The accused speaks.
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Deloitte and one of its former partners have been accused of misconduct over their links to the businessmen who presided over the collapse of British carmaker MG Rover, the FT reports. The Accountancy and Actuarial Discipline Board, a regulator, has decided to haul Deloitte’s UK arm before a public tribunal to answer for an array of alleged failures related to the scandal. Maghsoud Einollahi, a retired Deloitte corporate financier who played a prominent role in the affair, has also been targeted by the disciplinary action, which comes amid a broader regulatory crackdown on the biggest accountants. Deloitte said “We do not agree with the AADB and are confident that when all the evidence is considered, the tribunal will conclude that there is no justification for criticism of either Deloitte or our former partner Mr Einollahi.”
The European arms of the four biggest accountants are being threatened with a break-up under sweeping European Commission reforms to be unveiled on Wednesday, the FT says. Michel Barnier, the EU internal market commissioner, wants to split the profession’s “Big Four” – PwC, Deloitte, Ernst & Young and KPMG – into separate audit and consulting arms in Europe as part of a package of measures designed to improve the vetting of accounts. A plan to force those groups to share work with their smaller rivals through “joint audits” has been dropped, but Mr Barnier won support for rules compelling companies to rotate auditors at least every six years. The Commission is also proposing stricter limits on “non-audit” work than are currently in force in the US, but the proposals could be altered before they become law, the newspaper adds.
So, the billionaire Bakrie Brothers have sorted one of their debt issues.
They have struck a deal to sell half of their stake in Nat Rothschild’s cash shell curiosity, Bumi Plc, to an Indonesian businessman. Read more
The business model of the Big Four accounting firms is under attack from the European Commission, which is pushing for tough rules that would force the firms to abandon their consultancy businesses and share audit work with smaller rivals. The FT says a draft regulation it viewed would force companies with balance sheets greater than €1bn to hire two auditors, including at least one firm outside the Big Four of Deloitte, PwC, Ernst & Young, and KPMG. It would also prohibit auditors from working for the same company for more than nine years. aims to transform the accounting sector in the wake of the financial crisis and restore “trust” in financial reporting. It has the backing of Michel Barnier, internal market commissioner.
The business model of the Big Four accounting firms is under attack from the European Commission, which is pushing for tough rules that would force the firms to abandon their consultancy businesses and share audit work with smaller rivals. A draft regulation, seen by the Financial Times, aims to transform the accounting sector in the wake of the financial crisis and restore “trust” in financial reporting. It has the backing of Michel Barnier, internal market commissioner, whose officials have decided the audit world is in the grip of an oligopoly. Under the plans, which are to be unveiled in November, companies with balance sheets greater than €1bn would be forced to hire two auditors to conduct a “joint audit” of their books, including at least one firm outside the Big Four of Deloitte, PwC, Ernst & Young, and KPMG.
The UK’s Office of Fair Trading has warned that competition concerns over the UK audit market are serious enough to warrant potential regulatory intervention after a decade of monitoring, reports the FT. But the competition watchdog said UK regulators might require international support – an admission that boosts the significance of a parallel investigation of the audit market by the European Commission. PwC, KPMG, Deloitte and Ernst & Young do the vast majority of auditing for top UK-listed companies, vetting the accounts of all but one of the FTSE 100. The concentration is only slightly less pronounced among mid-cap companies. The OFT has been eyeing the Big Four firms since 2002 and was recently asked to assess the market formally by the government and a House of Lords committee.
A former Deloitte partner and his wife face civil charges in the US for insider trading over allegations that they tipped off her London-based relatives about seven mergers planned by his clients, reports the FT. The Securities and Exchange Commission alleged in a court filing in California that Arnold McClellan and his wife, Annabel, leaked confidential information to her sister, Miranda Sanders, and her husband, James, between 2006 and 2008. The SEC complaint alleges that the Sanders reaped $3m in profits from trading in derivatives in advance of the mergers and that half the money was supposed to be funnelled back to the McClellans. The Sanders and three other people associated with Blue Index – the specialist brokerage firm Mr Sanders co-founded – were charged last week by the UK Financial Services Authority with criminal insider dealing. The SEC alleged Mr Sanders’ friends and clients reaped $20m in profits from his tips.
Whether you’re an increasingly impecunious chief executive at a mid-ranked UK company, or one of the City’s increasingly flush “AVPs” (assistance vice-presidents), some – interestingly timed – reports on Monday are telling us a few things.
Accountancy issues at Connaught may affect the ability of the beleaguered UK property service group to sell off parts of its business, reports the FT. The sale of operations such as its compliance business is one option under consideration as part of the FTSE 250 company’s talks with lenders over its debts. Most problems lay in the group’s troubled social housing division, said a person familiar with the matter. Accounting practices at Connaught, which has been audited by PwC since 2006, are being independently reviewed by Deloitte.
The Big Four accountants’ dominance of the audit industry is facing mounting international scrutiny after the UK’s House of Lords launched a review into the firms’ role in the financial crisis, the FT reports.
Accounting-geeks (like us) might remember that at the start of last year there was much discussion as to whether Britain’s big four auditing firms — PwC, Deloitte, Ernst & Young, and KPMG — would be able to sign off the 2008 end-of-year accounts of the country’s beleaguered banks.
At the time banks’ assets were difficult or impossible to value, their shares were volatile, and no one really knew what was to become of the financial institutions. Read more
Some auditors have been signing off on the financial statements of big clients before finishing their work, an industry watchdog has revealed in a critical assessment of the way checks on company accounts are carried out, the FT reports. Auditors were still not sceptical when reviewing management assertions on company accounts, the report by the Audit Inspection Unit of the UK’s Financial Reporting Council found. City AM says the unit also criticised the big four accounting firms for the “disappointing” quality of their audit work. See FT Alphaville for more.
England’s Premier League has maintained its ranking as the leading European football moneyspinner by turnover but its profitability remains threatened by the wage demands of players and their agents, says the FT. Buoyant gate receipts and TV revenues helped England’s top flight to generate nearly £2bn ($3bn) last year, a report by business adviser Deloitte said.
Employees of Deutsche Bank, Deloitte Touche Tohmatsu and Banca Italease may face charges in Milan related to an ongoing investigation into derivative sales. Deutsche, which reiterated its trust in the integrity of its employees in an emailed statement, is already facing separate charges in Milan, alongside UBS, JP Morgan and Depfa. Nor can Deloitte, which declined to comment, be relishing accusations of false accounting, FT Alphaville said. Read more
Deloitte, the accountancy firm, has taken an unusual step into the property agency market by acquiring one of the UK’s oldest partnerships of surveyors. Drivers Jonas, a property advisory firm with annual revenues of about £100m, will essentially be absorbed into the accountant’s existing real estate team to create one of the UK’s largest property consultancies – a business group of about 700 partners and professionals called Drivers Jonas Deloitte. No money will change hands.
Lloyd’s of London has begun the biggest strategic review it has undertaken this decade in an attempt to ensure the more than 320-year-old insurance market does not fail in exploiting the gaps in the market thrown up by the financial crisis, the FT said. The London-based institution, which deals in large and complex insurance risks from all over the world, has brought in consultants from Deloitte to assist in the review, which Lloyd’s hopes will lead to a new strategic plan to be published in January.
So either they couldn’t make it work, or in the end they didn’t want to. Nine days ago, Standard Chartered withdrew the liquidity support promised (conditionally) to its $7bn Whistlejacket SIV, after the vehicle breached its net asset value trigger, and appointed a receiver, Deloitte.
The U-turn by the bank raised the prospect of the kind of rapid firesale – and subsequent contagion through spread-widening across the SIV sector – that banks such as HSBC and Citi have moved to avoid by taking their respective vehicles onto their balance sheets. Read more
Deloitte has appointed its very own Shariah scholar, one Mufti Hassan Kaleem, a pupil of Sheikh Mohammed Taqi Usmani reports Jennifer Hughes in the FT.
Alongside his many other appointments, including working for Al Baraka Bank in Pakistan, Mr Kaleem will work in consultative capacity for Deloitte, which they hope will give them a clear advantage over their rivals. Although all have Islamic teams, Deloitte is the first of the big four ( Deloitte, PwC, KPMG and Ernst & Young) to make such an appointment. Read more
Some would argue that these synthetic nasties should be slapped with a DNR order. But Deloitte’s name keeps cropping up alongside the efforts to resuscitate moribund SIVs, with some success.
The FT’s People column notes that in acting as receiver for Cheyne Finance, Deloitte’s Neville Kahn scored a victory last week when the High Court ruled that the structured investment vehicle could declare itself insolvent. Read more
Rhinebridge will not be forced into a fire sale of its $2bn or so of assets after stopping repayments of its commercial paper, according to receivers appointed on Tuesday to the three-month old SIV. Rhinebridge was a sister to the Rhineland conduit used to fund German bank IKB until its inability to raise short-term debt forced other German banks to organise a rescue. Nick Dargan, receiver at Deloitte, said there was no risk of forced sales of assets, with other options including a sale of the entire portfolio, selling it off in chunks or keeping some of the assets until maturity. Elsewhere, the WSJ reports that SIVs face mounting problems as agencies continue to lower ratings on a range of subprime-backed securities.
Margaret Ewing, the former finance director of UK airports group BAA, has attacked institutional investors for voting down more generous remuneration packages for directors of quoted companies and for failing to back them in acquisitions. Ms Ewing, now vice-chairman of Deloitte, the accounting firm, told the FT that listed companies in effect set a ceiling on executive pay by basing bonus schemes on upper quartile performance against a peer group. This deterred more creative business strategies, she said.
Mike Ashley, the entrepreneur whose stated aim is to create the world’s biggest sports retailer, has bought a stake in Adidas, the German sportswear group. The billionaire, who last month raised £929m with the flotation of his Sports Direct retail empire, has acquired 3.14 per cent of Adidas, according to filings sent to the German stock exchange and published on Monday. The holding is worth around €270m (£183m). Mr Ashley had said the money from the Sports Direct IPO would be deposited in his bank until he had worked out what to do with it. But the stock exchange filing revealed the purchaser to be Mr Ashley, who has made a virtue of secrecy over the past 25 years. The Adidas holding is in Mr Ashley’s own name. Separately, the Daily Telegraph reports, Sports Direct is poised to acquire the online sports goods retailer M and M Direct for up to £75m. Mr Ashley is understood to be leading the negotiations with M and M, which are now at an advanced stage. Private equity firm ECI appointed corporate finance house Deloitte several weeks to look at strategic options for the business.
Fewer than half of global financial institutions account sufficiently for complex financial and commodity exposures in assessing the riskiness of their holdings, according to a risk management survey by Deloitte. The results suggest that much of the industry may “lag behind the explosive growth of credit derivatives and their attendant risks”, the firm said. Risks in energy and other commodity derivatives were also not fully evaluated by most institutions according to the survey, which involved 130 mostly global institutions, primarily commercial and retail banks and diversified groups, with total assets of $21,000bn.
Hedge funds should make pretty good risk managers, given that risk management is their job, says Felix Salmon at RGE Monitor. But a new report from Deloitte Research shows that hedge funds are doing little to buck their Wild Wild West, devil-may-care image.
Half of all hedge funds don’t measure the amount of leverage they have embedded in assets such as forwards and derivatives, the report said. Further, 54 per cent of all hedge funds either don’t track liquidity or, of those that do, neglect to do stress-testing and correlation-testing. Read more