Review of the Year - The year that was
Marriages, affairs, divorces, secret negotiations, court cases, rows, raids, spies and scandals ... all that and Eddie Izzard too. We take a look back at who and what made news last year.
Marriages, affairs, divorces, secret negotiations, court cases, rows, raids, spies and scandals ... all that and Eddie Izzard too. We take a look back at who and what made news last year.
Saffrey Champness found itself the centre of unwanted publicity at the start of 1997 when trainee tax accountant Paul Stone, 24, sold to a tabloid newspaper details of his alleged 16-month affair with MP Jerry Hayes.
Stone, who was based in Peterborough, was sacked the following week.
Kingston Smith won an unprecedented High Court apology from the Inland Revenue for a bungled day-long raid by its controversial Special Compliance Office (SCO).
The trial of SCO officer Michael Allcock began. He faced 11 fraud charges, including accepting bribes and the services of a prostitute in return for favourable tax treatment of foreign nationals. After he was jailed for five years the Revenue promised major reforms.
English ICA members hit out at recommendations in Peter Gerrard’s consitutional review that the Board of Chartered Accountants in Business and the General Practitioners Board should be scrapped. Gerrard also called for a cut in Council members while saying the role of secretary/chief executive should be repackaged as secretary-general.
Astonished tax experts gave a frosty welcome to secret government plans to sell off 450 Inland Revenue offices.
Dame Sheila Masters won the English ICA’s vice-presidency at the third time of asking. The KPMG partner saw off the challenge of Price Waterhouse’s Graham Ward by 54 votes to 31, and will see in the millennium as president.
KPMG admitted that a collapse in new business at its management consulting division in the first half of 1996 had pinned back growth to just 6%.
But overall profit increased by 35% to #24.2m based on income of #623.5m.
Coopers & Lybrand’s legal team lost millions of pounds in fee income overnight when it set up its own law firm. Staff at Coopers’ in-house team and all fee income were transferred to a new firm, Tite & Lewis.
A hidden Finance Bill measure giving Customs & Excise ‘frightening’ new powers was condemned by tax experts. Customs claimed it was streamlining and simplifying the tax system by extending UK-wide the Scottish principle of arrestment – allowing it to approach directly a third party debtor for money owed by a taxpayer. The proposal was dropped weeks later.
Ernst & Young launched a #100,000 advertising campaign to promote its re-engineered Audit Innovation process. The firm based its advert on a glowing editorial in the Financial Times.
Secret papers seen by Accountancy Age revealed deep-seated fears held by ACCA’s hierarchy over the possible election of dissident member Prem Sikka. The papers, prepared as part of the disciplinary hearing into Jim Waits’ outburst against Sikka at October 1996’s EGM, warned that ACCA’s council would cease to be a body acting collectively for the good of the association’s members if Sikka was elected. Sikka failed by a long shot to win a council seat.
Plans by Price Waterhouse and Ernst & Young to register as limited liability partnerships in Jersey were undermined by the Inland Revenue. It declared the firms would be taxed as companies if they moved offshore – raising their tax costs by 10%.
NatWest called in forensic specialists from Coopers & Lybrand to assess the damage caused by one of its derivatives traders over the previous two years. Coopers’ report, which blamed lax internal controls for losses of #90m at the bank, refrained from pointing the finger at auditors KPMG.
Venture Capital Trusts, Tory Chancellor Kenneth Clarke’s tax breaks for business investors, began to fall apart as critics said they were overcomplicated and open to abuse. Some banks were accused of offering risk-shy investors ‘protected’ schemes that offered small real returns but cashed in on the generous tax breaks.
The Joint Disciplinary Scheme turned its spotlight on Arthur Andersen’s audit of Wickes. The DIY retailer was found to have overstated profits by #50m after Andersens allegedly failed to spot massive discrepencies in the purchase order system.
Trouble for Arthur Andersen arrived in twos as its corporate finance team came under fire from prospective shareholders in Newcastle United football club worried that the club’s flotation prospectus was based on ‘a complete lack of financial information’. The company floated at 135p and acheived a market cap of #178m before slumping to 98p at the end of the year.
The Department of Trade and Industry’s (DTI) decision to raise the audit threshold to #350,000 was condemned by ACCA. The association said small companies needed the safeguard of an audit. The English ICA General Practitioner Board conceded that members were split down the middle. Several hundred of its members joined a splinter group called the Small Practioner’s Association, which vociferously supported the DTI’s proposals.
The private finance initiative (PFI) ran into further trouble after a group of banks decided that NHS trusts could walk away from their debts if the hospital building schemes fared badly. Labour promised to revamp the PFI should it take office and end fears that deals could be ultra vires.
In a rare moment of public frustration, the English ICA blasted the Inland Revenue for ‘rushing to meet deadlines and simply ignoring the problems’ during the introduction of self-assessment. Of most concern was the threat of paying for random audits by the Revenue even when nothing was wrong.
Accountants were accused of dodging their responsibility to report suspicions of fraud after the National Criminal Intelligence Service revealed they filed only 375 of the 16,125 reports of fraud in 1996.
The year 2000 computer problem began to affect mergers and acquisitions when it was found some sellers had been forced to slash the price of companies for sale, one from #40m to #10m, after it was discovered essential computer systems had not been fixed.
The Big Six said the boom in internal audit outsourcing contracts would continue as they all booked income growth of 100% or more for the previous year.
KPMG attacked investors’ lobbying group PIRC over its claims that auditors who perform non-audit work for the same client are compromising their independence. PIRC was alarmed at the use of low-priced audits as a loss leader for other non-audit jobs.
In the week before the general election, the cost of fixing the millennium computer bug across the public sector came to light. Experts said #7bn would be needed to tackle the problem. The government said cash had so far been allocated from existing budgets.
The Inland Revenue’s crackdown on bogus self-employment in the building industry led to a war of words between the major employers and high street accountants. Building employers were angry at accountants who encouraged workers to sign contracts designed to avoid the Revenue’s new rules.
After months of dithering, Neville Russell finally joined medium-sized rivals BDO Stoy Hayward and Pannell Kerr Forster by becoming the third such firm to release its financial results to the public. It posted partnership profits of #8.23m, a jump of 36% on its previous year’s efforts.
Coopers & Lybrand, already facing the threat of litigation over its work as reporting accountants on Resort Hotels, faced demands that its conduct over the liquidation of Emlico, a captive insurer of US conglomerate General Electric, be examined by the US Attorney General. Coopers was accused of having a conflict of interest because the firm advised General Electric to relocate Emlico from Massachusetts to Bermuda three months before its crash as well as handling the liquidation. The firm denied any conflict.
The English ICA attempted to defuse an embarrassing row with one of its former presidents, Sir Michael Lickiss, over his decision to award a #560,000 research grant to the London School of Economics (LSE), from the funds of an institute-controlled charity. Sir Michael, who was also a governor of the LSE, denied any conflict of interest.
The English ICA spread a bit of cheer among its members by revealing that it stood to claw back up to #2m in VAT on behalf of practising members from the Revenue. The ICA had been given leave to appeal to the House of Lords in its battle with Customs & Excise after a court of appeal ruled the institute could not recover VAT on audit, investment and insolvency licences dating back to 1989.
A new Queen’s Speech; another disappointment for the profession as the Government failed to include any mention of Limited Liability Partnerships in its 22-Bill programme. It had been promised by Labour before the general election. Austin Mitchell rubbed his hands with glee.
The Inland Revenue’s costly campaign to make self-assessment understood by a confused general public and a wary profession had gone seriously wrong. Insiders revealed to Accountancy Age that up to 60% of the 300,000 completed returns sent so far were incorrectly filled.
Good news for auditors. The Government stopped teasing them and announced plans to introduce its long-awaited draft Limited Liability Partnerships Bill. The DTI refused to give a date for the draft bill’s publication, leaving the profession in excited anticipation.
Pannell Kerr Forster claimed a first for itself. Only months after all major Lloyd’s panel auditors had set themselves free from years of litigation with angry Names by contributing to a global rescue fund, Pannells became the target of a #240m lawsuit over its audit of syndicate 190. Pannells, the only major Lloyd’s auditor not to contribute to the settlement fund, said it would fight the damages claim ‘rigorously’.
KPMG confirmed Roger Dickens, deputy senior partner, had been stripped of his powers to manage the firm’s nine newly-created lines of business after a few partners had complained about Dickens’ management style. The Scots ICA knocked the wind out of the sails of the Association of Accounting Technicians (AAT) by unveiling plans for launching its own junior level qualification. The move, which the Scots said was only being considered as an option, put a major question mark over the survival of the AAT.
The Inland Revenue, already bogged down with the complexities of self-assessment, faced a savaging by angry tax advisers over its controversial plans to reform employees’ travel and expenses rules. The experts claimed the proposals, which were already a year behind schedule, were unworkable and costly.
The twisted saga of the Westminster homes-for-votes scandal took another turn when district auditor John Magill resigned from his job, citing excessive workload at his firm Deloitte & Touche. Magill, however, who became head of Deloittes’ forensic service, promised to stay on to see out the High Court appeal against gerrymandering charges brought by his arch enemy Dame Shirley Porter.
Tax software supplier CSM faced an angry mob of clients who demanded that the company waive up to #100,000 of annual service fees for failing to deliver its self-assessment package on time.
New chancellor Gordon Brown cut dividend tax credit payments in New Labour’s first budget, which was described by the National Association of Pension Funds as ‘the worst attack on pensions since the war’. Accountants were more concerned with a proposed anti-avoidance provision.
Andersen Worldwide partners continued to debate the possibility of a divorce between Arthur Andersen, the accountancy wing, and Andersen Consulting.
Partners meeting at a New York hotel could not agree who should be their chief executive.
Former Accountancy Age columnist, accountant and Tory MP Tim Smith was criticised in Sir Gordon Downey’s report into the parliamentary cash-for-questions scandal for having ‘persistently and deliberately failed to declare his interests’ in the affair. He faced investigation by the ICA.
Metherell Gard, a Plymouth-based firm, received another firm’s passwords and access codes to the Inland Revenue’s electronic lodgement system for self-assessment tax returns. Doubts were raised whether the Revenue would meet its target for 500,000 returns to be filed electronically by the end of the year.
The Insolvency Practitioners Association (IPA) launched an investigation into Buchler Phillips after High Court judge Mr Justice Ferris described its #1.63m fee for recovering a total of #1.67m from Robert Maxwell’s personal estate as ‘shameful’. The IPA failed to find a case against the firm.
After playing hard to get, CIMA backed English ICA deputy president Chris Swinson’s proposal to create a review board to regulate the profession.
Arthur Andersen decided to promote UK boss Jim Wadia to the throne of Andersen Worldwide.
KPMG tax investigations manager Alistair Kendrick expressed concern that Inland Revenue investigators were going on ‘extended fishing trips’ as a result of the government’s crackdown on tax avoidance. Under the Spend-to-Save initiative, the Revenue was expected to generate #4.9bn; it targeted 3,000 ‘high risk’ large companies.
Tim Smith apologised in a letter to the House of Commons for taking cash from Harrods boss Mohamed Al Fayed but denied that he failed to declare his interest in dealings with ministers and government officials.
Britain’s football clubs faced tough times despite lucrative television deals and rising ticket income, warned Deloitte & Touche. A record spending spree on expensive big name stars pushed the industry into a #98m pre-tax loss, the firm said in its annual review of football finance. Turnover rose by 10% to more than #500m, but #93m disappeared into foreign clubs’ coffers.
The Accounting Standard Board’s proposed financial reporting standard for smaller entities split the profession. Most small accounting practices and sole practitioners called for small companies to be exempted.
Baker Tilly was locked in secret merger negotiations with Casson Beckman in a bid to create the UK’s 12th largest accountancy firm. The two sides were attempting to conduct due diligence investigations before merger-hungry rivals began conjuring counter proposals.
It emerged that Coopers & Lybrand had ditched 40 audit clients in the past two years. Computer software giant Eidos became the latest client to be dumped by Coopers under the firm’s risk management policy, due to inadequacies in Eidos’ corporate governance practices.
KPMG faced the loss of its training authorisation and a full-scale English ICA investigation after trainee accountants were sent letters congratulating them on passing their finals a week before their results were published.
KPMG, in conjunction with Michael Page, sent the two-page letters to hundreds of trainees offering them an interview with its financial sector group.
SEPTEMBER Tim Smith was told he had to defend himself on a charge of bringing the profession into disrepute after the English ICA completed its investigation into his role in the cash-for-questions scandal. If found guilty of failing to declare money he received from Mohamed Al Fayed, he could be fined and expelled.
Ernst & Young struck a blow for office party-holders throughout the land by winning a VAT tribunal appeal allowing it to claim input tax on VAT for a staff Christmas party. E&Y successfully argued that the #82.50-a-head event (for which staff paid #15) boosted morale and rewarded employees for their hard work. The cabaret act, however, was not included and deemed to be purely for pleasure.
‘Break open the Bolly, it’s boom time for the UK accountancy market,’ trumpeted an analysis of research by Key Note estimating the total fee income for the year would be #7.39bn, up 10% on 1996. But in the week the CIMA and CIPFA pass lists were published, Kidsons Impey national managing partner Peter Douglas warned: ‘Despite the increased volumes in the market, there’s an oversupply of accountants, particularly in the traditional audit and tax areas.’
Coopers & Lybrand was slightly off the pace when it reported only 9% growth in its annual fee income to #766m.
The Inland Revenue, Customs & Excise and Contributions Agency all felt the lash in The Adjudicator’s Office annual report. A record 2,534 complaints were made against the Inland Revenue and almost half were upheld. ‘It is how they treat people rather than whether they have operated their rules and procedures correctly which leads people to complain to me,’ said adjudicator ‘Super Liz’ Filkin.
Top-level talks between security officers and City figures cleared the way for MI5 and MI6 to infiltrate foreign-owned banks in an effort to curb money laundering. The National Criminal Intelligence Service issued guidance for company formation agents as ‘shell’ companies are one of the most common vehicles for dirty money.
Coopers chairman Peter Smith and Price Waterhouse senior partner Ian Brindle announced their engagement and set out the reasons behind their proposed marriage, which would create a mega-firm with 135,000 employees and revenues of #8bn. Financial directors and commentators were not impressed.
‘We don’t see any pressure from the clients or the market for this merger,’ said Colin Sharman, head of rival firm KPMG.
Tax inspector Shaun Southern was shown on BBC TV shouting at his colleagues and beating up a homeless beggar. Not a fly-on-the-wall documentary of life with the Inland Revenue, but the first episode of Holding On, a hard-hitting eight-part drama serial.
The Inland Revenue’s chief spokeswoman Theresa Middleton overturned centuries of tradition by writing to Accountancy Age to apologise to taxpayers and their agents for the thousands of self-assessment returns it had returned over minor rounding errors. ‘We accept the guidance contained in the tax return is not as clear as it ought to have been. We are sorry for any inconvenience it may have caused,’ she wrote. In something of a ‘bad publicity week’ for the Revenue, financial secretary to the Treasury Dawn Primarolo scrapped proposals to change the way travel and subsistence payments to employees were taxed. The scheme would have increased red tape and added millions of pounds to tax bills.
On the merger front, 45% of FDs replying to the The Big Question survey commissioned by Accountancy Age and Reed Accountancy Personnel argued the Coopers and Price Waterhouse merger should be stopped, citing worries over a potential monopoly and declining standards.
The government added to merger-mania after proposals to merge Customs & Excise and the Inland Revenue were leaked. Tax experts from leading firms queued to pour scorn on the proposals, which were prepared by ex-Andersen Consulting employee and Tony Blair adviser, Liam Byrne.
Faced with an April 1998 deadline for introducing international standards on financial instruments, Sir Bryan Carsberg, secretary-general of the International Accounting Standards Committee, got a rough ride from the British Bankers’ Association for attempting to adopt US derivatives standards.
The audit faculty of the English ICA dipped a toe into the growing controversy surrounding the likely failure of thousands of computers on 1 January 2000. Fearing the mess would rebound on auditors, the faculty emphasised that the responsibility rested with company directors. If auditors, however, do not receive ‘robust’ answers to questions about year 2000 preparations, they should consider qualifying the accounts.
Accounting Standards Board chairman Sir David Tweedie had his Upper Class seat on Virgin Atlantic usurped by professional surrealist Eddie Izzard, a former trainee accountant. In a bid to mend some fences with the profession, the comedian sent Sir David a piece of paper emblazoned with a kiss.
Spurred, perhaps, by being eclipsed in the headlines for several weeks, KPMG and Ernst & Young played the merger trump card. The response from the people who are supposed to benefit from all this consolidation was eerily similar to the PW/Coopers announcement four weeks before: ‘FDs slate merger plan’.
Coopers, meanwhile, remained in the news when its offices and those of Ernst & Young were among 80 around the country raided by teams of Revenue and Customs & Excise inspectors cracking down on tax avoidance scams.
In a final humiliation for the week, Coopers’ case to collect #32.5m damages from two Canadian law firms collapsed three weeks into the trial.
Coopers’ claim, arising from the failure of its audit client, the Wallace Smith Trust Company, was settled after the firm’s head of banking insurance group, Peter Chapman, was discharged by the judge, Mr Justice Rimer. A psychiatrist’s report submitted to the judge said Chapman ‘was suffering from acute anxiety and possibly a degree of dissociation’ after he had admitted signing off accounts that he knew were misleading.
Arthur Andersen and its subsidiary Binder Hamlyn announced they would no longer audit Lloyd’s insurance syndicates. They claimed the potential risks were too great.
Deloitte & Touche heard that its work on the Bank of Credit and Commerce International would come under the scrutiny of an independent auditor.
This first in UK insolvency followed persistent criticism of the fees earned by D&T during the liquidation. The firm is thought to have pocketed #80m since the case started.
Ernst & Young partner Robin John was forced to quit after the Inland Revenue launched an investigation into tax fraud at the firm. John’s home and office were both raided, and an E&Y spokesman said he had ‘decided it was in his and the firm’s interests if he resigned from the partnership’.
Treasury watchdog, the Financial Services Authority (FSA) decided it would strip the profession of its right to licence accountants who give investment advice. Under the new Regulatory Reform Bill, the City super-regulator will shoulder this responsibility. The English, Scots and Irish ICAs made a desperate plea to the FSA to see if they could salvage some responsibility for regulating their members.
John Collier stepped in to take the top job at the English ICA until a full-time successor to Andrew Colquhoun could be found. Collier, former Price Waterhouse partner, vowed to embark on a programme of change to bring the institute closer to its members.
The Insolvency Practitioners’ Association slapped a record fine on top Stoys partner, Ray Hocking. He was ‘severely reprimanded’ and told to pay #37,000 plus six figure costs. The charges levelled against him included ‘drawing remuneration without obtaining the appropriate authority to do so’ and ‘failing to take independent expert advice prior to accepting proof of debt from a major creditor in liquidation’.
The battle for supremacy in the accountancy training market reached new heights when EW Fact accused arch rival Financial Training Company (FTC) of stealing confidential information from its London offices. In a high court writ, Dhanraj Gidwaney, managing director of FTC’s subsidiary Accountant & Management Training, was charged with inducing EW Fact staff to hand over confidential documents.
Gordon Brown’s Green Budget pledge to stamp out tax avoidance was condemned by one expert as being likely to provoke ‘a ten year train of litigation’.
Tom Murray, tax investigations partner at KPMG, said: ‘We are talking about a long period of uncertainty if these draft measures are actually tabled.’
Robson Rhodes profits plummeted 20% in the year to the end of March.
One partner said some colleagues had quit the firm after demands that they inject more capital into the firm and absorb pay cuts that averaged 35%.
DECEMBER FDs hit out at KPMG’s and E&Y’s ploy of trying to secure European Commission support for their merger by sacrificing self-regulation. They said the firms’ plans failed to address the main issue of a reduction in the choice of auditors for the big companies. Rival firms were also angry at what they see as a self-serving plan. One senior accountant said: ‘They are fighting to hang on to FTSE-100 clients by giving up the rights of the profession to self-regulation.’
The long-awaited cross-institute paper on the future regulation of the insolvency practice gave only a passing mention to the thorny issue of practitioners’ fees. This key question was left to a separate committee, chaired by Mr Justice Ferris, which will report early next year. Instead the consultation paper focused heavily on regulation, and the formation of an independent insolvency watchdog.
The Inland Revenue, embarrassed by the slow trickle of self-assessment returns, pointed an accusing finger at tax agents, suggesting they were stockpiling returns. Revenue director of operations Doug Smith said he thought agents were clinging to a ‘mythical belief’ that filing close to the January 31 deadline would slash the chance of a Revenue enquiry.
New ASB (Accounting Standards Board) proposals designed to clarify accounting for PFI looked set to add huge debts to the public sector balance sheet – defeating the original point of the schemes. The ASB’s amendment to FRS 5 sought to lump liabilities for projects such as roads, prisons and hospitals on the relevant organisation’s balance sheet. But experts warned that being ‘over-diligent’ could be an obstacle to future schemes.