Cadbury deal will trigger audit reshuffle

If Cadbury walks away from the UK, it could take upwards of £40m in tax and leave behind an auditor reshuffle, which, like their famous Creme Egg, is likely to be gooey.

Cadbury moving its operations offshore could see the UK lose out on more than just chocolate production.

Stephen Herring, tax partner with mid-tier accountants BDO, estimates it would cost the taxman £40m in tax if the work force is made unemployed. The company pays no corporation tax but has around 5,000 workers in the UK. “There is a large number of jobs which could move overseas, and it will be those jurisdictions that would get the tax revenues,” said Herring.

Shareholders have only to give the final tick to the Kraft offer, which is likely to trigger an auditor change.

Traditionally, the auditors of the dominant company in a takeover generally absorb the audit work of the acquired. What follows is a twelve month period of co-operation between the new and former auditor as the companies integrate their operations.

In twelve months a “beauty parade” of auditors is called to receive a fresh perspective on the merged entity.

Deloitte earned almost £8m from Cadbury last year, with about £4.9m from its audit and the remainder from non-audit fees. PwC’s US arm, based in Chicago, earned almost $21m (£13m) for audit and non-audit services for Kraft in 2008.

Complicating matters, PwC also provides a broad range of tax, share scheme and advisory services to Cadbury, which it may have to rethink if it takes on the full audit. Under strict US listing rules there are much tighter restrictions on auditors undertaking non-audit work.

PwC, would not comment about its client, but a spokesman said generally US rules “permit an auditor to provide a number of types of non-audit services” as well as prohibiting others. “In many cases the auditor is the best placed to provide other services to the company,” he said.
Deloitte declined to comment.

Further reading:

cadburyinvestors.com