Coopers and PW merger
It took a lot of blood, sweat and tears, but Coopers & Lybrand and Price Waterhouse finally signed on the dotted line in July after successfully leaping a series of regulatory hurdles.
PricewaterhouseCoopers, as the new giant was christened, became the UK’s largest accountancy firm with around 1,000 partners and estimated annual fee income of #1.3bn. But opponents – and some audit clients – said the move would lead to a dramatic diminution in competition and sharp rises in prices.
But, with a client base of over 550 listed companies, PwC has a commanding lead over its opponents. It may not therefore be too concerned about losing the odd one or two.
E&Y/KPMG: the failed merger When Price Waterhouse and Coopers & Lybrand announced last year they were planning to merge, it was perhaps inevitable that others would attempt to follow suit. So when the proposed link-up by Ernst & Young and fellow Big Five firm KPMG was announced in October 1997, the profession gave it a frosty welcome. Many finance directors were ready to ‘slate the merger plan’ before it had really got off the ground.
Much controversy was to follow when the two firms were accused by FDs of trying to secure European Commission backing for their scheme by sacrificing self-regulation.
But on the fateful day of Friday 13 February, after four months of talks, the shock news emerged that the merger was off. Disgruntled KPMG partners told Accountancy Age they expected a backlash after E&Y pulled the plug.
The partners warned E&Y had gained access to previously confidential information after details of operations and products were shared by the negotiating teams.
The anticipated fallout never arrived. The proof finally materialised in December, when both KPMG and E&Y reported 19% increases in fee income during 1998.
Taxation There was little rest for tax managers and practitioners in 1998 as the taxman, energised by the introduction of individual self-assessment last year, continued to step up changes to the tax system.
Labour signalled its intention to crack down on tax avoidance and evasion when it came to power in 1997. But, as it started putting its ideas into action this year, there were signs of a growing realisation of the tricky practicalities inherent in many of them.
Proposals for the long-awaited general anti-avoidance rule were finally published in October, after what was described as a gestation period of elephantine proportions. Practitioners said the Treasury’s failure to define tax avoidance effectively would create doubt and uncertainty even in legitimate business transactions.
On a practical level, the biggest concern of most tax managers is the introduction of corporate SA next year. Seen as something of a Trojan horse, fears are growing that its introduction will unleash armies of tax investigators to pore through the minutiae of a company’s financial affairs.
As the year came to an end, a new threat has appeared – EU tax harmonisation – which has put tax stories on the front of even the raciest tabloids.
ACCA’s merger bid It wasn’t just the Big Five which were busy trying to merge this year. ACCA, home to the nation’s certified accountants, was hard at it too.
The association launched a high-profile ten-week campaign, secretly planned for 13 months, designed to woo members of CIMA and CIPFA. ACCA’s aim was to create a single professional body representing the interests of all three bodies.
Unfortunately, CIMA and CIPFA were having none of it.
CIMA’s council eventually debated the proposals and its response was predictable – ACCA’s ‘takeover’ bid did not provide a satisfactory base to go forward.
The death knell was sounded for the plan a week later when CIPFA rejected the merger, as the mood surrounding it turned increasingly sour. CIPFA president Margaret Pratt objected to ACCA’s ‘megaphone diplomacy’ tactics and claimed less than 20% of her members backed the merger.
Regulation: the government acts Chris Swinson’s proposals for a review board to regulate the profession reached fruition in 1998 with the announcement this month from DTI minister Ian McCartney that the Department of Trade and Industry would accept Swinson’s proposals for a cross-CCAB foundation.
The review board, as set out in Swinson’s proposals, is to be owned and funded by an independent foundation and will oversee four areas of regulatory activity – ethics, investigation and discipline, regulatory review, plus a revamped Auditing Practice Board. Each area will have its own board.
But accountants will be in a minority on the key bodies – with a 60:40 split in favour of independent figures. What is more, only one in eight members of the foundation’s review board overseeing all regulatory activity will be an accountant.
In September, Mandelson announced 60% of the board’s members must be independent, representing consumers and public interest.
At the same time, he confirmed that the DTI was putting forward a bill to allow firms of accountants to register as limited liability partnerships.
But the profession will pay a price. Firms registering as LLPs must prepare plc-style accounts and must also introduce appropriate insolvency cover.
Accounting standards 1998 was a watershed for accounting standards, both internationally and in the UK, as drafting committees at the International Accounting Standards Committee and the Accounting Standards Board went into overdrive.
The IASC board meeting in Frankfurt on 14-16 December saw the culmination of a five-year marathon to prepare a core package of international standards. The final deadline may have slipped a few months, but if this ‘universal passport’ is completed and accepted by the international stock exchange body IOSCO, companies will be able to prepare their accounts following IAS guidance and use them to seek listings on capital markets in other countries.
The ASB came out with four full financial reporting standards, plus an amendment to FRS 5. A close examination of this year’s crop of FRSs and IASs reveals some notable overlaps – FRS 12 on provisions and FRS 14 on earnings per share are almost identical to their IAS equivalents. Differences remain in how UK accountants handle associates and joint ventures (FRS 9) and impairment and goodwill (FRS 10). The ASB broke more significantly with international consensus on how to value pension funds and openly expressed its preference for a ‘long-term’ financial instruments standard rather than the ‘interim’ version agreed by the IASC.
The Best and Worst of 1998 – Month-by-month chronology
Three new partners and seven business restructuring advisers have been appointed to the new Preston office
Merger between Clear & Lane Chartered Accountants and Magma Chartered Accountants was finalised on 3 February
The Top 20 firm has recently advised J S Wright, the mechanical and electrical building services specialist
Promotions have been made in the private clients tax team and corporate business team