that the step will save the exchequer £90m over the next couple of years. What? How in all that's holy did they work that out?
It doesn't end there. The Budget says naming and shaming tax offenders will save £80m. Right, and my name is the Mad Hatter.
I would love to know the basis for such calculations. Perhaps they come from the Terry Pratchett book of tax. If you have any ideas, let me know.

April 22, 2009 | Permalink | Comments (3)

the word is that small business will not benefit overly from the Budget making this crisis moment for Alistair Darlin a missed opportunity.
Loss carry back - the measure which allows losses to be written off - has not be extended far enough and the doubling of capital allowance will be for people who will, mostly, not be doing any spending to claim allowances on. the effect therefore negligible
The upshot - if the government was willing to give back to business around £2bn over the next couple of years, as they said capital allowances would do - the effort should have been concentrated on loss carry back.
Of course, the rate of tax for small business has been held at 21% - better than paying 22%. But that only matters if you have a profit to pay tax on. How many businesses can claim they have a decent profit at the moment? Oh dear.
The Budget therefore is disappointing. There will be little for small business to rejoice and therefore and little reason for optimism. If there are green shoots of recovery around the chancellor did little to help them flourish.
The truth is, the economy is reliant on other things and mostly the banks getting their lending practices back to normal.
But here the chancellor merely said international accounting standards would be used to keep a closer eye on the behaviour of banks. ie more scrutiny (OK, that's no bad thing) but precious litlle more than what we already know about to get them moving.
Of course, we knew there was going to be no great fiscal stimulus. Though that said, the government reckons the Budget will put £5bn into the economy this year. That's less than half of one per cent of GDP. So perhaps Alistair Darling was hoping to be seen as the prudent chancellor not wanting to exacerbate too much the Budget deficit, which is going to run to about £175bn this year alone and with almost as much again the following year.
That's reflected in the optimistic statement that the economy will start to recover late this tear. That's a great wish, but will it really happen? Where I'm sitting there were gasps of disbelief at that idea. Overall 2009 will see GDP shrink by 3.5%. A punishing blow to the economy. It's difficult to see how small and medium sized business can sustain that and yet be buoyed up by what little there was in this Budget.
Which means the boost to confidence that was really needed today is unlikely to happen. Which is a shame, because confidence could be everything at the moment.

April 22, 2009 | Permalink | Comments (3)

Apparently, and according to research from a couple of Big Four firms, the feared avalanche of 'emphasis of matter' paragraphs - statements that are just a step away from 'going concern' statements - have not materialised.
There were real concerns that in an effort to protect themselves, and because of the economic conditions, auditors would feel the need to include the paragraphs in annual reports in volumes that have never been witnessed before.
You have to wonder why they haven't materialised. Firstly, the Financial Reporting Council put out guidance specifically to head off such a deluge. This made it clear that there was no need to rush head-long into emphasis of matter statements. In effect not only did the FRC give auditors a warning, but it also gave FDs the very ammunition they needed to argue with the auditors if emphasis of matter became an issue. We know for a fact the FRC was very grateful for the coverage.
Once the guidance was out though, the press picked up on that advice and made it very very public. That must have added to the pressure on auditors indeed it appeared to place the burden of responsibility firmly on the shoulders of auditors. Whether it went too far is an issue for debate. Directors have to carry some responsibility for their performance and the management of the company.
Of course, the research is restricted to large companies. And when working with particularly large clients it is always very sensitive to call them out on going concern anyway issues.
Add all these factors together and you have very little room for auditors to manoeuvre.
For the big clients. What would be interesting to know is what is happening to all the much smaller clients, or those that don't have the issue of being publicly listed. Auditors may feel less less pressure there. Their emphasis of matter/going concern calls may just sway the other way much more frequently. Would that be fair? Well, there's a tough question to answer in the midst of a crisis.

April 21, 2009 | Permalink | Comments (0)

The number of accountants joining the dole queue has grown by 142%. That's a shocking statistic that should have working accountants everywhere thinking: 'There but for the grace...' . Despite talk of 'green shoots' the economy looks grim and so do the job prospects for accountants, if the figures are to be taken at face value.
The total now stands at around 1,500 signing on, with about another 1,000 management accountants also claiming benefits, around 2,500 altogether.
The Financial Reporting Council estimates there are 250,000 qualified accountants in the UK. Take 10% off to allow for those that are currently retired and you get 225,000. So, that means according to labour statistics around 1% of the accountancy workforce may be signing on.
The growth in the claiming rate is alarming. But national unemployment stands at around 6.5%. The total number of claimants stands at 1.39 million.
Even if you allowed for doubling the claimant rate for accountants, because many people would for some time refuse sign on, you still don't approach the national unemployment rate. It means accountants, as a profession, appears to be faring better than others.
But, note this. According to the Office of National Statistics, the last quarter of last year saw the number of jobs in business and finance fall by 100,000. The City would account for most of that. The total loss of jobs in the quarter was 203,000 - the largest quarterly fall since 1992. Lets hope that the job losses have peaked - and that the number of accountants signing on will now start to fall.

April 20, 2009 | Permalink | Comments (0)

The collapse of New Century, the giant sub-prime mortgage company that collapsed in the US in 2007 has come back to haunt its auditors.
New Century was the first sub prime collapse that raised questions over the auditor when the report of the bankruptcy court examiner filed his report (to read it click here.)
Now the court appointed liquidating trustee has announced legal action claiming $1bn from KPMG International because it should have controlled its member firm in the US.
The case became notorious for an email sent by the audit partner when a junior member of staff continued to raise questions about auditing at New Century.
This is it: 'I am very disappointed we are still discussing this. As far as I am concerned we are done. The client thinks we are done. All we are going to do is piss everybody off.'
I blogged on it last year. Click here.
KPMG will fight the case and deny that they did anything untoward. But it is worth noting that the lawyer bringing the claim is one Steven Thomas, of Thomas, Alexander & Forrester, the law firm also fighting an action claiming BDO International is liable for the actions of its US member BDO Siedman. The case is unresolved, though Thomas has had some initial success. It seems the New Century liquidator, Alan M Jacobs, thought he was worth a punt against KPMG too. There is too a possibility that cases could be brought against both Grant Thornton Internantional and Deloitte International for the work of member firms at the collapsed Italian dairy giant Parmalat.
New Century, however, being the first big claim against a Big Four umbrella body could well force the rest to look long and hard at their contracts with member firms to see just how ring fenced their liability is.
It doesn't take much to work out that we have entered a new era for the big firms who may well be forced into questioning their current structures and whether they are sustainable as they are. Already we have seen some mergers. How long can 'international' networks last as they are? More to the point, national regulators of registered audit firms, are asking the question: 'Who is regulating the network umbrella bodies?' The answer is no one. But in an age when governments have turned regulation will unprecedented levels of enthusiasm, how long is that likely to last? Are we seeing the end of things for the long standing international networks? It seems like something's got to give.

April 2, 2009 | Permalink | Comments (4)