So, PwC’s review of Noble Group’s accounting and management practices — commissioned by Noble Group and released on Monday — puts the commodity trader firmly in the clear with regards to the way the company records profits on long-term sales and marketing deals.
It is, at the very least, consistent with industry practice.
But for posterity’s sake we thought we’d stick up the sizeable PwC disclaimer list that precedes the actual findings.
Click to enlarge.
From the FSA (who else?). Emphasis ours.
Independent research recommends projection rates are revised downwards Read more
The UK arm of PwC, the auditor, has been fined £1.4m and severely reprimanded for its failure to discover that billions of dollars of client money had not been ringfenced properly at JPMorgan Chase, the FT reports. The fine is the largest yet for a UK accountancy firm, but it is far smaller than the penalty mooted by regulators as appropriate, which could have run into tens of millions of pounds. As auditor to JPMorgan Securities Limited, a UK-regulated arm of JPMorgan, PwC had told regulators the company complied with the separation rules in 2002-08. But in that period, JPMorgan Securities had inadvertently placed up to $23bn of client money with its own, albeit without loss to customers. The lack of disciplinary action against individual auditors was criticised by an industry tribunal, which also raised concerns over whether a deal had been struck to protect PwC partners. In November, lawyers representing the Accountancy and Actuarial Discipline Board said that the penalty on PwC should not be “vastly disproportionate” to the £33.3m fine imposed on JPMorgan in 2010. The case was referred to an independent tribunal that adjudicates on AADB investigations, which disagreed with the suggestion that the fine be based on PwC’s profits along the lines of JPMorgan Securities’ penalty, saying the method would have yielded a penalty of £44m.
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.
And it can start by answering: what’s the deal with these alleged whistleblowers (see below)?
The interim report published by Sino-Forest claims to exonerate the company, but that’s going too far, too soon. Read more
Inquiry Clears Sino-Forest of Short Seller’s Fraud Charges screamed numerous headlines on Tuesday, following this statement from the embattled Chinese tree churner. An extract, quoting vice chairman and CEO Judson Martin:
“The Independent Committee report verifies the Company‟s stated cash balances, confirms registered title or contractual rights to the Company‟s stated timber assets, as well as the book value of these assets, reconciles reported total revenue and refutes the allegation that Yuda Wood is a subsidiary of the Company. We can categorically say Sino-Forest is not the “near total fraud” and “Ponzi scheme” as alleged by Muddy Waters.”
The ousted chief executive of Olympushas taken his case to the UK’s white-collar crime agency while the Japanese camera maker said it could take legal action against him, the FT reports. Escalating tensions at Olympus are being presented by the company, which took the rare step of promoting a foreigner as president six months ago, as a clash of management styles. But Liverpool-born Michael Woodford has said that they reflect a deeper refusal by the Japanese group to accept questioning of payments relating to past deals. The public showdown began in July after Mr Woodford launched an independent investigationinto extremely generous payments made to advisers when Olympus bought Gyrus, a UK-listed medical equipment company, for $2.2bn in 2008. Investigations into these payments, independently carried out by PwC, were handed over to the Serious Fraud Office on Monday. The company’s shares were about 1 per cent lower in midday trade in Tokyo, and have lost 37 per cent in the prior two trading days, says Reuters.
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.
Luminar, the ailing UK nightclub operator, has dropped its auditor a week before debt-covenant tests it is widely expected to fail. The FT reports the company told shareholders on Tuesday that PwC had resigned after the board decided “a fresh audit relationship would benefit the Luminar group moving forward”. Luminar will hire KPMG instead. PwC, which has worked with Luminar since 2003, declined to comment. The move comes a week before tests on its banking covenants set for next Wednesday. Lloyds Banking Group, Barclays and Royal Bank of Scotland, Luminar’s lenders, agreed to waive the tests in May to give time to “determine the appropriate basis for a longer term restructuring of the group’s debt arrangements in light of continued challenging trading conditions”, the company said at the time.
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.
UK building services group Mears was poised to take on the social housing business of Rok just hours after its rival collapsed into administration on Monday, reports the FT. Mears met PwC administrators about acquiring the rights to carry out Rok’s obligations to maintain social housing stock in the UK. Rok called in the administrators after a disastrous year in which it lost more than half its market value. Rok’s collapse follows the failure of larger rival Connaught two months ago. FT Alphaville notes that Rok’s “motorbike riding CEO”, Garvis Snook, “has some explaining to do”, while the Telegraph reports that administrators expect to sell parts of Rok or its contracts within days.
Two of the UK’s Big Four accounting firms are under investigation for weaknesses in their oversight of the handling by JPMorgan and Lehman Brothers of client funds, reports the FT. The Accountancy and Actuarial Discipline Board, the industry’s regulator, on Monday said it had begun probes into PwC and Ernst & Young for their work on JPMorgan and Lehman Brothers respectively. Client money emerged as a contentious topic after the collapse of Lehman revealed the bank in the UK had failed to segregate its clients’ funds from its own.
Fees related to the unwinding of Lehman Brothers in the US and Europe are set to surpass $2bn even after discounted rates applied to some legal services, reports the FT. The fees charged to Lehman’s US estate stood at $917m in July and should top $1bn this month. In London, expenses for unwinding the European arm are estimated at almost $900m. Despite the huge amounts, bankruptcy experts say the total cost of dealing with the failed bank’s assets are small when compared with the size of its $691bn balance sheet when it collapsed.
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.
First, Reuters reports that the average pay of junior executives in London’s financial sector rose sharply over the summer. Read more
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.
Crash, bang, wallop.
That’s the sound of Connaught’s shares on Monday morning: Read more
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
Ian Powell, UK chairman of PwC, has urged Vince Cable, UK business secretary, to clarify the “ground rules” for auditors amid concerns about a possible competition inquiry into the “Big Four”, reports the FT. Regulators in the UK and Europe are questioning the roles that PwC, Deloitte, Ernst & Young and KPMG may have played in the financial crisis, and the firms are watching for any signals from the business secretary about the profession. The European Commission meanwhile is also considering the issue of auditor choice.
KPMG and PwC have considered entering the credit rating business, in a move that would pitch two top accountancy firms against the current top three agencies, Moody’s, S&P and Fitch, reports the FT. However, John Griffith Jones, chairman of KPMG in the UK and co-chair in Europe, told the FT the firm was “passively considering” the move, not actively debating it. Richard Sexton, UK head of assurance at PwC, meanwhile said PWC was continually looking for areas to grow its business from core areas.
A key figure behind Iceland’s banking boom and bust has been hit by a $2bn lawsuit which accuses him of a “fraud” that contributed to the collapse of Glitnir Bank, reports the FT. Jón Ásgeir Jóhannesson, the former top shareholder in Glitnir and a big investor in the UK retail sector, is alleged to have conspired with associates to defraud Glitnir “in order to prop up their own failing companies”. The lawsuit, filed by the board overseeing Glitnir’s liquidation, also targets accountancy giant PWC, accusing it of “facilitating” the alleged fraud.
Two of the biggest accounting firms have reignited the dispute over the way banks account for losses – raising doubts over the long-awaited convergence of global reporting standards. Jim Quigley, global head of Deloitte Touche Tohmatsu, has proposed that banks account for losses in two different ways, reporting loan loss provisions for “incurred losses” separately from “expected losses”. This, he told the FT, would meet opposing demands of politicians and accountants. But PwC criticised the proposal, saying it would “muddy the waters”.
Political “meddling” has, for the first time, emerged as the top threat to the global banking industry, according to a survey on the risks facing financial markets in 2010. The report, Banking Banana Skins, by industry think-tank Centre for the Study of Financial Innovation, comes amid unprecedented scrutiny and regulation of banks. The survey, sponsored by PwC, received 440 responses in 49 countries.
The City watchdog is using external experts to conduct supervisory reviews into the actions of some of the UK’s struggling banks, including RBS and HBOS, reports the FT. The FSA engaged PwC to review RBS, Ernst & Young to look at HBOS – now part of Lloyds Banking Group – and BDO Stoy Hayward to review Bradford & Bingley. The Times adds that the probe so far has revealed a litany of internal breakdowns and flawed controls that masked the full extent of their failings.
The European arm of collapsed US investment bank Lehman Brothers is hiring bankers and paying generous bonuses in London, as it recruits middle and back office staff to help administrators PwC check millions of transactions that must be reconciled with clients and trading partners. A judge overseeing Lehman’s US bankruptcy in New York last week approved an extra $50m in bonus pay-outs to some 230 derivatives traders working to unwind the dead bank’s $10bn portfolio.
PwC, the administrators of Lehman Brothers in Europe, on Monday asked the UK’s Court of Appeal to approve a plan it says will help speed the winding-up of the collapsed bank. The consultancy firm is attempting to overturn an August court ruling that blocked the plan, arguing it would slash the time that account holders have to wait for the return of assets frozen after Lehman failed last year.
Matalan, the privately owned UK discount retailer, is weighing a £1.5bn sale after a number of expressions of interest. Buy-out group CVC is among parties to have approached Matalan, which was taken private by its founder and controlling shareholder John Hargreaves amid acrimony with institutional investors and non-executive directors three years ago. PwC, a long-standing adviser to Matalan, is helping to evaluate expressions of interest.
The winding-up of Lehman Brothers’ European operations is heading into record territory for accountancy and legal fees in the region, as well as for the size of claims made against the overseas parent company. In a report to creditors, the joint administrators including PwC said they are readying a new claim of $90bn against the US parent of the failed bank, bringing claims by its European arm against different Lehman entities globally to $208bn. PwC also revealed it has so far charged £154m in fees for the wind-up.
Aviva was set to launch a listing of its Dutch subsidiary Delta Lloyd on Monday in which it hopes to raise about £1bn by year-end, in Europe’s biggest IPO for at least 18 months. The UK’s second-largest insurer has struggled to influence the management of Delta Lloyd despite its 92% holding. The total value of IPOs across Europe, meanwhile, was less than €14bn in 2008, down 83% from €80bn in 2007, according to a recent study from PwC.