Accountants now “Breaking Bad”, Creating Synthetic Numbers

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https://www.bloomberg.com/news/articles ... g-missteps

GE Urged to Drop Auditor KPMG Following Accounting Missteps
By Rick Clough
April 16, 2019, 12:05 PM EDT
Updated on April 16, 2019, 1:35 PM EDT
CtW Investment Group is latest to demand accounting overhaul
CEO Culp last year agreed to seek bids, opening door to change
KPMG South Africa Apologizes for Scandals, Seeks Second Chance
Photographer: Simon Dawson/Bloomberg
An adviser to union pension funds is calling on General Electric Co. to drop KPMG as its auditor after a series of accounting missteps and strategic blunders rattled investor confidence in the one-time blue-chip company.

In a letter sent Tuesday to GE’s lead independent director, CtW Investment Group urged the manufacturer to find a new accountant for the 2020 review and commit to changing auditors every 10 years. The group also is seeking stronger oversight of capital allocation following an “ill-considered buyback strategy’’ and poor deal-making in recent years.

The renewed criticism of GE’s accounting oversight piles pressure on the board a year after shareholders signaled displeasure with KPMG. While GE is keeping the firm this year, the company said in December that it would solicit bids for a new auditor, opening the door to ending a relationship that has lasted 110 years. That’s one of many shifts made by Chief Executive Officer Larry Culp as he tries to stem one of the worst crises in GE’s 127-year history.

Track Record

“There are numerous audit concerns that have eroded confidence in the company,” CtW Executive Director Dieter Waizenegger said in a telephone interview. “We feel like there’s a lack of urgency from the audit committee and from the board.”

The group is seeking changes ahead of GE’s annual shareholder meeting on May 8.

A GE representative referred to prior statements on the company’s intention to hold a tender process for its auditor. In a March regulatory filing, GE acknowledged waning shareholder support for KPMG and said it would consider an audit-firm rotation in the future.

GE’s accounting is already under federal investigation in the U.S. That’s one of a litany of challenges for the Boston-based company, from crippling debt to shareholder lawsuits to weak power-generation markets.

CtW -- representing a consortium of retirement funds managing more than $250 billion, including about 21.3 million GE shares -- has sought changes at companies such as Equifax Inc., Chipotle Mexican Grill Inc. and Tiffany & Co. Recently, CtW has pressured Tesla Inc. to diversify its board.

Dwindling Support

GE’s auditor relationship came under scrutiny last year after startling, multibillion-dollar charges in its finance and power businesses raised questions about KPMG’s ability to provide proper oversight. Under then-CEO John Flannery, GE defended its auditor and said dumping KPMG would be costly.

Proxy advisory firms Glass Lewis & Co. and Institutional Shareholder Services last year recommended that shareholders reject the auditor at GE’s annual meeting, an unusual decision prompted by the “severity and ongoing nature’’ of accounting issues. While KPMG was ultimately brought back, support dropped dramatically: About 65 percent voted in favor, down from almost 97 percent the prior year.

KPMG has come under fire elsewhere, with the Public Company Accounting Oversight Board saying this year that it found deficiencies in a number of the firm’s audits for various clients.

The issues “call into question KPMG’s independence, fitness, and competency to conduct’’ GE audits, Waizenegger said in the letter. GE’s board, meanwhile, “offers no credible plan to deliver a reliable audit in 2019 or future years.’’

(Updates with CtW comment in fourth paragraph.)

https://www.nytimes.com/2018/06/19/busi ... jones.html
G.E. Dropped From the Dow After More Than a Century



General Electric, the last original member of the Dow Jones industrial average, was dropped from the blue-chip index.CreditJohn Minchillo/Associated Press
By Matt Phillips
June 19, 2018
And then there were none.

General Electric, the last original member of the Dow Jones industrial average, was dropped from the blue-chip index late Tuesday and replaced by the Walgreens Boots Alliance drugstore chain.

The decision is a fresh blow to General Electric, which has stumbled badly in recent years. Last fall, John L. Flannery, the company’s new chief executive, warned that the power-generation unit was reeling. G.E. cut its dividend for only the second time since the Great Depression. In January, G.E. surprised investors by taking a big charge and setting aside $15 billion over seven years to pay for obligations held by GE Capital, the company’s financial services unit, mainly on long-term care insurance policies.

[Read about Mr. Flannery’s goal to make G.E. “simpler and easier to operate.”]

Over the last year, G.E.’s shares have fallen 55 percent, compared with a 15 percent gain for the Dow. G.E., which closed Tuesday at $12.95, has the lowest share price of any of the index’s 30 components.

S. & P. Dow Jones Indices — which owns the Dow — suggested that the slide in G.E.’s stock price contributed to the decision to remove the company from the index, where it had been a member continuously since 1907. The Dow is a price-weighted index, which means higher priced stocks have a greater influence on its direction.

“The low price of G.E. shares means the company has a weight in the index of less than one-half of one percentage point,” said David Blitzer, chairman of the index committee at S. & P. Dow Jones Indices. “Walgreens Boots Alliance’s share price is higher, and it will contribute more meaningfully to the index.”

The move also is freighted with economic symbolism. With the inclusion of Walgreens Boots, the index “will be more representative of the consumer and health care sectors of the U.S. economy,” Mr. Blitzer said.

The removal of G.E., which will formally occur June 26, reflects a shift in the economic composition of the United States, which long ago tilted away from heavy industry and toward services, such as technology, finance and health care.

And it also amounted to a milestone for General Electric. It was the last remaining original member of the index, when the stock market measure was introduced in 1896.

Back then, just a few years after the company was formed through a merger of Thomas Edison’s electric companies with a rival, G.E. was the modern-day equivalent of a technology stock, and the Dow itself was geared heavily toward the growth industries of the day such as railroads. In the more than 120 years that followed, the company was often at the center of American capitalism. And as recently as the 1990s. G.E. was at times the most-valuable American company by market value.

[G.E. mirrored the growth of industrial America from the steam age to the age of electricity and beyond.]

Alphabet, Amazon, Apple, Facebook and Microsoft are the five most valuable companies in the United States today.

After G.E.’s departure from the index, the company with the longest presence in the Dow will be Exxon Mobil, whose corporate predecessor, Standard Oil of New Jersey, joined the Dow in 1928, according to S. & P. Dow Jones Indices.

RELATED COVERAGE

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Common Sense: Metaphor for G.E.’s Ills: A Corporate Jet With No PassengersNOV. 2, 2017
More in DealBook

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Tasneem Alsultan for The New York Times

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https://uk.reuters.com/article/uk-brita ... KKCN1RD3F4

TUE APR 2, 2019 / 1:08 AM BST
UK watchdog opens first full review of accountant KPMG
Huw Jones
Photo
FILE PHOTO: The KPMG logo is seen at their offices at Canary Wharf financial district in London,Britain, March 3, 2016.
REUTERS/REINHARD KRAUSE
LONDON (Reuters) - Britain's accounting watchdog has opened a full review of standards and culture at KPMG, its first such intervention, after the audit firm's role in collapsed construction company Carillion was criticised by lawmakers.

In January, the Financial Reporting Council (FRC) said it had opened a second investigation specifically into how KPMG audited the books of Carillion.

"Following that referral and discussions with KPMG, the FRC, supported by A&O Consulting, has commenced an assessment of the governance, controls and culture within KPMG's audit practice," the FRC said on Tuesday.

Last June, the FRC said KPMG had shown an "unacceptable deterioration" in how it audited top British firms and was first to undergo special supervision.

KPMG said it was now 18 months into an audit quality transformation programme, and it was essential the regulator had confidence the "right outcomes" were being delivered.

"With this in mind, we welcome that the FRC has commenced an assessment of our audit practice. The FRC is being supported by Allen & Overy Consulting, led by Sally Dewar," KPMG said.

"We see this as a valuable opportunity for the FRC to test our progress and to confirm next steps for our audit transformation."

Such "rigour and challenge" will become increasingly common in the sector and is a change for the better, it added.

The FRC said it was the first time it had commissioned an outside body to conduct an independent review of an auditor. It did not say when it would publish the findings.

Separately on Tuesday, British lawmakers called for KPMG, EY, PwC and Deloitte - known collectively as the Big Four accounting firms - to be broken up to improve standards and transparency in book-keeping after audit failures at Carillion and retailer BHS.

(Reporting by Huw Jones; Editing by Mark Potter)

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https://www.nationalobserver.com/2019/0 ... jm_wgsQgBU

How Deloitte masked scandals in business and politics
By Bruce Livesey in Features, Business | March 5th 2019

People walk past a Deloitte sign outside World Exchange Plaza in Ottawa on Dec. 14, 2018. Photo by Alex Tétreault
Attired in khaki shorts and gray t-shirt, Donald Bayne is at his desk flipping through an evidence binder that contains internal government emails, reading a selection of them aloud. The lawyer is in his cluttered corner office at Bayne Sellar Ertel Carter, a downtown Ottawa law firm, located just around the corner from city hall.

“Senator Gerstein confirmed that his channel into Deloitte is open and is happy to continue assisting us,” Bayne reads to me at one point.

Tanned, with snowy-white hair and the trim build of someone who runs triathlons, the 73-year-old Bayne is one of Canada’s top criminal attorneys. He’s arguably most famous for defending Mike Duffy during the senator’s 2015-’16 trial for fraud and bribery – leading to Duffy’s acquittal.

While researching a story about auditors for The Globe and Mail, I had traveled to Ottawa last spring to meet with Bayne to discuss an overlooked aspect of the Duffy case – specifically the role played by Deloitte, Canada’s largest auditing and management consulting firm. I was trying to find out if an audit commissioned by the Senate into Duffy's expenses, which was carried out by Deloitte, was truly objective – and how its findings were leaked to senior members of former Prime Minister Stephen Harper’s inner circle before the Senate saw them.

Bayne told me the evidence was clear that “(the audit’s) independence was improperly breached.”

“So it was fiction this was an independent audit?” I pressed.

“Right… This was a whole compulsive, coercive, false scenario of pulling one on the Canadian public,” Bayne replied.

Mike Duffy, Donald Bayne, Deloitte
Donald Bayne, lawyer of former Conservative Senator Mike Duffy, puts out his hand to feel for rain as he leaves the Ottawa courthouse followed by Mike Duffy, right, in Ottawa on Thursday, August 20, 2015. THE CANADIAN PRESS/Fred Chartrand
Big Four have evolved into huge conglomerates

The story of Deloitte and the Duffy affair is important because it highlights how the Big Four auditing giants can be open to corruption and political influence. And how they’re often not objective or neutral.

Deloitte is the largest of the Big Four – which also includes KPMG, Ernst & Young and PricewaterhouseCoopers (PwC). Together, these four firms form a powerful cartel that wields tremendous clout in the finance, business and government circles worldwide. Their influence seeps into every aspect of the economy.

Indeed, collectively, the Big Four audit 490 of the S&P 500 companies. In turn, they’ve evolved into huge conglomerates themselves – with combined 2017 revenues of US$134-billion, employing 945,000 people around the world. In fact, according to Forbes, Deloitte is the fourth-largest private company in America.

Moreover, the Big Four are important because modern societies rely on accountants to verify financial records for shareholders, thereby safeguarding the economy at large. “An audit is about a public good,” says Natasha Landell-Mills, a partner with the London, UK-based investment firm, Sarasin & Partners LLP, and a critic of the profession.

Today, however, the Big Four are facing a crisis of credibility of their own making, embroiled in scandal after scandal in multiple jurisdictions. Increasingly, they stand accused of turning a blind eye, and even enabling, corporate fraud and questionable accounting. They’ve also emerged as central players in the creation and abuse of offshore tax havens. And they've become champions of the privatization of government services. And yet they “perform their duties with relative impunity,” writes Richard Brooks, a British journalist in his recent book, Bean Counters: The Triumph of the Accountants and How They Broke Capitalism. “They are free to make profit without fearing serious consequences of their abuses.”

In Canada, court cases, scandals and insights from experts in the field indicate that Deloitte is the most egregious of the lot. “Deloitte sells the public an image that they are wonderful, they’re up-to-date, they are professional, they are experts,” says Prem Sikka, an accounting professor at the University of Sheffield in the UK whom I spoke to when researching my Globe article. “But at the same time, there is a dark side.”

Deloitte Canada head office in Toronto
Deloitte Canada's head office is in downtown Toronto. Photo by Bruce Livesey
Forced to pay almost $200-million for frauds they missed

Founded in the UK in the late 1800s, Deloitte is now a privately-held giant with global revenues of (US) $43.2-billion, 264,000 employees in 150 countries and headquartered in London, England.

The company says on its website that it has a global impact by championing communities and creating opportunity through more than US$217 million in investments during the 2018 fiscal year through donations, volunteering, pro bono work and management costs.

The Deloitte Foundation also runs projects in a range of areas such as fundraising for charitable causes, environmental protection, and community investment.

Like all of the Big Four, Deloitte is not only an auditing firm, but offers management consulting, legal and IT services, as well as conducting corporate investigations.

Yet all of Deloitte’s subsidiaries are locally and independently controlled. As a result, Deloitte Canada is owned by its 957 Canadian partners. With 9,947 employees, 60 locations and annual revenues of $2.3-billion, Deloitte Canada is headquartered in a shiny new blue-glass and steel tower in downtown Toronto. Lately the firm has been shelling out a lot of money for its screw-ups. Over the past three years, Deloitte Canada has paid almost $200-million in damages due to its failure to warn investors about corporate frauds in the cases of Livent, Philip Services and Mount Real. Given that Deloitte is self-insured, this money had to be paid directly from the pockets of its own partners.

The company likes to paint itself as a progressive employer. In 2017, Deloitte Canada’s CEO, Frank Vetesse, wrote an op-ed in the Globe and Mail entitled “White on Bay Street: Corporate Canada must do more” in which he urged captains of industry to be more inclusive towards women and visible minorities.

Ironically, the piece was penned while Deloitte was the target of a lawsuit that accused the firm of being insensitive on these very matters.

In 2014, Deloitte bought a Toronto-based company, ATD Legal Services Professional Corp., which offers law firms document review services for a lower cost than they pay articling students. ATD hires lawyers to do this work – more than 400 people during the period of the lawsuit’s class period. But after Deloitte bought ATD, they cut lawyers’ wages from $50 an hour to as low as $43, while declaring they were independent contractors instead of employees. In so doing, Deloitte said the lawyers were not entitled to certain benefits.

Andrew Monkhouse, the Toronto lawyer spearheading a $20-million lawsuit against Deloitte on this matter, says a large portion of the ATD lawyers were minorities and women. “It’s very much higher skewed percentage-wise to visible minorities and women at document review companies versus the average Bay Street law firm,” he says.

As a result of the suit, Deloitte has reinstated the original wage and paid back some money to the lawyers. The lawsuit is continuing and its allegations have not been proven in court.

Turning a blind eye to corporate criminality

Deloitte’s biggest failing is not calling corporate clients out on their bad behavior, often costing shareholders vast fortunes. In fact, Deloitte has a long history of missing serious criminality under its nose.

In 1997, Deloitte was asked to do an audit of YBM Magnex Inc., an industrial magnet company headquartered in Pennsylvania, prior to it raising money from investors on the Toronto Stock Exchange (TSE). By then, YBM had fallen under suspicion that it might be a fraud.

Yet Deloitte issued a report that gave YBM a clean bill of health, the New York Times reported in 1999.

“Deloitte was engaged to do a high risk audit so they were put on notice that there were concerns,” notes Joe Groia, a Toronto securities lawyer. “So they went in with their eyes wide open.” After Deloitte gave YBM its seal of approval, the company raised $150-million from investors.

When evidence and rumours of YBM’s ties to organized crime intensified, Groia was hired by YBM’s board to investigate in the summer of 1998. He quickly discovered the company was controlled by the violent “boss of bosses” of the Russian mafia, Semion Mogilevich (who was soon near the top of the FBI’s most wanted list). Deloitte had failed to discover Mogilevich's involvement with YBM. “Certainly based on the work we did I was surprised that Deloitte did not uncover a number of the problems that we uncovered,” says Groia. YBM collapsed soon afterwards, after raising about $890 million from its shareholders. Most of these funds were lost.

Philip Services Corp. was a $1.7-billion Hamilton, Ont.-based industrial services company that went insolvent in 1998. Deloitte had been auditing its books for seven years. One reason Philip got into trouble was one of its executives concocted a fraud to siphon money into companies he owned, enriching himself to the tune of $18-million. The company also admitted $90-million of copper had gone missing. Yet Deloitte failed to notice the scam and other problems (the executive was eventually sent to prison). As a result, Deloitte was sued by Philip’s lenders, including CIBC and the American billionaire Carl Ichan — who had bought up Philip’s debt - saying they relied on Philip’s flawed financial statements before investing in the company. The lawsuit was fought over for 17 years before Deloitte settled it for a whopping $122-million two years ago.

Then there was Mount Real Corp., a Montreal-based financial management company run by Lino Matteo, a highly controversial businessman who was also embroiled in the Cinar fraud.

Matteo attracted 1,600 investors to Mount Real’s promissory notes, mostly seniors who handed over $70-million on promises of fantastic returns. Yet, from 1987 until it collapsed in 2006, Mount Real was a Ponzi scheme. Deloitte was Mount Real’s auditor for 10 of those years, from 1991 to 2002 (overseen by a Montreal-based partner, Angelo Bracaglia, for at least four years). To this day, there’s no evidence any of the investors’ money was actually ever invested.

Yet Deloitte and other auditing firms signed off on Mount Real's books, despite the fact “the glossy financial statements... masked a catastrophic financial situation," according to a 2014 class action lawsuit launched on behalf of the firm's investors against Deloitte and the other auditors involved. This suit was settled for $43-million in 2016.

In 2017, Matteo was sentenced to five years in prison and hit with a $4.9-million fine. Bracaglia, however, received a five-month suspension last winter – and a fine of $70,000 - by CPA Quebec, the accountants’ regulatory body, and still works for Deloitte. The firm did not respond to a question about this affair. And when contacted, Bracaglia referred questions to Deloitte's media people.

More recently, Deloitte failed to carry out one of the jobs that auditors are supposed to do – warn shareholders if a company is about to go bust.

In the spring of 2015, Sears Canada Inc. received a document from some of its former executives entitled “Why Sears Canada is Insolvent” explaining how the retail chain was technically bankrupt, especially given the company’s books were failing to register hundreds of millions in liabilities. “Sears has no reasonable expectations of future profits,” the report said. The executives were concerned about the employees' pension plan, which was being underfunded and relied on by 18,000 retirees. However, Sears dismissed their concerns.

A Sears Canada store in Newmarket, Ontario. Photo credit by Pear285 from Wikimedia Commmons
Sears Canada’s problems largely stemmed from its owner, Edward “Crazy Eddie” Lampert, a controversial American hedge fund billionaire who took control in 2005. Lampert was accused of asset-stripping the company – including paying out $2.9-billion in dividends to himself and other shareholders. Without the cash to modernize, Sears Canada had gone into decline.

In the spring of 2017, Sears Canada issued its annual report, with the company insisting it would be a “going concern” for at least 12 more months. Deloitte, as the company’s auditor, did not dispute this prognosis, which it should have done if it felt otherwise.

Eight weeks later, Sears Canada filed for insolvency, and began to liquidate its assets.

In fact, not once since the former Sears executives issued their warning in 2015 had Deloitte suggested Sears was in peril. “On the surface it doesn’t look like (Deloitte) exercised professional skepticism,” remarks Dimitry Khmelnitsky, head of accounting at Veritas Investment Research Corp., a Bay Street forensic accounting firm. “That’s the role of the auditor – to be skeptical, obviously.” Deloitte did not respond to a question on this matter.

Promoting a tax evasion scheme

The Big Four have played a critical role in the explosion of corporate tax evasion and avoidance. “(The Big Four) have been key drivers of both the offshoring of individual tax liabilities and the creation of questionable structures for multinationals for decades,” explains Alex Cobham, chief executive of the Tax Justice Network in the UK.

In Canada, KPMG has been called out for helping companies and wealthy individuals avoid taxes by using offshore tax havens. But Deloitte has played a part, too.

According to a court filing, Deloitte Canada concocted a tax avoidance scheme in the early 2000s. The way it worked was that certain Deloitte clients, working with a British brokerage house, would claim losses on foreign currency trades. The clients would then use the losses to report a drop in income – thereby owing less in taxes. Deloitte, in turn, skimmed a 20 per cent fee from the tax savings.

In one instance, four Deloitte clients claimed foreign currency losses totaling $25.8-million in computing their incomes for the 2003 taxation year. The total tax savings for the four was over $1.2-million.

In 2004, a CRA auditor stumbled across Deloitte’s scheme and began auditing the four clients who had exploited it. The auditor soon realized Deloitte had at least five other clients who’d taken advantage of the plan. After Deloitte refused to divulge their names, the CRA went to court to find out who they were – with Deloitte strongly resisting.

In 2009, just as the case was about to go to court again, the CRA suddenly dropped the case. Today, the CRA refuses to say why, claiming in a statement that "the confidentiality provisions of section 241 of the Income Tax Act prevent the CRA from discussing specific cases" although other sources say it was due to Deloitte’s political influence in Ottawa.

Deloitte embroiled in political scandals

This would not be surprising. Deloitte wields tremendous political clout, and makes a lot of money selling services to governments.

In Ottawa, Deloitte is the largest recipient of federal government contracts of the Big Four. Between 2006 and 2012 alone, Deloitte was awarded more than $135-million in contracts. Deloitte even hired David Johnston, the retiring governor-general, to be an executive adviser in 2017. Deloitte often conducts projects in conjunction with the Auditor-General of Canada.

Yet in the political realm, Deloitte frequently ends up at the centre of scandals.

In 2017, when Kathleen Wynne was still Ontario’s premier, she faced a political problem: hydro rates had been rising for years. Going into an election last summer, the Wynne government decided to cut hydro rates by 25 per cent to quell discontent. It was called the “Fair Hydro Plan.”


Former Ontario premier Kathleen Wynne delivers a speech in Ottawa on Jan. 18, 2018. File photo by Alex Tétreault
But the government had also promised to balance its books. By cutting hydro rates, it would have to borrow money to make up the shortfall and therefore increase the deficit. “They had to find a way to lower the hydro cost,” says Randy Hillier, a Conservative MPP who was sitting on the province’s public accounts committee, “and not appear to be adding to the debt.”

The Independent Electricity System Operator (IESO), which manages Ontario’s electrical system, was tasked with making the hydro rate cut vanish from the province’s books. In turn, IESO hired Deloitte, KPMG and E&Y. The auditing firms suggested rate-regulated accounting as the solution, which allowed the province to kick the cost of the hydro cut down the road to future ratepayers.

But this plan came with a hefty price tag – it would add $4-billion in additional interest costs to the province’s budget over 30 years.

When Bonnie Lysyk, Ontario’s auditor general, learned of this, she was livid, arguing the scheme violated government accounting standards and was designed to hide how much money was really being borrowed. Hillier, meanwhile, believes the rate-regulated accounting “demonstrates a complete lack of integrity by the accounting firms. (It) was dishonest from the get-go. Here we had the Ministry of Energy and the IESO purposefully, in laymen’s terms, hoodwinking the public and engaged the three (auditing) firms – which were paid significant sums – to create the scheme to hoodwink the public.” Deloitte declined to answer questions about its involvement in the hydro rate cut.

Deloitte leaks audit results to PMO in Duffy affair

Then there was the Mike Duffy affair. In late 2012, the Tory senator found himself the focus of questions about whether he was abusing his Senate expenses.

Mike Duffy, Nigel Wright, Senate expense scandal, Criminal Code, charges
Senator Mike Duffy walks outside the Ottawa courthouse, during a break from his 2015 trial. Photo by Elizabeth McSheffrey.
The Senate’s committee of internal economy hired Deloitte to conduct an audit of Duffy’s expenses to ascertain whether they were appropriate. At the time, the committee said the Deloitte audit would be fully “independent”, conducted with the “strictest confidentiality".

Hiring Deloitte was a conflict of interest, however: Deloitte is auditor for both the Conservative Party and its fundraising arm, the Conservative Fund of Canada, which was chaired by then Senator Irving Gerstein.

Soon after Deloitte was hired, Prime Minister Stephen Harper’s inner circle decided to engage in damage control over the growing Duffy controversy. Nigel Wright, Harper’s chief of staff, set out to shut down the inquiry and Deloitte’s audit – or at the very least influence its outcome. Wright dispatched Gerstein to ask Deloitte to kill the audit, and failing that, script its conclusions. Gerstein, who had no authority to intervene, complied.

Gerstein contacted Michael Runia, an Ottawa-based senior partner at Deloitte (who is now a managing partner). Gerstein knew Runia because the Deloitte partner oversaw the audits for both the Tory party and its fundraising arm. Runia was also a donor to the Conservative Party.

Duff Conacher, director of Democracy Watch, an Ottawa-based NGO, says when Gerstein contacted Runia, “he should have told Gerstein he can’t even talk about it at all, and secondly (Runia) should have filed a complaint with the Senate’s ethics officer that Gerstein was improperly trying to further the interests of Senator Duffy by trying to rig the audit results.”

Instead, Runia agreed to look into the matter and contacted Gary Timm, one of the lead auditors on the Duffy file. Timm later testified he had only one brief conversation with Runia, informing Runia the audit would continue and could not divulge any information about it.

Nevertheless, Timm decided against informing the Senate about Runia’s attempted interference.

However, emails later gathered by the RCMP show that someone within Deloitte fed Gerstein regular updates on how the audit was progressing. They also revealed that Gerstein personally held at least one meeting and was in constant phone contact with someone at Deloitte for weeks, trying to impact the audit’s conclusion. One PMO staffer wrote in an email that Gerstein’s “channel into Deloitte is open and happy to continue assisting us” with “our goal” of having Deloitte state “that their work is done.”

In fact, more than a month before the audit was published, someone within Deloitte leaked to Gerstein that the audit would find no conclusion on Duffy’s residency (and therefore no finding of inappropriate expenses). In other words, weeks before the audit was officially wrapped up and its conclusions delivered to the Senate - “the PMO/Senate leadership backroom conspirators had the gist of the report,” noted Justice Charles Vaillancourt in his 2016 ruling on Duffy’s case.

Today, says Duffy’s lawyer, Donald Bayne, this suggests “an absolute breach of (Deloitte’s) confidentiality and the terms of the retainer.”

Later in 2013, the Senate’s committee of internal economy asked Deloitte’s auditors to appear before them to find out what happened. Tory senators, however, blocked Runia from testifying before the committee.

Efforts by the National Observer to contact Gerstein through the Conservative Party and Mount Sinai Hospital, where he has long been a presence on its board, proved unsuccessful. Deloitte refused to answer any questions about the Duffy audit, and Runia also did not respond to a request for an interview.


Former prime minister Stephen Harper, left, and former Senator Irving Gerstein, right. Photos from the Library of Parliament archives
Duffy was found innocent of all 31 charges of fraud, breach of trust and bribery in 2016.

This was not Deloitte’s only foray into Tory politics, however.

In 2017, the firm was hired by the Conservatives to oversee voting for its leadership race. The ballots were overseen by Deloitte and stored at one of its offices north of Toronto. Two days after Andrew Scheer won in a squeaker over Maxime Bernier, it was discovered there was a mysterious discrepancy of 7,466 votes. Yet the party's chief returning officer ordered all of the ballots destroyed before a recount could occur.

Bernier's supporters were outraged, inferring foul play, especially over the destroyed ballots. The party's president rushed out to defend the vote, saying the results had been “audited” by Deloitte.

This, however, was not true – Deloitte’s contract did not say the firm must audit the vote.

A current senator with ties to the Tories, speaking on condition of anonymity, says the Conservatives use “the cachet of Deloitte as a kind of Good Housekeeping seal of approval and nobody knows what the real story is.” The controversy has lingered: this past April, Bernier released a book in which he suggested Scheer manipulated the vote by signing up temporary members in Quebec. Deloitte, meanwhile, has remained mute on the matter. Scheer did not respond to Bernier's allegation.

Deloitte was also involved in the counting of ballots during the Ontario PC party leadership race last winter, after former leader Patrick Brown stepped down over allegations of sexual impropriety. The leadership race, won by Doug Ford, also ended in controversy after the voting procedure was found to have been plagued with glitches.

In the middle of the voting, Ford’s biggest opponent, Christine Elliott, declined to concede to Ford, citing "serious irregularities" in the race. In a statement, her team said she had won the popular vote and a majority of ridings, and alleged that thousands of votes had been incorrectly assigned to the wrong ridings. Again, Deloitte refused to comment on the matter.

Maxime Bernier, Gatineau, People's Party of Canada, Elections Canada
Federal MP Maxime Bernier drops off an official application for his People's Party of Canada at Elections Canada offices in Gatineau, Que., on Oct. 10, 2018, in preparation for the 2019 elections. Photo by Alex Tétreault
Is Deloitte shaking down companies?

Deloitte’s political power may have prevented the firm from being held to account in another scandal, as well.

Gregarious with a cutting wit, relaxing with a coffee by his fireplace in his basement office, 69-year-old Brian Love has spent more than 40 years in the scrap business. “It’s a rough and tumble industry,” he tells me. Love and his wife live in semi-retirement on a pleasant cul-de-sac in Grimbsy, Ontario. I went to see them last summer when I was researching my auditors story for The Globe and Mail.

Love’s entanglement with Deloitte suggests something alarming – that the auditing firm engages in shakedowns of companies.

In 1999, Love founded Mida International Inc., an electric waste recycling company in Burlington, Ont. It was a success, employing 72 people at its peak. But in 2012, the Ontario government lowered the price it was paying for recycled electrical waste and Mida began losing $500,000 a month.

Love decided to shut down his business, although Mida was not in default of its loans and paying back his debts was not in question (his receivables were insured). “Mine was not a bankruptcy,” explains Love. “What I wanted to do was wind my business up.”

In the summer of 2013, he informed his bank, HSBC, of his plans. One morning soon afterwards, Rob Biehler, a partner with Deloitte, showed up at Love’s office unannounced. “I represent HSBC and we are to be handling the bankruptcy,” Love recalls Biehler saying. HSBC had appointed Deloitte as its consultant on the file.

Love says Biehler told him HSBC wanted a court-appointed receivership – which is far more expensive but also unnecessary where there’s no issue of paying back creditors. Love was surprised Deloitte was even involved, given he'd already asked an insolvency trustee to oversee the wind up.

Love hired a lawyer and successfully fought off the attempt to have his receivership court-appointed.

Brian Love, former president of Mida International Inc., at his home in Grimsby, Ontario
Brian Love at his home in Grimsby, Ontario. Photo provided by Love.
Soon afterwards, Love, Biehler and the insolvency trustee held a meeting. Love and the trustee recall a discussion that Deloitte’s fee would amount to between $30,000-$40,000 – and at most $50,000. Biehler failed to inform Love, however, that Deloitte or HSBC had hired a law firm to consult on the file, which would add considerably to the cost. Nor did Biehler inform Love that the Deloitte partner would be charging $550 per hour for his services.

By October, 2013, Mida was shut down, with all receivables collected and forwarded to HSBC. The bank was now paid off. That’s when Love says Deloitte dragged its heels on closing the file. “It was a make-work project,” for them, he claims.

Finally, Deloitte sent Love its bill – which totaled almost $140,000, which included $32,700 in legal fees that Love had never been forewarned about. Moreover, Deloitte had already paid itself by taking the money directly from the receivables as they came in.

In March, 2014, Love received a call from Biehler telling Love he was going to email him a document. It was a release. A tax refund of $267,000 owed to Mida had been obtained by Deloitte. (Love says the tax refund should never have been intercepted by Deloitte.) Biehler told Love to sign the release or he wouldn’t see his tax monies. The release said Love could not sue Deloitte, or question its bill.

“I am not signing anything,” Love says he told Biehler. “You are holding my money up for ransom.”

Love says Biehler also said Deloitte threatened to cash the CRA cheque themselves and use “my money to sue me”.

“I took it to my lawyers and I said this is blackmail – outright blackmail,” relates Love.

Love sued Deloitte, demanding a reassessment of his bill and his tax refund returned. In fact, Deloitte did cash in the CRA cheque after Love sued the firm. (And even when Deloitte finally handed over the tax money, they withheld $50,000). At the 2014-‘15 trial, Biehler admitted that if Love had signed the release it would have prevented him from being able to review Deloitte’s accounting or its bill.

In his ruling, the judge said the work required by Deloitte was “modest at best” and concluded Deloitte had wildly overcharged for its role in the “simple” receivership. He chopped the bill to Deloitte down to $50,000 and the law firm's bill to $28,516. The judge also ordered Deloitte to pay back the $50,000 in tax monies it had withheld and half of Love’s legal expenses. Deloitte declined to answer questions about all matters pertaining to the Love case, and Biehler referred a query to the firm's media relations office.

Despite this win, Love estimates the whole ordeal cost him $190,000 – for a bill not supposed to be more than $50,000. “It wasn’t a win,” he says. “(But) it was a matter of principle.”

Love then went to the Office of the Superintendent of Bankruptcy in Ottawa and complained about Deloitte’s behavior. “So they brought in a special investigator and they looked at the file and they said ‘Wow, wow, this is blackmail’,” he recalls.

But in 2017, Love says the superintendent’s office told him they were closing the file and to stop making inquiries. However, when contacted by National Observer, the Office said the file is still under review and "a decision on further action, if warranted, is expected by the end of this fiscal year."

Love was puzzled when informed of this. "Something smells," he says.

Deloitte's response

National Observer sent a long list of questions to Deloitte Canada on all of the above matters, including supporting material. Deloitte did not respond to the questions specifically, but sent this reply via Tonya Johnson, the firm's senior manager of PR:

"The cases cited represent a range of Deloitte engagements over the last 20+ years, each of which was planned and executed according to the professional standards in place at that time. While our policies and code of professional conduct prohibit us from discussing information about clients or the work that we do for them, we have commented (to the extent possible and when given expressed consent) on public record in some cases, and we stand by those comments."

"With respect to audits, assessing past events through today’s lens requires a nuanced assessment. Over the last two decades, securities regulation requires more of those responsible for public company governance, and the standards followed by auditors (including those related to the responsibility to assess the possibility of fraud) have advanced. Additionally, the establishment of audit regulators has spurred continuous enhancements to audit quality. As governments, regulators and others work to enhance the effectiveness and relevance of today’s financial reporting, Deloitte is an active and supportive participant with other stakeholders in these discussions."

[admin]

https://leftfootforward.org/2017/11/the ... hypocrisy/

Dear All,

Paradise Papers have once again shown that big accountancy firms play a key role in the global tax avoidance industry. I have a comment on it with the title “The Paradise Papers show accountancy firms are engaged in wilful and organised hypocrisy”.

The article is available at:
https://leftfootforward.org/2017/11/the-paradise-papers-show-accountancy-firms-are-engaged-in-wilful-and-organised-hypocrisy/

and you are most welcome to add your comments and stimulate the debate.
As always, there is more on the AABA website (http://www.aabaglobal.org )
Regards

Prem Sikka
Twitter: https://twitter.com/premnsikka
Facebook: https://www.facebook.com/prem.sikka.1
LinkedIn: https://www.linkedin.com/in/premsikka/
AABA Website: http://www.aabaglobal.org

=================

The Paradise Papers show accountancy firms are engaged in wilful and organised hypocrisy

Major accountancy firms are key players in tax avoidance -- but at the same time publicly claim to have "high moral standards". This myth must be quashed.

The revelations from the Paradise Papers once again show the visible hand of big accountancy firms in tax avoidance. The information should blow away the cobwebs about the claims that accountancy firms are ethical or serve the public interest.

Accountancy firms, central to tax avoidance exposed in the Paradise Papers, engage in organised hypocrisy — where the firms’ slick public relations do not match their actual practices.

Let’s start with two of the largest firms. The Paradise Papers show that PricewaterhouseCoopers (PwC) and Deloitte are both implicated in crafting schemes to enable Blackstone to reduce its UK tax liability.

PwC were also central to the avoidance schemes revealed by the Luxembourg Leaks. Ernst & Young enabled Formula One auto racing star Lewis Hamilton to avoid VAT on his private jet. KPMG advised a Canadian tout who avoided paying UK tax on his lucrative sales.

Big accounting firms have a long history of profiting from tax avoidance. In 2003, a US Senate Committee investigation concluded that:

“Respected professional firms are spending substantial resources, forming alliances, and developing the internal and external infrastructure necessary to design, market, and implement hundreds of complex tax shelters, some of which are illegal.”

The committee continued: “they are now big business, assigned to talented professionals at the top of their fields and able to draw upon the vast resources and reputations of the country’s largest accounting firms.”

In 2013, the UK House of Commons Public Accounts Committee held an inquiry into tax avoidance promoted by the big accounting firms. Its chair said:

“I have talked to somebody who works in PwC, and what they say is that you will approve a tax product if there is a 25% chance—a one-in-four chance—of it being upheld.”

Continuing: “that means that you are offering schemes to your clients—knowingly marketing these schemes—where you have judged there is a 75% risk of it then being deemed unlawful”. Partners of other firms admitted to having a threshold of 50%.”

Just think about it. What would be the consequences if producers of food, medicine, water and other things imitated the standards of big accounting firms and knowingly sold goods and services which knew were substantially unlawful.

Regulators and governments would leap to action, at least one hopes so, but they have done little to check the predatory practices of the firms.

Instead of curbing their predatory practices, the firms seek to disarm critics with mantras of integrity, ethics and social responsibility.

PwC’s website claims that the firm’s “high standards of ethical behaviour, are fundamental to everything we do … We are willing to walk away from engagements and clients if our independence, integrity, objectivity, or professionalism could be called into question if we continued”.

Deloitte claims that “Integrity and ethical behaviour are central to maintaining our reputation”. Ernst & Young boldly states that “We reject unethical or illegal business practices in all circumstances … We are alert for personal and professional conflicts of interest”. Whilst KPMG boasts “high ethical principles”.

The above claims cannot easily be reconciled with the actual practices of the Big Four firms. No one has been able to find even one line amongst the millions of pages leaked by Paradise Papers or any other leak in which accounting firms ever considered ethics, social responsibility or the impact of their trade on the rest of the society.

The firms are engaged in organised hypocrisy. They manage external pressures with claims of ethical behaviour and social responsibility, but internal processes cannot be aligned with such claims.

Internally, staff are trained to design and sell tax avoidance schemes. Audit clients are often targeted. Tax departments and staff are assigned revenues and profit generating targets.

Those failing to meet their targets are disciplined whilst those meeting the targets are rewarded with promotions and salary increments. Over a period of time, certain habits and practices become normalised and tax avoidance becomes just another part of daily organisational life.

Since internal routines cannot easily be reconciled with external pressures or public expectations, accountancy firms have adopted decoupled responses.

They publish high sounding statements of social responsibility whilst at the same time internal routines are geared to generating profits through tax avoidance.

The hypocrisy is not an accidental or unintentional outcome, but rather it is the intentional outcome of policies deliberately chosen and implemented by senior executives of the firms.

The tensions between internal and external responses are now regularly exposed by whistle blowers, court cases, media investigations and leaks such as the Paradise Papers.

The negative publicity and public anger lead to calls for retribution. The partners of the firms can respond by aligning organisational culture, goals, practices and mindsets of staff with social expectations, but they have shown little inclination to do so.

The firms have used their vast financial and political resources to stymie any serious reform and their lucrative tax avoidance business continues. Or maybe the Paradise Papers will finally spur politicians to long overdue reforms.

Prem Sikka is Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex. He tweets here.

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3 Responses to “The Paradise Papers show accountancy firms are engaged in wilful and organised hypocrisy”

nhsgp
Today
Accountants in the public sector are key players in screwing the public over.

They claim adherence to IFRS standards but then omit the debts.

MPs and the public sector workers involve need to be jailed for life, and all their assets confiscated.

Why should they run up a 12.5 trillion pound debt and only report 1.5 trillion?

Far worse than any tax avoidance which is legal.

Evasion is another matter. That’s not on the scale the left would have people think. The left wants people to think there’s a magic money tree where someone else pays for their errors.

[admin]

https://www.taxjustice.net/2016/02/10/kpmg/

Guest blog: Professional Chameleons Or Independent Public Auditors And Regulators?

A Case Study of KPMG and its Regulatory Arbitrage Services

By Atul Shah

In simple terms, regulatory arbitrage occurs when organisations or professionals use their knowledge of the regulations, legislation and administrative procedures to help their clients escape the substance of those rules and thereby benefit commercially.

Recent news regarding tax avoidance and unethical banking cultures are putting an increasing spotlight on the Big 4 Accounting Firms and their independence, professionalism and conflicts of interest. Scholars are beginning to question their huge power and influence in global accounting, auditing and tax, yet little is known about exactly how they practice regulatory arbitrage and the extent to which it is structural and systemic, and how they continue to get away scot free from major financial crises and corporate failures. In the case of the audit failure at HBOS, KPMG have still not been independently investigated eight years after the loss of billions of pounds, thousands of jobs and huge losses for investors, pensioners and retirees.

The result of this, if true, is that global professional accounting firms appear to help multinationals to escape all kinds of regulatory limits and controls in specific nation states and become a power unto themselves, free from restraint.

My latest research, which looks microscopically at KPMG in the UK and its structures, services and culture, exposes some alarming truths. The paper is entitled ‘Systemic Regulatory Arbitrage – A Case Study of KPMG’ and was first presented at a Tax Justice Network Research Workshop at City University in June 2015.

In simple terms, regulatory arbitrage occurs when organisations or professionals use their knowledge of the regulations, legislation and administrative procedures to help their clients escape the substance of those rules and thereby benefit commercially. Readers of this blog would be very familiar with the exposes of Richard Murphy and the Tax Justice Network and Treasure Islands by Nicholas Shaxson about how tax avoidance is practiced and escapes regulatory sanction. My research is broader in spirit and suggests that it is in the very nature of Big 4 firms to help clients practice regulatory arbitrage, and this is interwoven in their structures and services. The result of this, if true, is that global professional accounting firms appear to help multinationals to escape all kinds of regulatory limits and controls in specific nation states and become a power unto themselves, free from restraint. This is in stark contrast to their public license and image as upholders of truth and fairness and professional firms which are independent and reliable.

Sadly, in spite of the threat such behaviour poses there are huge challenges in getting access to internal systems and processes to determine the scale of this problem whilst interviews with senior leaders and managers about how such arbitrage is practiced and implemented are difficult to secure. Most of our evidence therefore comes largely from published information, either in annual reports or on websites, or from press reports and regulatory/parliamentary investigations. Using a variety of publicly available information, and an interview of KPMG’s Head of Audit Quality, Risk Management and Ethics, the research paper unravels how KPMG undertakes this activity and escapes regulatory sanction.

The research paper explains and defines ‘Creative Compliance’ and ‘Regulatory Arbitrage’, and analyses in detail the commercial incentives for Big 4 firms to provide arbitrage services. For example, significant multiplier fees might be earned by developing a particular scheme and then cross-selling to a wide range of clients. Fees can also be earned from the on-going creation and administration of off-shore boiler plate subsidiaries in tax havens and generally advising or managing complex group structures.

The result is that the concept of ‘Regulatory Dialectic’ is introduced, where contacts with regulators, understanding the resources and skill limits of regulators, understanding how slow regulatory investigations can be and how they can be ‘managed’ in the client interest – are all skills that may be exploited to provide client services. It is then suggested that each of these could be restrained by strong ethical codes and rules of professional conduct, but sadly there are no such rules, let alone indication of willingness to enforce them. Instead having a large and talented workforce from a range of disciplines has helped firms nurture and retain these skills which have proved to be a major commercial strength to them.

The evidence I present exposes flaws in governance, leadership culture, ethics and at times even deliberate and explicit publicity of regulatory arbitrage services on their website. For example, on one occasion it was aid that ‘Our training and secondment experience within regulators gives us exceptional insight into their expectations and perspective.’ (KPMG Financial Services Website, 2014)

In their annual reports, one of the key risks KPMG identifies is that of ‘regulatory risk’ i.e. the possibility that they may lose their licence to audit as a result of poor or failed audits. From a big picture perspective, the origins of these Big 4 firms came from a legal requirement to audit, and they were seen as ‘regulators’ on behalf of the state. How paradoxical its is then that they are now ‘managing’ their own (KPMG’s) regulatory risk!

These and many other significant contradictions in their rhetoric expose the huge commercial bias of these firms, and their desire to grow profits at virtually any cost. For 2014, I calculated the firm’s Return on Equity to be 112% – most corporates would be lucky to get a return of 20%: this shows how hugely profitable these organisations are for their partners.

The research also analyses KPMG’s Systems, Services and Strategy to see the extent to which these can be used to harness and support clients practicing regulator arbitrage. A detailed analysis of the role of contacts and networks in practicing successful arbitrage exposes the deeply political nature of accounting and its regulatory capture by such firms. There is also a section in the paper that shows how the firm itself uses complexity and secrecy to reduce its transparency and practice information arbitrage. As a result it is concluded that the firm faces fundamental cultural conflicts of interest exposed as ethical contradictions within the firm.

This stresses the need for the public to be aware of what the core values and culture and services of these glamorous Big 4 brands are, so that smart graduates can make informed choices about where to work. For the accounting profession, its reputation and image rests on the good conduct and monitoring of these firms and their partners, given their power and influence within it. Regulators need to be very careful about the extent to which they rely on Big 4 advice and services, and understand the huge conflicts of interest and regulatory capture that may result from working closely with them. Global institutions like the United Nations or the IMF must take an active interest in how the Big 4 firms hinder the creation of a fair and equal society and one which ensures that multinational corporations are held to account, and follow the spirit of regulations.

The Big 4 are not culturally neutral.

Shah’s paper can be downloaded here. http://www.academia.edu/19497525/KPMGS_REGULATORY_ARBITRAGE_CULTURE

Read more on these issues on our “enablers and intermediaries” page.

[admin]

http://www.cbc.ca/fifth/episodes/2016-2 ... touchables

https://youtu.be/6LjMXmGdhrA

at 32:00 Canadian Judge caught on film at private KPMG promotional event....denies (lies) when asked in writing by CBC about attending

JUNE 6, 2017
A Little Crooked House: Trudeau, Morneau, BMO & KPMG Inc
by PAUL BENTLEY

There was a crooked man, and he walked a crooked mile.
He found a crooked sixpence upon a crooked stile
He bought a crooked cat, which caught a crooked mouse,
And they all lived together in a little crooked house.

Canada’s Finance Minister Bill Morneau has recently reinvigorated his promise to crack down on tax evasion schemes, but how can we trust him when he is himself named in the Panama Papers? This issue, buried in the back-pages of last year’s CBC coverage, is not raised by any of the major media outlets in Canada in connection with Morneau’s current determination to “lay down the gauntlet” on tax loopholes.

In other countries like Iceland and Pakistan, and perhaps even Britain, government leaders have been forced to resign or subjected to criminal investigations as part of the fall-out of the Panama Papers.

If, as the Toronto Star claims, the Canada Revenue Agency (CRA) is now under orders from Morneau to pursue Criminal Charges against “tax cheats”, shouldn’t they be investigating their own boss? Or is this another case of the old political trick of “hiding in plain sight”?

There is no doubt that as Executive Chair of Morneau Shepell, the pension and investments consulting firm he inherited from his father, Morneau was responsible for hiring the legal services of Lennox Corporate Services Ltd., to set up a tax evasion scheme in the Bahamas. According to the ICIJ site this was done in February of 2014, and Morneau did not retire from the firm until October 2015.

The excuses offered for Morneau are that, according the CBC, Morneau “resigned from Morneau Shepell and its Bahamian subsidiary before being sworn in as a minister”; and that, according to the National Post, Morneau is subject to a conflict of interest “screen” in regard to his family business.

Wait a minute, won’t Morneau still benefit from the proceeds of his crime when he retires from politics? What a great maneuver, go into politics in order to escape responsibility for tax evasion!

Now, if you “follow the money” a little further, you find that Morneau is not alone. Take for example his boss, Justin Trudeau’s claim to have been “entirely and completely transparent” about his family’s finances; that is the millions of dollars he inherited from his father (am I beginning to sense a pattern here?). Yes, he openly said that he placed his money in a “blind” trust with BMO private banking, and yes BMO is professionally audited by one of the Big Four international accounting firms – KPMG, so you will never find Trudeau’s name in the Panama Papers, right?

Not so fast, what about the fact that KPMG is named in the Panama Papers? So, it happens, is BMO Nesbitt Burns, part of the complex private banking system where Trudeau has parked his money! And what about the fact that KPMG is BMO’s auditor? And that BMO is the largest contributor to the Trudeau Foundation of the major Canadian Banks etc… and oh, and by the way, KPMG also happen to be the auditors for Morneau Shepell.

The plot thickens when we consider that KPMG is likely also cooking the Liberal Party’s books. Democracy Watch, has recently accused Trudeau of a conflict of interest by hiring KPMG executive John Herhalt to manage the Liberal Party’s finances.

The problem with KPMG is not just that it is named in the Panama Papers, nor that KPMG has a long history of the fraudulent misrepresentation of its client’s books. For example, KPMG is under investigation by US Senators Warren and Markey of Massachusetts for its part in facilitating the fraudulent representation of Wells Fargo accounts during the 2008 financial crisis.

The problem with KPMG is that it is currently under investigation by the CRA for its tax evasion projects on the Isle of Man. This past week NDP leader Thomas Mulcair asked the following Question in the House of Commons:

“Five weeks after KPMG was ordered to maintain all records during an ongoing investigation, a group of offshore shell companies set up by KPMG went ahead and shredded documents related to that probe. This is the very definition of obstruction of justice.

Then the Liberals blocked the investigation into KPMG.

I am curious. Is there any other way the Liberal front bench can twist obstruction of justice and sweetheart deals for crooked billionaires into support for the middle class?”

Well, there may be one. When the little crooked Trudeau-Morneau household runs into trouble with the law in Canada, it can always turn to its so-called opponents, the Conservative Party and former Prime Minister Brian Mulroney, to set-up meetings with giant US firms “Blackstone”, and its spin-off “Blackrock” – the largest private equity and assets management firms in the world – to raise some cash.

Mulroney happens to be on the Board of Blackstone, and his daughter Caroline, who just announced her interest in a “political career”, is married to Andrew Lapham, executive advisor to Blackstone based in Toronto. It was through Mulroney that Trudeau arranged for Stephen Schwarzman, Blackstone’s CEO, to advise the Liberal cabinet on relations with the new Trump administration. No doubt Blackstone’s connections with the Liberal Party will be of use when it comes to the pursuit of Canadian investment opportunities such as its current interest in the purchase of beleaguered mortgage lending firm Home Capital.

Not to be outdone, Blackrock’s global head of active equities, Mark Wiseman, has wormed his way onto Morneau’s economic growth advisory council. In this capacity he organized Blackrock’s recent investor summit held in Toronto, to which Trudeau made his pitch for “leveraging private capital” in the form of a new Canadian public-private infrastructure bank.

Of course, Blackstone and Blackrock are also named in the Panama Papers.

Sadly, Canadians may never see any benefits from the circulation of all this international finance capital if it is ultimately destined for off shore tax havens. I guess this is what Marx meant when he said that “the executive of the modern state is but a committee for the management of the affairs of the bourgeoisie”.

https://youtu.be/6LjMXmGdhrA

[admin]

KPMG and Tax Havens for the Rich : The Untouchables

A story of money, secrecy and greed: a tax dodge for the wealthy dreamed up by one of the biggest accounting giants in the world KPMG Canada devised what it called an “Offshore Company Structure” for a select group of rich clients: they would claim to give away millions of dollars to a shell company supposedly out of their control and therefore wouldn’t have to pay taxes on it. In the U.S., top KPMG officials were convicted of tax evasion schemes concocted there. But in Canada, a different scheme led to a secret amnesty deal with the Canada Revenue Agency. A federal government inquiry vowing to get to the bottom of it went nowhere What was the accounting firm trying to hide? With revelations from industry insiders, internal KPMG documents and secret corporate records from the Isle of Man offshore tax haven, we expose the details of the scheme and unveil the names of some of the wealthy clients. A joint investigation by the fifth estate and Radio-Canada’s Enquete program.

FIFTH ESTATE
KPMG offshore tax dodge a 'facade' designed to hide money, ex-client says
Accounting firm's contracts with federal government questioned
By Harvey Cashore, Kimberly Ivany, Frederic Zalac, Gillian Findlay, CBC News Posted: Mar 02, 2017 5:00 AM ET Last Updated: Mar 02, 2017 7:46 AM ET


A former KPMG client says the firm insisted on secrecy when it was promoting a tax avoidance scheme to wealthy Canadians in the late 1990s. (Reinhard Krause/Reuters)

A former client of the accounting giant KPMG says a tax dodge that involved wealthy people gifting their money to an offshore jurisdiction was a "facade" designed to hide money from the taxman.

The client, who spoke to CBC's the fifth estate and Radio-Canada's Enquête on the condition of anonymity, says KPMG made him sign a confidentiality agreement that prevents him from speaking publicly about the tax dodge.

In an exclusive interview to be aired Friday on the fifth estate documentary "The Untouchables," the former client says KPMG insisted on secrecy when it was promoting the tax avoidance scheme to wealthy Canadians as far back as 1999.

Documents obtained by the fifth estate and Enquête show 21 "high net worth" Canadian families signed up for the massive tax dodge from 1999 until 2012 — when it was first detected by CRA auditors — a scheme that deprived the federal treasury of tens of millions.

The KPMG tax dodge stirred controversy last spring when it was revealed the Canada Revenue Agency offered a secret amnesty to the accounting firm's clients who had been caught using the scheme.

· Watch "The Untouchables" on CBC-TV's the fifth estate Friday at 9 p.m.

· KPMG offshore 'sham' deceived tax authorities, CRA alleges

The amnesty offer, leaked to CBC News in a brown envelope, granted KPMG clients "no penalties" as long as they paid back taxes and modest interest.

As a condition of the May 2015 amnesty offer, the CRA itself demanded that KPMG clients not talk about it in public.

Until now, no KPMG client has spoken out about their role in the scheme.

'Escaped the entire tax circle'

The client says the tax dodge was based on a simple — if fictitious — idea that "high net worth" clients give away their fortunes to an Isle of Man shell company. The money would be invested offshore and would be returned back to Canada, again untaxed, also as a so-called gift.

"So basically, I escaped the entire tax circle," the ex-client said.

· If you have tips on this story, please email investigations@cbc.ca or phone Harvey Cashore at 416-526-4704

Today, the client, who paid KPMG $100,000 to set up the Isle of Man tax dodge, says the "gift" was pure "fiction" and that, in reality, he never gave anything away.

"I still have absolute control over my money," he said. "The rest was just a facade... Everything else, every bit of piece of paper, everything is window dressing to create the appearance of 'I don't have control over this,' but in fact I do."

He says KPMG told those involved to keep quiet about their involvement.

"They're just going to keep their lips shut tight," he said. "How's Canada Revenue Agency going to detect it?"

KPMG 'emphatically' disputes claim

In a written statement to the fifth estate, KPMG says it "emphatically" disputes the ex-client's claim.

KPMG says its offshore structure complied with "all laws" in Canada and was carefully reviewed by senior executives at the firm before it went ahead.

"Clients were explicitly told … that they were giving up control of the assets," KPMG said. "To our knowledge, no member of KPMG would or did provide any advice or instruction to the contrary."


As a condition of the May 2015 amnesty offer, the Canada Revenue Agency demanded that KPMG clients not talk about it in public. (Sean Kilpatrick/Canadian Press)

Still, the former client insists that's exactly what he was told, in private.

"Nobody gives away $20 million to an Isle of Man company and says: 'Hey, I busted my ass for 20 years to make it, but you know what, I'm feeling generous today so you can have it all, no strings attached.' I don't think so, not for a 100 grand cheque that you just wrote to KPMG."

In court documents, the Canada Revenue Agency has also alleged that the KPMG scheme was a "sham" that "intended to deceive" the federal treasury.

Annual fee alleged

the fifth estate/Enquête investigation also looks at how much money KPMG made from its tax scheme.

The accounting giant is coming under scrutiny for its testimony before the House of Commons finance committee last spring.

The committee, which had begun a probe into why the CRA offered amnesty to those wealthy clients, called KPMG's former global head of tax, Gregory Wiebe, as its first witness.

mage removed by sender. Gregory Wiebe
Gregory Wiebe, former global head of tax for KPMG, testified at the House of Commons finance committee there were 16 'implementations' of the scheme. (Parliament of Canada)

MPs wanted to know exactly how much money KPMG itself made from running the offshore tax dodge.

Wiebe testified that the "total revenue" that KPMG received from the tax scheme was a $100,000 start up fee for each client.

"It was a fixed fee per implementation, it was not a contingent fee or whatever," Wiebe told MPs.

In other words, the firm did not earn fees based on the taxes dodged by their clients.

However, new records in a Vancouver court action appear to show KPMG made far more money off the scheme than they told the House of Commons committee.

Apparent contradiction

Documents filed in the Tax Court of Canada in January show that one wealthy family stated they paid a yearly fee to KPMG "based on" their "annual tax savings."

In that one case alone, KPMG earned additional annual payments that totalled $300,000 over several years, according to the documents.

In a statement to CBC News, KPMG says those court documents filed in the Vancouver tax court case contain unproven court allegations.

"[KPMG] provided accurate information to the finance committee on this point and on all other points in his testimony."

KPMG may also have understated the number of offshore companies it set up for Canadian multimillionaires and billionaires, according to the fifth estate/Enquête investigation.

· KPMG officals tells MPs firm no longer in tax-shelter business

· KPMG promoted hiding money from wealthy clients' ex-spouses in offshore 'sham'

Wiebe testified at the finance committee there were 16 "implementations" of the scheme.

However, using search techniques the fifth estate and Enquête developed using the Isle of Man's public registry, journalists found five additional structures set up for wealthy Canadian families.

KPMG now says it did create those five structures, but didn't mention those numbers to the finance committee because those clients "aborted" their involvement in the scheme before they dodged any taxes.

'Lack of credibility'

Sherbrooke University tax Prof. Marwah Rizqy says KPMG should have included those additional Canadian families in its totals to the finance committee and to the Canada Revenue Agency.

"It's very important to disclose that type of information," Rizqy said. "Here we're talking about a tax structure, about the intention to evade tax. The CRA can go and investigate these families and see if they actually did something else."

mage removed by sender. Marwah Rizqy
Marwah Rizqy, a tax professor at Sherbrooke University, says KPMG should have disclosed the five additional tax structures to authorities. (CBC)

Rizqy says KPMG's testimony before the committee is concerning.

"There's a lack of credibility here," Rizqy said. "They misled the Parliament, they also misled Canadians."

· Experts testifying in Otttawa about KPMG warned not to mention offshore tax scheme

· Isle of Man tax dodge could violate Income Tax Act, KPMG insiders cautioned

The inquiry was abruptly halted last June after KPMG lawyers sent a letter to MPs on the finance committee.

Lawyers for the accounting firm complained that it would be "fundamentally unfair and improper" for the inquiry to hear from tax experts critical of the offshore scheme amid ongoing court cases.

Critics pointed out that KPMG only sent the letter to the finance committee after its former head of global tax, Wiebe, had already given his side of the story.

'It doesn't make any sense'

Rizqy, who has reviewed internal KPMG and other court documents in the Isle of Man scheme, questions why the federal government continues to do business with KPMG in light of the revelations.

The firm was brought in to audit the F-35 fighter jet spending, as well as Senate travel expenses, for example.

In 2016, the federal government gave KPMG at least $9 million in contracts, according to Public Services and Procurement Canada. During the previous government, KPMG was given more than $80 million in government contracts.

· Top Canadian law firm endorsed controversial KPMG Isle of Man tax dodge

"It doesn't make any sense," Rizqy said. "I mean if on one hand we know that you're promoting tax shelters, you should be banned to be part of any public contract. I think it's the time to ask KPMG to step aside from every public contract."

Rizqy — who is in the running to be a candidate for the Liberal Party in an upcoming federal byelection in Quebec — does not shy away from criticizing Ottawa's handling of the KPMG affair.

She is recommending the Liberal government call a full-scale inquiry into the KPMG revelations, including the secret amnesty deal it negotiated with the CRA for its wealthy clients.

"I think this is the time to conduct a real investigation about KPMG, about the deal, about the tax structure."

· CRA offered amnesty to wealthy KPMG clients in offshore tax 'sham'

· If you have tips on this story, please email investigations@cbc.ca or phone Harvey Cashore at 416-526-4704

https://offshoreleaks.icij.org/nodes/20170256

[admin]

https://www.counterpunch.org/2017/06/06 ... -kpmg-inc/

JUNE 6, 2017
A Little Crooked House: Trudeau, Morneau, BMO & KPMG Inc

by PAUL BENTLEY

There was a crooked man, and he walked a crooked mile.
He found a crooked sixpence upon a crooked stile
He bought a crooked cat, which caught a crooked mouse,
And they all lived together in a little crooked house.

Canada’s Finance Minister Bill Morneau has recently reinvigorated his promise to crack down on tax evasion schemes, but how can we trust him when he is himself named in the Panama Papers? This issue, buried in the back-pages of last year’s CBC coverage, is not raised by any of the major media outlets in Canada in connection with Morneau’s current determination to “lay down the gauntlet” on tax loopholes.

In other countries like Iceland and Pakistan, and perhaps even Britain, government leaders have been forced to resign or subjected to criminal investigations as part of the fall-out of the Panama Papers.
If, as the Toronto Star claims, the Canada Revenue Agency (CRA) is now under orders from Morneau to pursue Criminal Charges against “tax cheats”, shouldn’t they be investigating their own boss? Or is this another case of the old political trick of “hiding in plain sight”?

There is no doubt that as Executive Chair of Morneau Shepell, the pension and investments consulting firm he inherited from his father, Morneau was responsible for hiring the legal services of Lennox Corporate Services Ltd., to set up a tax evasion scheme in the Bahamas. According to the ICIJ site this was done in February of 2014, and Morneau did not retire from the firm until October 2015.

The excuses offered for Morneau are that, according the CBC, Morneau “resigned from Morneau Shepell and its Bahamian subsidiary before being sworn in as a minister”; and that, according to the National Post, Morneau is subject to a conflict of interest “screen” in regard to his family business.
Wait a minute, won’t Morneau still benefit from the proceeds of his crime when he retires from politics? What a great maneuver, go into politics in order to escape responsibility for tax evasion!

Now, if you “follow the money” a little further, you find that Morneau is not alone. Take for example his boss, Justin Trudeau’s claim to have been “entirely and completely transparent” about his family’s finances; that is the millions of dollars he inherited from his father (am I beginning to sense a pattern here?). Yes, he openly said that he placed his money in a “blind” trust with BMO private banking, and yes BMO is professionally audited by one of the Big Four international accounting firms – KPMG, so you will never find Trudeau’s name in the Panama Papers, right?

Not so fast, what about the fact that KPMG is named in the Panama Papers? So, it happens, is BMO Nesbitt Burns, part of the complex private banking system where Trudeau has parked his money! And what about the fact that KPMG is BMO’s auditor? And that BMO is the largest contributor to the Trudeau Foundation of the major Canadian Banks etc… and oh, and by the way, KPMG also happen to be the auditors for Morneau Shekel.

The plot thickens when we consider that KPMG is likely also cooking the Liberal Party’s books. Democracy Watch, has recently accused Trudeau of a conflict of interest by hiring KPMG executive John Herhalt to manage the Liberal Party’s finances.
The problem with KPMG is not just that it is named in the Panama Papers, nor that KPMG has a long history of the fraudulent misrepresentation of its client’s books. For example, KPMG is under investigation by US Senators Warren and Markey of Massachusetts for its part in facilitating the fraudulent representation of Wells Fargo accounts during the 2008 financial crisis.
The problem with KPMG is that it is currently under investigation by the CRA for its tax evasion projects on the Isle of Man. This past week NDP leader Thomas Mulcair asked the following Question in the House of Commons:
“Five weeks after KPMG was ordered to maintain all records during an ongoing investigation, a group of offshore shell companies set up by KPMG went ahead and shredded documents related to that probe. This is the very definition of obstruction of justice.

Then the Liberals blocked the investigation into KPMG.

I am curious. Is there any other way the Liberal front bench can twist obstruction of justice and sweetheart deals for crooked billionaires into support for the middle class?”

Well, there may be one. When the little crooked Trudeau-Morneau household runs into trouble with the law in Canada, it can always turn to its so-called opponents, the Conservative Party and former Prime Minister Brian Mulroney, to set-up meetings with giant US firms “Blackstone”, and its spin-off “Blackrock” – the largest private equity and assets management firms in the world – to raise some cash.

Mulroney happens to be on the Board of Blackstone, and his daughter Caroline, who just announced her interest in a “political career”, is married to Andrew Lapham, executive advisor to Blackstone based in Toronto. It was through Mulroney that Trudeau arranged for Stephen Schwarzman, Blackstone’s CEO, to advise the Liberal cabinet on relations with the new Trump administration. No doubt Blackstone’s connections with the Liberal Party will be of use when it comes to the pursuit of Canadian investment opportunities such as its current interest in the purchase of beleaguered mortgage lending firm Home Capital.

Not to be outdone, Blackrock’s global head of active equities, Mark Wiseman, has wormed his way onto Morneau’s economic growth advisory council. In this capacity he organized Blackrock’s recent investor summit held in Toronto, to which Trudeau made his pitch for “leveraging private capital” in the form of a new Canadian public-private infrastructure bank.

Of course, Blackstone and Blackrock are also named in the Panama Papers.
Sadly, Canadians may never see any benefits from the circulation of all this international finance capital if it is ultimately destined for off shore tax havens. I guess this is what Marx meant when he said that “the executive of the modern state is but a committee for the management of the affairs of the bourgeoisie”.

[admin]

image005.jpg (47.21 KiB) Viewed 16343 times

Begin forwarded message:

From: Communications <Communications@oag-bvg.gc.ca>
Date: August 1, 2017 at 9:52:12 AM EDT
To: Joseph Killoran <joe.killoran@icloud.com>

Subject: RE: Q. has our GOC OAG approved Cda's switch from CDN GAAP to IFRS accounting practices?

Dear Mr. Killoran:

Thank you for your follow up email.

As we stated in our previous email, it is not the role of the Office of the Auditor General to advocate specific legislative measures or standards, nor are we involved in the process of creating legislation or standards.

Each year, the Office audits the federal government’s summary financial statements, the results of which are published annually in the Public Accounts of Canada, the summary financial statements of the governments of Nunavut, the Yukon, and the Northwest Territories, and the financial statements of most Crown corporations and many federal organizations. The Office does not choose to audit crown corporations or federal organizations based on which accounting standards they apply use but rather because the audit obligation is set out in the Auditor General Act and the Financial Administration Act.

All audit staff have a graduate degree, or a bachelor’s degree and professional designation (like CPA, CGA, ACCA etc.), at a minimum. Since the IFRS and PSAS accounting transitions, accounting standards have significantly increased both in complexity and volume. Financial auditors are now required to work with multiple financial reporting frameworks that are constantly evolving at a fast pace. In response to this, the Office has renewed its accounting training strategy and has entered into a partnership with Deloitte for accounting training services. This approach provides the Office’s auditors with learning opportunities that both promote the development of technical accounting skills and the application of knowledge in practical situations.

Sincerely,

Communications
Office of the Auditor General of Canada
communications@oag-bvg.gc.ca / Tel: 1-888-761-5953 / TTY: 613-954-8042

Communications
Bureau du vérificateur général du Canada
communications@oag-bvg.gc.ca / Tél : 1-888-791-5359 / ATS : 613-954-8042



From: Joseph Killoran [mailto:joe.killoran@icloud.com]
Sent: July-25-17 7:21 PM
To: Communications <Communications@oag-bvg.gc.ca>
Subject: Re: Q. has our GOC OAG approved Cda's switch from CDN GAAP to IFRS accounting practices?


ATTN: Michael Ferguson, FCA
GOC Auditor General
Office of the Auditor General

Re: Q. has our GOC OAG approved Cda's switch from CDN GAAP to IFRS accounting practices?

“I understand from your reply that a Crown corporation, that adopts IFRS accounting practices can be, or is, audited by your office (OAG). Correct?

My question is very simple and basic for the credibility of the OAG audits, and our GOC OAG itself.

Do your field auditors receive adequate training to be able to detect all of the trickery that is inherent in IFRS?

Related thereto, what is the source of your GOC OAG-based (and I profoundly must pray it is not our Big Four Audit firm based) audit education and training?

Please see Gretchen Morgenson's 07-07-17 column @
https://www.nytimes.com/2017/07/07/busi ... anada.html
and in my original email to you on July 8, 2017, below.

IFRS has especially serious deficiencies that are being easily manipulated in Canada.


IFRS is not just destined to facilitate and perpetuate huge financial frauds, they are already beginning to surface after only 6.5 years.


Q. And do you personally Michael / does your GOC OAG want these beyond embarrassing financial euthanasia instigating IFRS implosions of the sacred savings of retirees and the coming will be threatening sovereignty of Canada as a nation be on your personal record as our GOC AG?”


Regards,


Joe

Sent from my iPhone

Joe Killoran
1 (905) 767-7747

From: Communications <Communications@oag-bvg.gc.ca>
Date: July 18, 2017 at 3:34:58 PM EDT
To: Joseph Killoran <joe.killoran@icloud.com>
Subject: RE: Q. has our GOC OAG approved Cda's switch from CDN GAAP to IFRS accounting practices?


Dear Mr. Killoran:

Thank you for your email.

The Office of the Auditor General of Canada conducts independent audits of the programs and activities of federal government departments and agencies, Crown corporations and other federal entities, and reports its findings to Parliament.

It is not the role of the Office to advocate specific legislative measures or standards, nor are we involved in the process of creating legislation or the standards. The Office does however use the International Financial Reporting Standards (IFRS) to complete Financial Statements of departments and some crown corporations.

Sincerely,

Communications
Office of the Auditor General of Canada
communications@oag-bvg.gc.ca / Tel: 1-888-761-5953 / TTY: 613-954-8042

Communications
Bureau du vérificateur général du Canada
communications@oag-bvg.gc.ca / Tél : 1-888-791-5359 / ATS : 613-954-8042



From: Joseph Killoran [mailto:joe.killoran@icloud.com]
Sent: July-08-17 6:57 AM
To: Communications <Communications@oag-bvg.gc.ca>
Subject: Q. has the OAG approved Cda's switch from GAAP to IFRS accounting practices?


ATTN: Michael Ferguson, FCA

Q. has the Office of the Auditor General of Canada (OAG) approved / anointed / given his blessing to Canada's switch from GAAP to IFRS accounting principles?

Best regards,

Joe Killoran, 1979 Ethical Ivey MBA
Kimberley, ON
iPhone cell: 1 (905) 767-7747

Begin forwarded message:

From: Joseph Killoran <joe.killoran@icloud.com>
Date: July 7, 2017 at 4:05:04 PM EDT
To: NDP MP Pierre-Luc Dusseault <Pierre-Luc.Dusseault@parl.gc.ca>
Cc: "Right Hon. PM Justin Trudeau" <pm@pm.gc.ca>, "Hon. William Morneau" <Bill.Morneau@parl.gc.ca>, "Hon. Kathleen Wynne Premier" <premier@ontario.ca>, "Hon. Debby Matthews" <dmatthews.mpp@liberal.ola.org>



Subject: 07-07-17 NYTimes: Warren Buffett Invests in Canada, but Should You?

Business Day

https://www.nytimes.com/2017/07/07/busi ... anada.html
Warren Buffett Invests in Canada, but Should You?
·
·
·
Image removed by sender.
The forensic accountant Al Rosen, who founded the Accountability Research Corporation with his son Mark, wants people to be wary of investing in Canadian stocks.
COLE BURSTON FOR THE NEW YORK TIMES
JULY 7, 2017
Fair Game
By GRETCHEN MORGENSON
When Warren Buffett acts, investors notice. And after he took a roughly $300 million position last month in Home Capital Group, a troubled Canadian mortgage underwriter, some investors saw it as a vote of confidence not only in that company, but also in Canadian stocks over all.
Al Rosen takes a different view. A veteran forensic accountant and independent equity analyst who predicted the collapse of Nortel Networks, the Canadian telecom company, two years before its 2009 demise, Mr. Rosen has a message for people investing in Canadian stocks: be wary.
It is a mystery to Mr. Rosen why Mr. Buffett bought into Home Capital Group, a company that has been the subject of a titanic battle between the investors who believe in the company and other investors — short sellers — who do not. Certainly, Mr. Buffett expects to make money on his deal. But in an interview, Mr. Rosen said he thought there was more to the story than the markets yet know.
Mr. Rosen is certain of this: International accounting rules followed by Canadian companies since 2011 are putting investors in Canadian stocks — not just Home Capital Group’s — at peril. Canada’s rules, which are substantially different from the generally accepted accounting principles (G.A.A.P.) governing American companies, give much more leeway to corporate managers when it comes to valuing assets and recording cash flows.
In addition, a 1997 decision by the Supreme Court of Canada has severely limited investors in suing company auditors for malpractice. Combined, these two factors generally make Canadian stocks a danger zone, Mr. Rosen said.
American investors often fail to recognize this, though, because they assume Canadian companies are abiding by American accounting standards. “I’ve been trying to alert investors in the U.S. to this,” Mr. Rosen said in an interview. “But there’s just that belief that Canada is following U.S. standards when it’s not.”
Mr. Rosen provides forensic accounting services and also works with his son Mark Rosen at the Accountability Research Corporation in Toronto. The two men recently published a book called “Easy Prey Investors: Why Broken Safety Nets Threaten Your Wealth.”
In Mr. Rosen’s view, the international accounting standards followed by Canadian companies allow managers to apply overly rosy assumptions to the financial figures they report to investors. For a while, these assumptions can propel stock prices — and executive bonuses — well beyond where they would be otherwise, he said.
Canadian accounting rules can also mask problems at a company. How else, Mr. Rosen asked, to explain the events leading up to the June 22 bankruptcy filing by Sears Canada? The company’s shares trade on both the Toronto Stock Exchange and the Nasdaq market in the United States.
Like many retailers, Sears Canada’s fiscal year ends in January. It compiled its 2016 annual financial statement in accordance with International Financial Reporting Standards, set by the International Accounting Standards Board, a group of experts from an array of countries.
Sears Canada’s numbers weren’t good. Both revenues and same-store sales had fallen, but it reported shareholders’ equity of 222 million Canadian dollars (about $171 million) and 1.24 billion Canadian dollars ($956 million) in total assets.
In the report, company management characterized Sears Canada as a going concern. In accounting parlance, that meant the business was expected to operate without the threat of liquidation for the next 12 months.
The auditor for Sears Canada did not challenge this view and assigned the company an unqualified — or “clean” — opinion on April 26. The report fairly represented Sears Canada’s financial position, the opinion said. And that opinion may well have been justified under Canadian rules.
On April 26, an International Financial Reporting Standards auditor assigned Sears Canada an unqualified — or “clean” — opinion after evaluating its annual financial statement. On June 22, the company filed for bankruptcy.
FRANK GUNN / CANADIAN PRESS, VIA ASSOCIATED PRESS
Less than two months later, Sears Canada was bankrupt.
“What are the auditing and accounting rules in Canada that allow you to give this totally clean opinion on a company and you can’t even look beyond six weeks?” Mr. Rosen asked. “That’s the scary situation with Sears, and we’re just seeing it more and more on other cases coming forward.”
Canada is not alone in following the International Financial Reporting Standards, or I.F.R.S. Some 150 jurisdictions in Europe, Africa, Asia and elsewhere also use these rules. Many are underdeveloped nations whose previous accounting rules were none too stringent.
The international standards came about in 2002, when the European Union required adherence to them for all its listed companies beginning in 2005. The rules are designed to “bring transparency, accountability and efficiency to financial markets,” the I.F.R.S. Foundation says in a mission statement on its website.
But that’s not the outcome, Mr. Rosen said. In practice, the rules allow company executives to inflate their revenues and hide excessive acquisition costs. They also let managers overstate assets and understate liabilities, he said.
Not all managers will do so, of course. But Mr. Rosen’s forensic accounting work has taught him that “for every honest manager, there’s a cheat waiting to pounce.”
A spokeswoman for the I.F.R.S. Foundation, Kirstina Reitan, said its members disagree with Mr. Rosen’s take. “The success of accounting standards depends on companies applying them properly and exercising sound judgment,” she said in an emailed statement. “Both U.S. G.A.A.P. and I.F.R.S. are high-quality standards, and one is not more prone to abuse than the other.”
Still, the differences between the two standards can be significant. Consider, for example, the approach taken to recognizing revenue under the international standards.
Under these rules, companies can record revenues based on only a 50.001 percent probability of eventually collecting the money — something Mr. Rosen calls the “more-likely-than-not rule.” By contrast, under American guidelines, managers must have a reasonable assurance that they will generate the revenues before they can record them; companies generally interpret this as 70 percent to 80 percent certainty, he said.
Valuing assets is another problem with international standards, Mr. Rosen said. Under the generally accepted accounting principles used in Canada before 2011, a company would have to complete the sale of a property or building before recording the results of the transaction for financial reporting purposes.
Because the international standards instead focus on current value accounting, executives have much more freedom to assign value to assets that may or may not be real.
Mr. Rosen presents a hypothetical example in his book. Say a company owns a building that may sell for $10 million. But based on medium-term contracts, the company’s managers assess the building’s current value at $18 million. In Canada, the managers can use the higher figure in the company’s financial statements.
What can these differences mean to a particular company? In “Easy Prey Investors,” Mr. Rosen presents a side-by-side example of one public company’s 2011 financial results based on the previously applicable generally accepted accounting principles and the new international standards. The company, which owned rental properties, showed a $4 million loss under G.A.A.P. and an $82 million profit under the international standards.
“Many Canadian-traded stocks are trying to appear more financially adequate by utilizing the massive holes in I.F.R.S.,” Mr. Rosen wrote in his book. He calls financial reporting in Canada right now “the calm before the storm.”
The Toronto Stock Exchange index is up 6 percent over the past 52 weeks. Although that pales next to the Standard & Poor’s 500 return, it is nonetheless respectable.
Seems as good a time as any to heed a warning from an experienced investigator like Mr. Rosen.
Twitter: @gmorgenson


From: Joe Killoran [mailto: joe.killoran@icloud.com]
Sent: Thursday, June 15, 2017 10:55 PM
To: Right Hon. PM Justin Trudeau (pm@pm.gc.ca); Hon. William Morneau (Bill.Morneau@parl.gc.ca); Hon. Kathleen Wynne, Premier (premier@ontario.ca); 'Hon. Debby Matthews, Deputy Premier (dmatthews.mpp@liberal.ola.org)'; Maureen Jensen (OSC Chair & CEO) (mjensen@osc.gov.on.ca)
Cc: 'WAITZER Ed'

Subject: 06-14-17 CDN Accountant: Has auditing become obsolete?
Importance: High
CDN Governance = IFRS . . . International Financial Reporting Standards
Here’s the latest Canadian Accountant column from Dr. Al Rosen, FCA, FCMA, FCPA
For more information on Canadian Accountant, please click here.


Has auditing become obsolete?
Jun 14, 2017
image005.jpg
Author: Al Rosen
A new column from forensic accountant Dr. Al Rosen

questions the relevance of auditing, particularly to investors.

Read the new book from
Al and Mark Rosen

Easy Prey Investors: Why Broken Safety Nets Threaten Your Wealth

Easy Prey Investors

How obsolete court decisions, lawmaker inaction, and conflicted self-regulators are facilitating the theft of wealth and retirement savings in Canada.

OVER the past 30 years in Canada, external auditors have significantly narrowed their liability exposure to claims by investors that they gave clean audit reports on materially misleading financial statements. Liability, the responsibility for financial misstatements, has been passed on to others, such as boards of directors. Meanwhile, primarily because of IFRS, investors have found it more difficult to find worthwhile and credible financial information.

Have external auditors painted themselves into a corner? Disclaiming responsibility in many cases, such as looking for unfair related party transactions, leads one to ask just what are external auditors claiming is their expertise, legal obligation and role in Canadian business?

A mismatch has arisen between what investors need and what external auditors are willing to offer. Unless securities acts are revised, legislated audit requirements are at risk of becoming costly nothings, as far as investor protection is concerned.

Who is ultimately responsible for materially misleading financial statements?

Securities cases that address these crucial accounting and auditing issues have virtually vanished from the courts. Lawmakers have permitted auditors and accountants to write their own easy-to-circumvent obligations, such as with IFRS. In turn, auditors have seriously restricted their responsibilities to detect frauds and most control weaknesses, self-dealing thievery, and various liquidity deficiencies in companies.

By far the strangest auditor attempt at buck-passing has brought deep, self-inflicted damage. Auditor-introduced IFRS thoughtlessly dumped 60-plus years of old Canadian GAAP, including many specific and protective prohibitions, and brought an attitude of management freedom to financial reporting. The effects are badly comprehended by most Canadians, which leads to a deficient and unbalanced investing environment.

The differences in philosophy between IFRS and old Canadian GAAP are tremendously alarming. The notion of separately reporting third-party, settled transactions to investors is either seriously downplayed or too often is ignored by IFRS. Yet, for centuries, such reporting has been the very essence of allowing public corporations to exist — the obligation to inform shareholders of what “actually happened.”

The focus of financial reporting in Canada thus has materially shifted from attempting to account for recent third-party settled transactions to one of letting corporate management include, in audited numbers, its optimistic, biased and largely unsubstantiated view of the future. What actually happened in an entity’s most recent period is repeatedly obscured under IFRS.

Further, loose IFRS often allows corporate management assumptions and choices to be rubber-stamped, simply because IFRS permits management “guesstimates.” Consequently, the traditional role of the auditor in society simply vanishes. What is left is management’s opinion of itself, as well as huge opportunities for unwarranted executive bonuses. The declaration that figures have been “audited” is misleading and dangerous to ill-informed investors.

Why bother to audit accounting that is deeply flawed, multi-directional and absent of the many specific rules that prohibit known financial tricks? IFRS is so divorced in scope from an entity’s operating cash flows that it often borders on aiding securities frauds.

Lawmakers and securities regulators must wake up to the severe lack of utility in audited financial statements in Canada. And our profession must recognize that the dire consequence of impunity is irrelevance.

Dr. Al Rosen, FCA, FCMA, FCPA, CFE, CIP and Mark Rosen, MBA, CFA, CFE, provide independent, forensic accounting investment research to investment advisors and institutional portfolio managers. Learn more at Accountability Research Corporation and Rosen & Associates Limited.

The views and opinions expressed by contributing writers to Canadian Accountant are their own. Canadian Accountant and its parent company bear no responsibility for the accuracy and opinions of contributing writers.

Al Rosen
Rosen & Associates Limited
90 Adelaide Street West | Suite 802 | Toronto, Ontario M5H 3V9
Tel: 416-363-4515 | Fax: 416-363-4849


Begin forwarded message:

From: "L.S. (Al) Rosen" <al.rosen@rosen-associates.com>
Date: February 28, 2017 at 2:29:26 PM EST
To: 'Joseph Killoran' <joe.killoran@icloud.com>




Subject: Decline of Canadian Corporate Financial Reporting

FYI.

Joe,

The below article dealing with Canada’s serious problems of declining quality of corporate financial reporting was just released by Thomson Reuters this morning. The article ties in with our recently-published book “Easy Prey Investors.”

As both forensic accountants and equity analysts we are concerned that inadequate attention is being given to a matter where investors/savers money is being diverted from their pension funds and other savings. We hope that you can give this matter sufficient attention, so that your readers/clients are alerted to the dangers of what is currently happening in Canada.

Click here to view book: http://www.mqup.ca/easy-prey-investors- ... 548190.php

L.S. (Al) Rosen
Rosen & Associates Limited
121 King Street West | Suite 830 | Toronto, Ontario M5H 3T9
Tel: 416-363-4515 | Fax: 416-363-4849



THOMSON REUTERS ACCELUS
OPINION: Canadian profit statements need a credibility fix

Feb 28 2017 | Al Rosen and Mark Rosen
Canadian investors have been left vulnerable to significant losses resulting from unreliable financial statements permitted by a regulatory system that does more to facilitate corporate profits than safe markets. While most investors are aware of corporate accounting improprieties, such as manipulated profits, Canadian investors have particular reason to doubt the credibility of earnings statements.

Lax regulatory oversight is the primary culprit. Canadian regulators inadvertently enable financial deception through their inaction against vague standards and auditor immunity. Such failings diminish domestic wealth and, when publicized internationally, erode confidence in Canada as a destination for foreign investment.

Auditors, regulators, lawmakers, sell-side research analysts, and financial media all bear responsibility for the lack of reliability in financial statements. Most of these parties have inherent conflicts of interest, and many investors wrongly assume these institutions are responsible for protecting investments.
Several solutions exist, including:
· Forming a national securities enforcement authority separate from provincial commissions;
· Giving a national enforcement regulator full authority over acceptable accounting rules; and
· Introducing legislation that makes auditors accountable to investors in cases of negligence.

Auditors
Twenty years ago, the body representing financial statement auditors in Canada — Chartered Professional Accountants (CPA) Canada — convinced the Supreme Court that they essentially owe no responsibility to investors that use audited financial statements. The CPA's stance was that they should not owe a fiduciary duty of care to an unknown number of investors. Since then, investors can only rarely sue auditors successfully for losses based on misleading annual financial statements.

What then is the point of auditing financial statements if investors cannot trust the numbers?

Conversely, why should companies waste investors' money on auditors if the audits do not help investors? Dropping the pretense of investor protection would at least leave investors better informed about where they stand — vulnerable and exposed.

Audit firms are self-regulated, profit-seeking entities whose use by public companies is legally mandated in Canada.

With no other checks on the reliability of financial statements, national lawmakers must intervene to make auditors accountable to investors. Instead, however, Canadian lawmakers and regulators brush off the problem and delegate problems back to the auditors, creating a false sense of investor confidence in Canadian markets.

International Financial Reporting Standards

Since auditors need not consider the interests of investors, they can concentrate entirely on addressing the wants of their corporate clients. Accordingly, Canadian auditors wholeheartedly backed the adoption of International Financial Reporting Standards (IFRS). It was an easy decision; looser rules and regulations make for happier companies.

For many nations, IFRS represented progress. The European Union (EU), for example, used IFRS to harmonize accounting rules among member states. For Canada, however, IFRS significantly muddled financial transparency and reliability. The country already had reasonable accounting rules — the Canadian Generally Accepted Accounting Principles (GAAP) — that were refined over decades to address loopholes and investor concerns.
IFRS allows Canadian executives to choose the value of their own assets, with little or no outside verification, if they desire. The situation would be akin to acquiring a mortgage by telling the bank what you thought your house was worth.

The resulting questionable numbers then become cemented into balance sheets, despite not being based on actual transactions or sales. Given the way accounting works, they produce a picture of higher profits (and asset values), which analysts and investors might misinterpret when determining value.
IFRS is overly focused on placing "current values" on the balance sheet, while providing excessive leeway for executives to craft numbers that make them look best come bonus-time. It has shifted attention away from previously fundamental accounting concepts, such as profits triggered by the realization of third-party transactions and high-confidence assurances of cash collection before reporting revenue. Under GAAP, expenses had to be matched to reported revenues, while "conservatism" had to apply when doubts existed.

The new rules have failed investors by creating fake profits, low-quality earnings, inflated asset values, and misstated cash flows. This has created many concerns for parties tasked with financial compliance and risk assessment. Even basic values used for lending practices have been thrown into question now that corporate executives can bolster reported figures based on little more than enthusiastic assumptions.

To defend their position, Canada's auditing industry deploys marketing based on simplistic platitudes that do not withstand deeper analysis. Auditors will claim, for example, that IFRS allows for financial statement comparability around the world. In reality, IFRS does not improve corporate comparability, even within the same country, or even the same industry. In fact, the same company might not even be comparable to itself, from quarter to quarter, under IFRS.
The major problem is that IFRS rules are deliberately light on substance, supposedly to maximize management's ability to reflect their own company. The thinking from auditors is that management knows their company best, so give them the leeway to tell their story.

Ultimately, this allows auditors to rest on the notion that companies "could" be comparable under IFRS. What is left unsaid is that the management of those different companies would need to share a brain. Like asking two executives to draw a picture of a house, given the same instructions and materials, the end results would differ greatly. But if you gave them more rules, greater clarity, defined measurements, and clear prohibitions, the resulting pictures would be closer in substance to each other. Investors do not want to compare a fast-food chain in India to a biotech firm in Canada. They want actual comparability and greater utility of financial statement figures nearer to home.

Proponents of IFRS have neglected the reality that some executives will exploit regulatory vagueness to their own advantage. While there will be shady practices under any accounting framework, IFRS is worse than any rules-based system, because when it comes time to prosecute someone who veers outside the bounds of fairness, there needs to be something of time-tested substance to pin on them.

For more evidence on the deficiencies of IFRS, much greater detail is noted in our recent book, "Easy Prey Investors: Why Broken Safety Nets Threaten Your Wealth."

Securities regulators

Securities regulators in Canada are conflicted, having the dual mandate of promoting domestic markets, while also protecting investors. The fees needed to run the regulatory framework are collected from the issuing companies, whose money and collective voice drowns out those of individual investor advocates. Amid this conflict, the practice seemingly followed by regulators is to introduce limited rules that clamp down on small-time scams, while largely ignoring accounting and financial reporting issues at larger public companies.

Investors need only look at the poor track record of Canadian securities regulators on everything from the abuse of non-GAAP measures to the enforcement failings on cases like Nortel and Sino-Forest.

It does not help that Canadian securities regulation remains fragmented across 13 provincial and territorial jurisdictions, with no national capital markets authority. Recent efforts to establish a national securities regulator were put on hold last year, due to ongoing resistance from some provinces, led by Quebec and Alberta.

Despite repeated false starts over the last two decades, one could argue that securities regulation in Canada has improved its ability to address some white-collar crime. Unfortunately, Canadian regulators do not seem to believe that fighting financial crime should include serious investigation of IFRS deficiencies or of the widespread deterioration of financial statement reliability. In essence, they have deferred to the creators of IFRS to establish the framework for acceptability.

Canada urgently needs an independent national securities enforcement agency tasked with addressing the issues that have too frequently fallen to U.S. regulators to act first, such as Livent, Hollinger, Nortel and other instances ofdual-listed Canadian failures. On a larger scale, Canada must clamp down on pervasive non-GAAP abuses, and take ultimate charge of accounting in Canada, similar to how the U.S. Securities and Exchange Commission (SEC) has the final say on American GAAP.

Lawmakers

Canadian lawmakers have failed by not correcting the major gaps that leave investors open to abuse. It has been two decades since the nation's highest court ruled that investors cannot rely on financial statements (the Hercules Managements case). The biggest failure has been to allow self-regulation by the audit firms.

Canada must stop allowing self-regulatory institutions to exist unchecked. They allowed auditing firms to choose IFRS on behalf of investors, even after disavowing any duty of care to the public. Quite often, when a conflict of interest arises, lawmakers' first and sometimes only response was to ask SROs to judge their own behaviour, making it a clear case of asking the fox to guard the chicken coop.

Sell-side analysts

Equity analysts at investment banks do not write research for the prime benefit of individual investors, and banks have a profit incentive to encourage the sale of new issues.

There is no better way to facilitate this than to accept corporate earnings figures at face value, and to promote the same in written research reports. While not every research report from a given firm is unreliable, the investing public lacks the crucial ability to effectively screen out the many conflicted ideas.

A well-known example is Valeant Pharmaceuticals. Research analysts substantiated sky-high target prices for the firm on the basis of the company's non-GAAP performance metric. In the year it collapsed, Valeant reported $8.14 per share in "adjusted EPS" versus an actual loss per share of $0.85.

Those compromises in research helped underwriters raise roughly $30 billion of debt for Valeant to fund an extended acquisition spree right up to the point it came crashing down in a haze of accounting and regulatory concerns.

Institutional investors may have access to more of the real picture by paying for special one-on-one analyst access, but much of the official story is obscured by inflated profit figures produced from pliable IFRS rules and non-GAAP adjustments. The lack of independent research providers in Canada, relative to the United States, makes it difficult to find a reasonable balance of opinion.
Re-prioritising enforcement and liability

Lawmakers must make auditors liable to investors harmed by misleading financial statements. No other single measure would do more to clamp down on inflated profits than making those who check the books responsible for the quality and reliability of their work.

Additionally, Canada should establish an enforcement body responsible for deterring and punishing financialreporting abuses. To be effective, the new entity must be completely separate from the existing administrative framework that seems more focussed on easing capital formation.

The new enforcement authority should also have exclusive authority to determine the acceptability of specific IFRS rules, instead of the International Accounting Standards Board (IASB), which seems frequently consumed by European politics, now including Brexit.

A new regulator overseeing IFRS in Canada could also give specific thought to the uniqueness of Canada's resources-heavy capital markets, its past history of financial institution failures, and its penchant for tightly-controlled companies with weak governance.
Until such fixes occur, however, investors, directors, issuers, and compliance personnel need to be aware of the large gaps in regulation and investment safety that exist in Canada and ultimately impact market confidence.

Al Rosen, PhD, FCA, FCMA, FCPA, CFE, CIP and Mark Rosen, MBA, CFA, CFE run ARC I Accountability Research Corp, and Rosen & Associates Limited, providing independent equity research and forensic accounting services. http://www.accountabilityresearch.com.

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The memo outlined a plan that would "target" wealthy Canadian residents worth at least $10 million. It offered them "confidentiality," protection from creditors and the ability to receive money "free of tax."

In return, KPMG would take a 15 per cent cut of the taxes dodged. Successful KPMG sales agents and accountants were referred to as product "champions."

http://www.cbc.ca/news/business/kpmg-of ... -1.3209838

A wealthy Victoria, B.C., family paid virtually no tax over a span of eight years – and even obtained federal and provincial tax credits – while being involved in an offshore tax "sham" developed by one of the country's most respected accounting firms, the Canada Revenue Agency alleges.

The Canada Revenue Agency (CRA) believes there may be many more like them.

Court documents obtained by CBC News and Ici Radio-Canada show that in 2000, Peter Cooper and his two adult sons, Marshall and Richard, signed up for a KPMG tax product in the Isle of Man that targeted "high net worth" Canadian residents, promising they would pay "no tax" on their investments.

Federal probe of KPMG tax 'sham' stalled in court
Tax havens explained: How the rich hide money
Secret files reveal more Canadians using offshore tax havens
In 2013, the CRA obtained a judicial order demanding KPMG hand over the names of all the wealthy clients who set up shell companies in the Isle of Man, a small, self-governing territory in the Irish Sea between England and Ireland.

KPMG Canada is fighting that decision in federal court.

Documents show that between 2002 and 2010, the Cooper family paid little or no tax, despite receiving nearly $6 million from an offshore company. KPMG lawyers claim any money the Coopers received were "gifts" and therefore non-taxable.

If you have any more information on this story, please e-mail investigations@cbc.ca or contact Harvey Cashore at 416-526-4704.

The CRA alleges that the KPMG tax structure was in reality a "sham" that intended to deceive the taxman – and that both the Coopers and KPMG knew that $26 million hidden in offshore accounts actually belonged to the Coopers.

"The parties to the structure willfully presented its transactions as being different from what they knew them to be," the Revenue Agency said in tax court filings in Vancouver.

The CRA also alleges that the Coopers received federal and provincial tax credits during the years they were not declaring the income from the Isle of Man. In 2009, for example, Richard Cooper claimed the full home renovation tax credit on a home in Victoria.

The CRA has slapped the Cooper family with an order to repay millions in unpaid taxes and penalties in a "grossly negligent" scheme the CRA says was set up to "avoid detection" by tax authorities.

'I'm being drawn into this'


Marshall Cooper
B.C. resident Marshall Cooper said he was unaware of Canadian tax laws when he emigrated from South Africa in the mid-1990s. (Facebook)

When reached at his home in Victoria, Marshall Cooper said he was unaware of Canadian tax laws when he emigrated from South Africa in the mid-1990s.
"I went to the best people in the country. I'm being drawn into this, and I don't think I should have been in the first place," he says.

Cooper referred inquiries to KPMG, which is also representing the Coopers in their appeal in tax court.

KPMG declined to speak to CBC News about the allegations.

"Professional standards and obligations preclude us from disclosing, responding to, or discussing any matters that involve clients," Kira Froese, KPMG Canada's director of communications, wrote in an e-mail. "It is inappropriate for us to comment on matters that may be before the courts."

KPMG Canada, which is both a tax and auditing firm, is perhaps best known for helping the federal government crack down on public misspending. Yet in the Coopers' court case, it is alleged the accounting giant's Offshore Company Structure intentionally deceived the federal government. The structure "is a sham and was intended to deceive the Minister," the CRA alleges in court documents.

'For internal use only'

Documents filed in court by the CRA also shed light on a secret internal KPMG marketing campaign that had escaped the scrutiny of tax collectors for more than a decade.


Isle of Man
Court documents obtained by CBC News show that in 2000, a wealthy B.C. family signed up for a KPMG tax product in the Isle of Man, pictured, that targeted "high net worth" Canadian residents, promising they would pay "no tax" on their investments. (CBC)

As far back as 1999, a "product alert" was sent to all KPMG tax practitioners across the country and strictly marked "for internal use only - not for distribution or circulation outside the firm."

The memo outlined a plan that would "target" wealthy Canadian residents worth at least $10 million. It offered them "confidentiality," protection from creditors and the ability to receive money "free of tax."

In return, KPMG would take a 15 per cent cut of the taxes dodged. Successful KPMG sales agents and accountants were referred to as product "champions."

Dennis Howlett, the executive director of Canadians for Tax Fairness, wants to know exactly how much KPMG Canada and its sales agents profited from the offshore scheme.

"They were given the incentive that they could collect 15 per cent of the taxes avoided," he said. "We're talking about millions of dollars here."

KPMG did not respond to specific CBC queries about how many multi-millionaires invested in their "Offshore Company Structure" nor how much money the accounting firm made in sales and commissions.

Marshall Cooper told CBC News he believes there are many more like him. "It's huge - huge," Cooper said, speculating the CRA may find many more KPMG OCS clients.

Millions in undeclared 'gifts'

According to CRA documents filed in court, Marshall Cooper lived in a posh home in Victoria but paid only $3,049 in total taxes between 2002 and 2011.

He even received tax credits worth $5,420, the CRA alleges.

KPMG statement
​Peter Marshall Cooper Notice of Appeal, March 9, 2015
Marshall Cooper Notice of Appeal, March 9, 2015
Richard Cooper Notice of Appeal, March 9, 2015
​CRA vs. RICHARD COOPER Amended Reply, July 10, 2015
CRA vs. PETER MARSHALL COOPER Amended Reply, July 13, 2015
CRA vs. MARSHALL COOPER Amended Reply, July 13, 2015
Government auditors discovered the family invested in excess of $26 million back in 2002 and 2003 with help from KPMG. The money was handed to an offshore company called "Ogral" set up in the Isle of Man, but registered in other people's names.

The CRA alleges the Coopers first "purported to gift their wealth" to the offshore company. However, for years they received millions in non-taxable "gifts" back from Ogral that the CRA alleges were never reported on tax returns.

In their court filings, the Coopers insisted they obtained "substantial professional advice" when KPMG helped to set up the company in the Isle of Man. In their defence, the Coopers also say they consulted the law firm Fraser Milner Casgrain (now Dentons) before proceeding.

In the Cooper case, one CRA court pleading notes KPMG collected $300,000 in fees from the family between 2002 and 2008 based on the amount saved through the tax shelter.

KPMG lawyer Mark Meredith is representing the Cooper family in tax court. In a recent CRA court filing, however, the tax agency names Meredith, as well as now-retired KPMG tax partner Barrie Philp, as being the very ones who "developed the idea of an offshore company structure."

Dalhousie tax professor Geoffrey Loomer says that if the allegations against KPMG hold up in court, the case may have implications for the entire accounting industry.

"It seems to me it's bad from the point of view of the advisors involved, but it's also just, you know, an instance of a larger problem where you have high-wealth, high-income taxpayers arguably not paying their fair share," Loomer says.

"So it just means that more of the tax burden is borne by the middle class."

For more on this story, tune in to The National in the days to come for the documentary "The Isle of Sham."

http://www.cbc.ca/news/business/kpmg-of ... -1.3209838

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All over the world, tax revenues are under relentless attack. With help from accountants, lawyers and financial advisers, corporations are avoiding taxes through complex corporate structures, profit shifting, dubious royalty and management fee programmes.

The latest revelations come from some 28,000 pages of evidence leaked by whistleblowers. They relate to Luxembourg, a tiny principality surrounded by Belgium, Germany and France. It is a member of the European Union and has a population of around 550,000, but no major industry and is not known for any advances in science, mathematics, engineering, electronics or anything else that can generate mass sales, employment or economic activity.

Winners and losers

Globalisation has created opportunities for these microstates to create laws that provide shelter for footloose capital through tax avoidance schemes. They might secure some additional revenue through company registrations and a few jobs for local accountants and lawyers. But beyond that nothing of any economic value is created.

The rest of the world is the loser when certain countries offer these tax breaks, as without tax revenues governments can’t redistribute wealth or provide education, healthcare, pensions, transport, security or the other essential services for quality of life and social stability. The tax base of other countries is eroded, creating prospects of austerity and social strife and their governments should retaliate accordingly to end these practices.

The leaked documents show that around 340 major corporations, including Amazon, Deutsche Bank, Pepsi, Ikea, Accenture, Procter & Gamble, Heinz, Dyson, JP Morgan and FedEx have used the Luxembourg facilities. These companies want an educated workforce and the ability to dump sick employees onto the public purse. They want government subsidies, grants, legal enforcements of contracts, policing, security and much more. But, it would seem, they want to pay as little as possible for all those things. This “something-for-nothing” culture is facilitated by tax such as like Luxembourg and the tax avoidance industry.

The biggest beneficiaries of tax avoidance are corporate executives who boost their profit-related remuneration. Shareholders may get higher returns, but will also end up losing social rights to education, pensions and healthcare. Consumers, however, have not seen the price of coffee, washing powders, soft drinks, baked beans, postal deliveries or vacuum cleaners decline.

The Luxembourg papers show that tax avoiders are aided by big accountancy firms who devise complex corporate structures and schemes. This tax avoidance industry maintains its innocence, claiming all their business is legal.

Well, actually we don’t know if they are, because tax authorities have shown little mettle in taking judicial action. There is evidence to show that a number of schemes which previously masqueraded as lawful have been declared to be unlawful.

Organised hypocrisy

The annual accounts of the tax avoiding companies do not provide any clues about how they reduce their tax bills, but their annual accounts still receive a clean bill of health from their friendly and well-paid auditors. Meanwhile, these companies boast ethics committees and publish glossy corporate social responsibility reports that give the impression they are highly ethical and socially responsible citizens, but provide no information about their tax avoiding practices. Their reports are now part of a cynical impression management exercise.

Big corporations and accountancy firms are engaged in organised hypocrisy. Their internal dynamics are aimed at maximising their profits through things like tax avoidance, whilst soft words in public documents promise good citizenship. These two practices can’t be reconciled – and periodic revelations of malpractice shatter the public image they try to carefully cultivate. The result is public outrage and erosion of confidence in big business.

Rethinking the corporation

There needs to be a fundamental rethink about the nature of the corporation, its social obligations and public accountability. Public scrutiny can be enhanced by requiring corporations to publish tax returns together with related documents, such as the tax avoidance schemes. Those participating in tax avoidance schemes, especially when they are found to be unlawful, should not receive any taxpayer-funded contracts, grants, loans or subsidies. Persistent offenders, including accountancy firms, should be shut down.

The laws relating to taxation need to be changed so that corporations are taxed in the jurisdiction where their economic activity takes place, rather than where they choose to reside or book their profits. Such a system is known as Unitary Taxation and deserves attention. Devised nearly a century ago, at a time when transnational corporations and tax havens hardly existed, the present system of corporate taxation is unfit for the 21st century.

https://theconversation.com/luxembourg- ... tion-33969

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Prem Sikka is Professor of Accounting at Essex Business School.

The UK is drowning in a tide of greed and complacency, not least among wealthy, educated people occupying city offices.
Examples of this can be found amongst the big four accountancy firms: Deloitte & Touche, PricewaterhouseCoopers, Ernst & Young and KPMG, which audit 99 per cent of FTSE 100 and 96 per cent of FTSE 250 companies.

Their global income is around £75billion, of which £25billion comes from tax advice.

They have escaped retribution for their role in tax avoidance and duff audits of banks, some would say because they are ‘too big to close’ and wield enormous political power.

The UK’s tax revenues are under attack from major corporations that use ingenious schemes to dodge taxes.
Behind the headlines is a tax avoidance industry often involving the big four firms.
Last year, the House of Commons Public Accounts Committee noted that PwC would sell a tax avoidance scheme which had only a 25 per cent chance of withstanding a legal challenge.
As Labour MP and committee chairman Margaret Hodge put it: ‘You are offering schemes to your clients where you have judged there is a 75 per cent risk of it then being deemed unlawful.’

Big Four auditors face disruption to their bread and butter work ahead of new regulations

30 SECOND GUIDE: The Big Four

'Big four' accounting firms accused by MPs of using 'cosy' links to the Treasury to help rich clients
G20 must halt global game of tax avoidance by fighting anonymous shell companies and tax havens
Representatives of the other three firms admitted to ‘selling schemes they consider only have a 50 per cent chance of being upheld in court’.
The former partners of the big four firms sit on the board of Her Majesty’s Revenue and Customs.

Staff from the big four firms sit on HMRC committees and write porous tax laws.
Numerous tax avoidance schemes marketed by the big four firms have been declared to be unlawful by the courts.
But this has not been followed by any government probes or prosecutions.

Anyone with such a cavalier disregard for public decency would find it hard to secure contracts for collecting rubbish, but the big firms receive public contracts from the NHS, prisons and Private Finance Initiative.

As external auditors they are responsible for auditing the accounts of financial enterprises, but have been very adept at letting the lying dogs sleep.
The UK has experienced a financial crisis in every decade since the 1970s. In every one, auditors appear to have been complicit.
The mid-1970s banking crash exposed frauds at banks and insurance firms.
Accounting firms also collected fat fees and approved dubious accounts.

The same pattern has continued at Johnson Matthey Bank and the fraud-infested Bank of Credit and Commerce International.
This was followed by the collapse of Barings, and the Bank of England investigators were unable to secure access to audit files and personnel at Coopers & Lybrand (now part of PwC) and Deloitte & Touche.

The auditor silence was also evident at Independent Insurance, Equitable Life and Farepak.
The 2007-2008 banking crash showed that major banks indulged in money laundering, sanction busting and interest rate fixing among other abuses.
Their accounts overstated capital, assets and profits but were all approved by auditors.
Escaping retribution? The Big Four accountancy firms - Deloitte, KPMG,PricewaterhouseCoopers and Ernst & Young - take in around £25billion in total from tax advice

Escaping retribution? The Big Four accountancy firms - Deloitte, KPMG,PricewaterhouseCoopers and Ernst & Young - take in around £25billion in total from tax advice
The Co-operative Bank is the latest casualty and its accounts also received a customary clean bill of health on that occasion from KPMG.
A 2011 report by the House of Lords Select Committee on Economic Affairs accused bank auditors of ‘dereliction of duty’ and concluded that ‘complacency of bank auditors was a significant contributory factor’ to the banking crash.
Yet this has also not been followed up by any government investigation or prosecutions.
No government can combat tax avoidance without shackling the big four accounting firms.
The firms should be deprived of all public contracts until they mend their ways and persistent offenders should be closed down.
The big four firms have on a number of occasions failed to deliver meaningful audits of financial enterprises.
Losing out: Numerous tax avoidance schemes marketed by the Big Four accounting firms have been declared to be unlawful by the courts
Losing out: Numerous tax avoidance schemes marketed by the Big Four accounting firms have been declared to be unlawful by the courts
In the interests of financial stability, that task should now be undertaken by the financial regulator, the Financial Conduct Authority, on a real-time basis.
This way there can be no wrangles about access to audit files and personnel.
This reform will also reduce the size of the big firms and encourage meaningful competition for audit of other businesses.
Prem Sikka is Professor of Accounting at Essex Business School.


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Audit firm Ernst &Young to pay $8 million in settlements with OSC | G&M
Accounting firm Ernst & Young admitted no wrongdoing in its audits of Sino-Forest Corp. and another Chinese company, but it has agreed to pay an $8-million penalty to the Ontario Securities Commission (OSC), co-operate with a fraud investigation, and changed its internal policies on emerging markets.
5
The OSC says Ernst & Young was negligent in its audits of Sino-Forest, which failed in 2011, and of athletic shoe manufacturer Zungui Haixi Corp. Both companies traded on Canadian stock exchanges until their shares collapsed after being accused of accounting improprieties. Investors lost millions of dollars.

http://www.theglobeandmail.com/report-on-business/ernst-young-reaches-8-million-settlement-over-%20sino-forest-audit/article20854668/

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The predatory practices of major accountancy firms
Despite the evidence of fraudulent schemes, no firm has ever been disciplined by any professional accountancy body

Prem Sikka
guardian.co.uk, Saturday 8 December 2012 11.00 GMT
Jump to comments (87)

'PricewaterhouseCoopers devised a scheme to enable a rich entrepreneur to avoid capital gains tax on profits of £10.7m'. Photograph: Garry Weaser for the Guardian
George Osborne's attack on organised tax avoidance is a huge disappointment. Her Majesty's Revenue and Customs (HMRC) is investigating some 41,000 tax avoidance schemes, but there is still no investigation of the industry that designs and markets aggressive tax avoidance schemes.

In contrast to the UK, reports by various US Senate committees have been critical of the predatory practices of the major accountancy firms (for examples, see here, here and here). KPMG was fined $456m (£284m) for facilitating tax evasion and a number of its former personnel have been sent to prison, as have some of the former personnel of Ernst & Young.

Now the public accounts committee (PAC) chair Margaret Hodge has PricewaterhouseCoopers PwC, Ernst & Young, KPMG and Deloitte in her sights. The PAC should investigate the role of these firms in organised tax avoidance. An earlier internal HMRC study estimated that these four firms "were behind almost half of all known avoidance schemes".

Some of the evidence about their predatory practices is on the public record. In November 2012, a tax tribunal threw out an Ernst & Young inspired scheme that enabled Iliffe News and Media to create a new asset – newspaper mastheads. This asset was created for a nominal sum of £1. It was leased back to its subsidiaries who paid the parent company over £51m in royalties and thus reported lower profits. No cash left the group but the companies now sought tax relief on royalty payments to reduce their corporation tax bill. The company's board minutes stated that Ernst & Young, who audited the company's financial statements as well, confirmed that the use of the scheme would also "significantly lessen the transparency of reported results".

PricewaterhouseCoopers devised a scheme to enable a rich entrepreneur to avoid capital gains tax on profits of £10.7m. A tax tribunal heard that the scheme involved a series of circular and self-cancelling transactions resulting in the creation of assets and disposals which somehow managed to generate a loss of £11m and thus cancelled out the profit. The scheme was thrown out by a tribunal, and in August 2012 by the court of appeal. The presiding judge said that "there was no asset and no disposal. There was no real loss". This scheme was sold to 200 entrepreneurs and if successful, would have enabled them to avoid capital gains tax on profits of around £1bn.

KPMG devised a scheme for an amusement arcade company to avoid paying VAT on its operations. The scheme was not developed in response to any request from the company; KPMG cold called the company. Its presentations were subject to a confidentiality undertaking being given. A 16-page report cited by the tribunal said that by using Channel Islands entities, the company's profits could improve by £4.2mn. KPMG charged £75,000 plus VAT for an evaluation report and counsel's opinion, and a fee of 25% of the first year's VAT avoided, 15% of the second and 5% of the next three year's VAT avoided. KPMG felt that the UK tax authorities would regard the scheme as "unacceptable tax avoidance" and would challenge the arrangements, but still sold it. The case subsequently went to the high court and the European court of justice and the scheme was quashed.

We are all suffering from the bankers' follies. But Deloitte devised a scheme to enable bankers to avoid income tax and national insurance contributions on £91m of bonuses. More than 300 bankers participated in the scheme, which operated through a Cayman Islands-registered investment vehicle. A tax tribunal threw out the scheme and the presiding judge said that "the scheme as a whole, and each aspect of it, was created and coordinated purely for tax avoidance purposes".

The above only provides a tiny glimpse of the predatory practices of major accountancy firms. They create sham transactions, phoney losses and phantom assets to enable their clients to dodge taxes. Despite the evidence, no accountancy firm has ever been disciplined by any professional accountancy body. Despite spending millions of pounds to quash predatory schemes, the UK Treasury has never sought to recover the legal costs from the promoters of the schemes. Instead, the big accountancy firms continue to receive taxpayer funded contracts.

No government will be able to effectively tackle tax avoidance without shackling the designers and enablers. It is hoped that the public accounts committee will investigate the role of the big accountancy firms in tax avoidance.

http://www.guardian.co.uk/commentisfree ... ancy-firms

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Swindlers: Cons & Cheats and How to Protect Your Investments from Them. 2010. By Al Rosen and Mark Rosen, CFA, Madison Press Books, http://www.madisonpressbooks.com. 264 pages, $34.95.

Reviewed by Martin S. Fridson, CFA
Book Review Editor: Martin S. Fridson, CFA

Abstract
The authors argue that the good intentions behind the International Financial Reporting Standards can be easily subverted through ruses that may be used anywhere in the world. Therefore, it behooves investors everywhere to know how to spot such trickery and protect their investments.

Full Text
Effective 1 January 2011, the International Financial Reporting Standards (IFRS) became mandatory for Canadian public companies. Proponents of IFRS adoption argued that it would enhance global comparability of financial statements. The authors of Swindlers: Cons & Cheats and How to Protect Your Investments from Them argue, on the contrary, that “differences in laws, regulations, taxes, cultures, education, ethics, training, traditions, enforcement, and optimism make uniformity an opium dream.”
Al Rosen, professor emeritus of accounting at York University, and his son, Mark Rosen, CFA, a partner at Accountability Research Corporation, further claim that IFRS will not even ensure comparability among Canadian companies. Certain provisions are overpermissive, they say, meaning that some companies will take liberties that overstate their profits and balance sheet strength relative to their peers. One example of the wide discretion afforded by IFRS is allowing assets to be reported on the basis of historical cost, fair value, or something in between.
Although the authors acknowledge that IFRS represents an improvement in accounting quality for some countries, Canada has taken a step backward in their judgment. Reviewing files from their forensic accounting practice, they find that in cases in which their plaintiff clients received financial settlements, convictions or settlements would have been either impossible or highly unlikely if IFRS had been in force.
None of this is to suggest that the previous Canadian accounting standards protected investors particularly well. One weakness widely exploited by issuers of financial statements involved minimal requirements for reporting related-party transactions. Unscrupulous executives perfected such abuses as arranging for private companies they owned to buy goods and resell them to the public corporations they managed “at cost.” The so-called cost included overhead charges that consisted largely of salaries for the executives and their relatives. The IFRS rules for related-party transactions are even looser than Canada’s old rules.
The authors list several institutional factors that underlie Canadian investors’ heavy exposure to financial reporting manipulation. For one thing, Canada has no national securities regulator, unlike the United States, which created the Securities and Exchange Commission in 1934. Canada has begun moving toward setting up a national regulator but has put in charge of the project a former provincial regulator who argued against the need for national regulation until shortly before his appointment.
Second, the Supreme Court of Canada ruled in 1997 that the purpose of audited financial statements does not include helping investors make informed stock purchase decisions. Rather, the justices decided that financial statements are intended only to enable existing shareholders to evaluate management’s performance. The Supreme Court thereby determined that auditors have no duty of care to prospective new investors. This ruling encouraged auditors to cater to corporations, which hope to inflate their share prices, with little fear of being sued by investors who relied on misleading financial statements in buying shares.
The authors catalog a number of outlandish flimflams perpetrated in an environment they see as inadequately policing financial disclosure. VisuaLABS, a company based in Calgary, Alberta, Canada, rose to a C$300 million market capitalization on the basis of technologies that included combining several plasma television screens to form a larger viewing surface. The prototype turned out to be one large screen that had been etched with a glass cutter to make it look as though it had been assembled from smaller screens.
Cross Pacific Pearls claimed to have a proprietary technique for growing pearls in mussels. When the mussels it had transported from the southern United States to California failed to produce a single pearl by the scheduled date, the company claimed that the bivalves had fallen asleep in the cold waters of a northern California lake and were hibernating. Eventually, it emerged that Cross Pacific had lent much of the proceeds of its debt and equity financing to two Panamanian companies that disappeared.
In addition to describing classic scams in such businesses as energy exploration, mining, and scrap yards, Swindlers details many telltale warning signs of financial reporting irregularities and deceptions. Particularly helpful is the discussion of cash flow, which some investors regard as inherently more reliable than net income. The authors show how companies can mislead readers of financial statements by netting items on the cash flow statement.
The authors also list a number of classic techniques for overstating revenues. One involves overcharging on shipments to a customer and then rebating the excess to the customer’s employees in the form of expensive dinners or sports excursions. Another gambit consists of booking essentially uncollectible fees for the renegotiation of loans to failing companies.
Because these ruses can be used anywhere in the world, Canadians are not alone in benefiting from reading Swindlers. In addition, with more than 100 companies now permitting or requiring the International Financial Reporting Standards, it behooves investors everywhere to know how the good intentions behind the new rules might be subverted. Al and Mark Rosen deliver the goods with clarity and surprisingly high entertainment value for a book on a subject commonly thought to be dull.
Reviewer Information
Martin S. Fridson, CFA, is global credit strategist at BNP Paribas Asset Management, New York City.
Book Review Editor Information
Martin S. Fridson, CFA, is global credit strategist at BNP Paribas Asset Management, New York City.