Sarah Perrin.Private equity under fire
It's been a tough year for private equity firms. Right from the start they were coming under fire from trade unions and Labour MPs, facing accusations of asset stripping, short-termism and a lack of transparency. In June, four leading figures from the PE industry were grilled by the Treasury select committee. They appeared caught off guard, and struggled to defend the low effective tax rates paid by both investee companies and extremely wealthy PE executives. The much reported comment by Nicholas Ferguson, chairman of SVG Capital, that some top executives paid 'less tax than a cleaning lady' helped to fan the flames of outrage. Nevertheless, the industry continued to argue that the money they made should be treated as capital gains, rather than income.
In July, Sir David Walker published his consultation document, Disclosure and Transparency in Private Equity, proposing enhanced transparency in the reporting by private equity firms themselves and their investee companies. Walker's remit, which had been set by the PE industry, was a relatively narrow one, with the result that his recommendations for enhanced reporting - worthy as they were - were interpreted by some critics as too little, too late. Perhaps not surprisingly, Alistair Darling's first pre-Budget report (PBR) in October proposed major changes to the capital gains tax regime.Taxing times
Darling's PBR proposals to scrap taper relief on capital gains caused widespread concern. The plans of entrepreneurs up and down the country were thrown into chaos. As things stood, gains on businesses sold from 6 April 2008 onwards would be subject to a flat rate of 18%. Those sold before then and which could benefit from maximum taper relief could pay an effective rate of 10%. Though there would be both winners and losers as a result of the rule changes, small business representatives made vocal objections. However, as Accountancy went to press in November, there were no signs that Darling would suffer a change of heart.
Tax also created much newsprint earlier in the year, when in February special commissioner Dr John Avery Jones ruled that high street banks had to hand over details of their customers' offshore bank accounts to Revenue & Customs - the latest development in the tax authority's continued crackdown on tax avoidance. It was then announced that the Revenue would offer a form of tax amnesty to holders of offshore accounts who should have paid tax on interest. They were given until 22 June to notify the Revenue of their intention to disclose, and until 26 November to make their disclosures and pay all back taxes, interest and a 10% fine. Hefty penalties were threatened for those who failed to comply.
Meanwhile the curtain finally fell on the long-running Arctic Systems case, which was heard in the House of Lords in May. The Lords ruled in favour of taxpayers Mr and Mrs Jones, but tax practitioners held only muted celebrations. The Revenue was unwilling to let the issue lie, and set about drafting new legislation to deal with the so-called 'income splitting' arrangements used to reduce the tax burden on family businesses.Audit concerns
Auditors engaged in plenty of healthy debate during the year, particularly over the need to increase choice in the big company audit market. Mid-tier firms complained of 'institutional prejudice' and misguided beliefs that only the Big Four were capable of handling larger listed company audits.
Following its launch last year, the Financial Reporting Council's Market Participants Group got busy, publishing its interim findings in April, followed by a list of 15 proposals in October. These included the recommendation that firms should publish the profit margins of their audit work. The proposals had a mixed reception. Some commentators felt that while the recommendations could improve the effectiveness of the audit market, they were unlikely to have a significant impact.
Auditor liability also received continued attention, with the European Commission publishing a consultation document on limiting auditor liability throughout the EU. Internal market commissioner Charlie McCreevy said there was 'a real danger of one of the Big Four being faced with a claim that could threaten its existence'. The EC outlined four possible ways forward: a fixed monetary cap at European level; a cap based on the size of the audited company; a cap based on a multiple of audit fees; and proportionate liability.IFRS issues
International Financial Reporting Standards continued to generate a fair bit of heat in 2007. Take, Segment Reporting, which would allow listed companies to segment their reporting according to internal managerial divisions, rather than by industry sector or geographic region. European plans to adopt the standard were pushed back to enable commissioners to carry out further consultation.
The International Accounting Standards Board's draft IFRS for SMEs also got into trouble, being rejected by the EC. Commissioner McCreevy said it was 'not simple enough to be applicable to the bulk of SMEs in the EU'. However, the IASB has now taken steps to try to improve its relationship with Europe. Starting with its standard on Business Combinations, which is expected to meet resistance from the EU parliament, all new standards are to be published with a feedback statement aimed at non-technical decision-makers, including a cost-benefit analysis and explaining how decisions were reached during drafting.
Across the pond the US has shown some signs of warming up towards IFRS. The Securities and Exchange Commission suggested ditching the US GAAP reconciliation requirement for accounts prepared under IFRS - though only IFRS as issued by the IASB (not as approved by the EU). In November, having considered consultation responses, it finally decided to go ahead with dropping the reconciliation requirement, the rule change covering years ended after 15 November 2007. The SEC also began consulting on whether to allow US-listed companies the option of using IFRS instead of US GAAP. In November, the US Financial Accounting Standards Board made positive noises, saying that 'investors would be better serviced if all US public companies used accounting standards promulgated by a single global standard-setter', and that this would be best accomplished by moving US public companies to 'an improved version' of IFRS.Post-Enron ripples continue
2007 marked five years since the Enron scandal erupted, and the regulations that were triggered by it continue to evolve. In January, the US Public Company Accounting Oversight Board (PCAOB) moved to take the sting out of s404 of the Sarbanes-Oxley Act by proposing a new Auditing Standard on the audit of internal control over financial reporting, simplifying its previous requirements. The SEC also issued new 'interpretive guidance' to help public companies comply with s404 while reducing 'unnecessary costs'.
In March, the PCAOB and McCreevy agreed to launch 'roadmap' discussions on how the US and European auditor oversight bodies could reduce regulatory overlap by relying on each other's work. Sarbox requires the PCAOB to produce reports every year on foreign audit firms that have more than 100 clients with US listings, and every three years on those with fewer than 100. However, the roadmap aims to enable the PCAOB and those EU audit regulators with independent and rigorous oversight systems to fully depend on each other by 2009.Institute affairs
The ICAEW began the year with a revamped image - a new look Economia, part of a wider institute branding project. A specially designed member firm logo was also available for use from 8 January.
In September, the ICAEW launched its new ACA - a qualification building on the strengths of its predecessor, but updated for the times, with greater flexibility in timing of exams, e-learning capabilities and more focus on ethical issues throughout the syllabus.
International expansion and collaboration was on the institute's agenda. At the end of August, for example, the ICAEW signed a memorandum of understanding with the Institute of Chartered Accountants of Pakistan, permitting ICAP members to join the ICAEW provided they undertook an advanced level of tuition through a special 'top-up' programme.
Deloitte receives what is thought to be the highest ever ICAEW fine - £130,000
The Fraud Act 2006 comes into effect, creating a specific offence of fraud for the first time
Deloitte in Italy agrees to pay Parmalat $149m (£76m) to settle allegations that the firm helped prolong the fraud at the companyFebruary
Vantis suffers a mail bomb attack, injuring some staff members
FRC hit with £1m Mayflower billMarch
Treasury announces it will switch from UK GAAP to IFRS from the start of 2008
ICAEW signs an agreement with Tata Sons in India enabling the Indian giant to train ACAsApril
Mazars and Moores Rowland International combine to form a new $2.5bn (£1.3bn) international accountancy network, Praxity
The FRC's Market Participants Group dealing with audit choice publishes its interim report
Royal Dutch Shell agrees to pay $352.6m (£176.2m) to settle claims from non-US shareholders related to its 20% overstatement of oil reserves in 2004May
ICAEW decides that hearings of disciplinary and appeal tribunals will be open to the public from 1 January 2008
Nigel Potter, British ACA jailed in the US for attempted bribery, is moved to a UK prison before being allowed home (with an electronic tag) in September
ACCA unveils a new logo for use from September, part of an £85,000 brand overhaulJune
FRC's Public Oversight Board proposes publishing high-level reports of inspections of the Big Four plus Grant Thornton, BDO Stoy Hayward, Baker Tilly and PKF
Partners in KPMG Switzerland approve a proposal to merge with KPMG's UK and German firms
Mary Keegan, head of the Government Finance Profession, is made a Dame in the Queen's Birthday Honours ListJuly
Accountancy's Top 60 survey of firms reveals average fee income growth of 13.8%
House of Lords ruling gives victory to taxpayers Mr and Mrs Jones in the Arctic Systems case
ICAEW announces 'strategic partnership' with CIPFA whereby the two institutes will pursue joint projects where there is member benefit or public interest
Sir David Walker publishes his report on the private equity industry with proposals for reformAugust
Credit crunch: the US subprime mortgage crisis causes Northern Rock to seek funding from the Bank of EnglandSeptember
Accountancy reveals a 30% increase in PricewaterhouseCoopers' statutory audit fees over the past year
ICAEW launches its new ACAOctober
Accountancy reveals the average pay of a FTSE 100 finance director has surged by 20% over the year to £1,031,000
FRC's Market Participants Group publishes 15 proposals intended to improve market-led choice of auditor from a wider pool than the Big Four
Alistair Darling's first pre-Budget report causes consternation as he announces plans to scrap capital gain tax taper relief
Key elements of the Companies Act 2006 come into force, including revamped directors' dutiesNovember
The International Federation of Accountants celebrates its 30th birthday
FASB supports the concept of US public companies moving to 'improved' IFRSDecember
SEC holds roundtable to collect feedback on whether to give US domestic issuers option of using IFRS or US GAAP
Revenue & Customs chief Paul Gray resigns following loss of 25m child benefit records2007 COVER STORIES January
The ICAEW begins the year with a new brand, giving Economia a modern styling. We look at how the institute lady's image has changedFebruary
Accounting standard proposals would require heritage assets to be valued on balance sheets. Can a price be put on treasures like Stonehenge?March
We interview Mel Zuydam, group FD of the Highways Agency, finding out about motorways and his £80bn balance sheet and financial reviewApril
Are private equity firms asset-stripping locusts or do they give a valuable boost to the UK economy? We debate the issuesMay
Small practitioners face big challenges. Six of them gather to share their thoughts on the ICAEW, the tax authorities and moreJune
The emerging economies of Brazil, Russia, India and China have important implications for the accountancy professionJuly
How do mid-tier firms feel about audit choice, the war for talent and other issues? Six representatives share their viewsAugust
We look at how plans for the Olympics are progressing, identifying winners and losers in the race to 2012 readinessSeptember
We focus on the new ACA in the month of its launch by the ICAEW. Could the qualification regain its lost lustre?October
Our annual pay survey finds there are now 41 FTSE 100 FD millionaires, with large salaries and meaty performance-related bonuses par for the courseNovember
Our green issue looks at how environmental concerns are having an impact on all aspects of accountancy and accountants' livesDecember
We interview British chartered accountant Nigel Potter, back home for Christmas in the UK after his incarceration in the US.