Review 2003 – A year less ordinary

Marta Andreasen

Marta Andreasen received Accountancy Age’s Personality of the Year award in November, underlining the popular support of her public allegations of serious weakness in the European Commission’s accounting procedures.

But while champagne flowed at the awards in Battersea Park, knives were being sharpened in Brussels. Having suspended her as chief accountant in 2002, the EC hit Andreasen with a gagging order after accusing her of speaking at conferences without permission.

The issue, it turned out, was not the Accountancy Age awards. The order appeared to have been triggered by her appearance at an internal audit conference in Amsterdam. Characteristically, she declared her intent to fight the EC over the matter.

The commission’s decision to pursue Andreasen came despite its own internal auditor Jules Muis endorsing her claims in March.

And last month, the European Union court of auditors also criticised the EC’s accounting system, giving assurance to less than 10% of the 2002 budget.

Regulatory round-up
Constant regulatory upheaval surrounding the accountancy profession has been a trend since the fiascos involving Enron and WorldCom, but 2003 finally saw the implementation of a number of measures that should help restore confidence.

The regulatory highlight of the year for the UK was undoubtedly the publishing of the intensely controversial Higgs report on corporate governance, which, together with the Smith report on audit committees, tidied up the combined code that public companies will have to adhere to.

Initially accepted as a sensible measure, companies started to object when looking into the details of the recommendations, which many claimed were far too proscriptive and would result in a box-ticking approach to governance.

The Financial Reporting Council eventually softened the tone of the guidelines, with companies able to explain to shareholders if they didn’t follow certain aspects of the code.

The recently-announced Companies Act should also tighten regulation of the auditing profession, while increasing the powers auditors have at their disposal. But we will have to wait until next year to see whether the bill passes.

IAS campaign
September saw Accountancy Age launch its campaign to raise awareness of the change to international accounting standards in 2005. The need for urgency was highlighted after a survey of 500 finance directors revealed a worrying 43% who saw the change as producing no real benefit. Less than 10% of those polled thought investors appreciate the significance of the change.

Sir David Tweedie, head of the International Accounting Standards Board, argued: ‘The decision to adopt IFRS will transform the basic infrastructure underpinning Europe’s capital markets and provide impetus to Europe’s effort to unite its many national markets.’ Strong words, but there are clearly concerns among FDs in business that preparations are far from reaching a level that would inspire confidence in UK plc’s ability to cope.

One FD said: ‘The accountancy profession should be doing more to inform and educate everyone, not just on a consultancy basis.’ Mary Keegan, head of the UK Accounting Standards Board, is working with Sir David to effect the change.

Inland Revenue
The Inland Revenue and its chairman Sir Nick Montagu will want to forget the last 12 months. Millions of families were left high and dry after tax credit payments failed to materialise, and hundreds of Revenue staff staged spontaneous walkouts in protest at their work conditions.

Laying the blame for the debacle was something that opposition MPs took very seriously, and Sir Nick was dragged before various parliamentary committees on so many occasions it became embarrassing. In the end, it was the Revenue’s IT supplier EDS which paid the ultimate price after being dumped by the department last week.

The next couple of years promise to be extremely interesting for the Revenue. Not only will its new IT supplier, Cap Gemini Ernst & Young, need to get to grips with the taxman’s affairs, but a replacement for the retiring Sir Nick has to be found and an eventual merger with Customs & Excise faced.

Football insolvencies
The past year saw yet more clubs in financial trouble as the sector continued to suffer from the collapse of ITV Digital.

But previous big names to rescue football didn’t have anywhere near the wealth of Russian billionaire Roman Abramovich, who was able to buy world-class players for Chelsea as though shuffling loose change.

Leeds United was at the mercy of super-rich rescuers, including Sheikh Abdulrahman bin Mubarak Al-Khalifa as it languished at the jaws of insolvency.

Drained of cash by the collapse of revenue from ITV Digital, 2003 saw a growing list of clubs in trouble. Among those calling in the administrators were Ipswich Town, Port Vale and York City. While the big clubs count on the arrival of more billionaire rescuers, smaller clubs are pinning their hopes of survival on new tax breaks.

Iraq war
The continued conflict in Iraq and the fight against global terrorism took a big chunk out of public coffers, as the chancellor was forced to commit £6.3bn to military campaigns.

In April, as troops reached the outskirts of Baghdad, the chancellor delivered his Budget speech, setting aside £3bn for troops engaged in combat with a further £330m freed up for additional counter terrorism measures.

Soon after this speech on 1 May, Baghdad fell and an end to the major conflict was announced. But British troops remained in the region to help restore law and order.

The cost of the post-war efforts became evident, when in last week’s pre-Budget speech, Brown revealed a deficit of £19bn and said £5.5bn had already been spent or set aside for the war against terror. Brown said a further £2bn would be carried forward into the Special Reserve for 2003/04, with £500m set aside for 2003 and £300m earmarked for 2004. We’ll have to see what effect Saddam Hussein’s capture will have on these commitments.

PricewaterhouseCoopers’ results suggested that its position as the biggest firm in the country may be under threat, after breaking with tradition and going public with its UK accounts for the first time. Late November saw the firm unveil figures that revealed fee income for the year to June 2003 was down 7% to £1.5bn. Deloitte’s earnings stand at £1.2bn, £227m behind. PwC UK chairman Kieran Poynter described the year as the ‘most difficult market conditions I can remember’, while at the same time saying he was pleased with business.

ACCA finally completed its long and tortuous search for a new chief executive to replace Anthea Rose. After nearly two years that saw two appointees resign before even taking up the post, the job was taken on by ACCA’s executive director for the Asia Pacific region, Allen Blewitt.

He should arrive here in the new year to start work after only joining ACCA in May. He told Accountancy Age in November: ‘There have been some difficulties, but this is definite. I’ll be there in January.’

This wasn’t Numerica’s year. Following profit warnings and pay cuts for company directors, the consolidator finished the year failing to agree sale terms with two potential buyers and announcing a £300,000 loss. Tony Sarin, the company’s chief executive, now says the efforts to sell are over and Numerica will go on building its services and client base. Previous efforts to clinch a deal had linked Numerica with BDO Stoy Hayward and RSM Robson Rhodes.

It was one of the most eagerly awaited reports of the year, but in the end its effects were unexpected. When the DTI published its report into the failure of TransTec, the company once owned by former paymaster general and Labour MP Geoffrey Robinson, the politician emerged more or less unscathed.

Instead the report included damaging criticism of the auditors PwC and the company’s other directors, most of whom were accountants. Partners at PwC and former TransTec CEO Richard Carr are still waiting to hear whether the Accountants Joint Disciplinary Scheme will be taking action against them.

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