I.
Business News
19. An emoji is worth a thousand words
On the day dedicated to the little pictures that save a
thousand characters on phone and computer keypads – 17th July –
hopefully, people remembered that thanks to emojis the world is going back to
the days of unfettered, unlettered visual communication. Language has come full
circle from our most ancient ancestors’ parietal art to the graphic novels and
emojis of our times, obviating the need for letters, numbers and punctuation
marks. As emojis make further inroads into our written communication, the only
people who may have reason to grumble are grammarians and pedants, as this mode
disregards all rules and, indeed, language itself.
The purists could conceivably have retained some clout if
emoticons had prevailed as they use letters, numbers and punctuation marks. But
they are now increasingly irrelevant as in the expanding emoji world there is
simply no need to know words such
as hippopotomonstrosesquippedaliophobia or its correct spelling, much less
devise a pictographic equivalent for it.
Esperanto has been trying for 133 years to become the world’s
preferred auxiliary language, but in one-eighth of that time – especially since
2010 – emojis have already found their way into well over 90% of online
communication. With its ability to express emotions as well as an idea, emojis
are clearly the text-best thing to verbal conversation.
(Source: ET Bureau – 18th
July, 2020)
II.
Business
20. Global real estate
investment plunged by 33% in first half of the year
KEY POINTS
(1) The largest decline was
seen in the Asia Pacific region, down 45%,
(2) By sector, investments
in hotels suffered the steepest drop, down 59% on a global basis,
(3) Industrial properties
showed the most resilience, with investments slipping by only 4%.
Cross-border investments in
global real estate plunged by 33% in the first half of the year compared to the
first half of 2019, according to a report released by Savills, the London-based
global real estate services provider.
The largest declines were
seen in the Asia Pacific region, down 45%, and the Americas, down 36%.
By sector, investments in
hotels suffered the steepest drop, down 59% on a global basis. Investments in
retail properties and office spaces plunged 41% and 40%, respectively.
Industrial properties
showed the most resilience, with investments slipping by only 4%.
Interestingly, investments
in residential properties in Asia Pacific actually surged by 105% – partly
boosted by the purchase of a Japanese apartment portfolio by Blackstone Group
for about $3 billion in February, 2020.
‘Overall, the global 33%
fall in real estate investment activity so far this year is less than the decrease
at the start of the global financial crisis in the first half of 2008, when
real estate investment volumes across the world fell by 49% and continued
falling until mid-2009,’ said Sophie Chick, Director of Savills World Research
team. ‘Unsurprisingly, those asset classes that have been most [affected] by
social distancing measures have been hit hardest, while industrial and
residential, which is a long-term income play, have been impacted least.’
By region, Europe, the
Middle East and Africa, or EMEA, saw only a 19% decline in investments.
‘The huge increase in
entity-level deals in EMEA has helped insulate that market from the biggest
falls as some buyers have used this period for opportunistic M&A or equity
deals,’ Chick explained.
Simon Hope, Savills’s head
of global capital markets, added, ‘Volumes are expected to remain well below
pre-pandemic levels for the rest of 2020 as investors wait for market clarity.
However, certain sectors are expected to outperform as investors focus on
secure assets, namely logistics, residential and life sciences.’
Hope also noted that
looking ahead, ‘there seems to be general consensus across G8 governments
around the world to build their way out of this downturn, turning on a tap of
capital for infrastructure projects. This generally bodes well for the real
estate industry as it potentially creates more assets to invest in as well as
reducing unemployment rates.’
(Source:
International Business Times – By Palash Ghosh, 20th July, 2020)
III.
Financial accounting news
21. How U.K. audit scandals pushed Big Four toward
split: QuickTake
A spate of scandals has put accounting firms in the U.K. on
the back foot. The collapse of Carillion Plc and subsequently Thomas Cook Group
Plc, have been among cases that raised questions about auditing standards at
the so-called Big Four firms. In response, Deloitte, Ernst & Young, KPMG
and PricewaterhouseCoopers have agreed to separate their auditing and
consulting departments by 2024 to avert possible conflicts of interest, a move
that critics say does not go far enough.
1. How bad have things got?
Bad enough that the U.K. government promised to reform the
audit industry after a Parliamentary report two years ago into the collapse of
Carillion, a major outsourcing company. The report panned Carillion’s
accounting methods, KPMG’s soft audits and weak accounting regulation.
Sidetracked by Brexit, a general election and the coronavirus pandemic, the
government has yet to follow through. In the meantime, the accounting firms
have taken action along with the regulator, the Financial Reporting Council,
partly to pre-empt government moves.
2. What have they agreed to?
The plan, announced on 6th July, to split
consultants from auditors aims to ensure the Big Four won’t baulk at tough
audits so as not to jeopardise lucrative consulting contracts at the same
companies. In the regulator’s words, the firms need to do a better job of
backing ‘auditors making tough decisions.’ The deal is a significant concession
by the Big Four, which fiercely opposed splitting auditing functions. However,
it doesn’t convincingly address conflicts of interest between supposedly
independent auditors selling consulting work to their clients. Under the deal,
the auditors can still earn close to half of their revenues from consulting,
staff can switch between audit and consulting positions, and auditors are under
the control of the firm’s chief executive officer who also oversees the
consulting divisions.
3. Will it work?
Unlikely. Richard Murphy, an accountant and economics
professor at City University in London, says this is a cosmetic exercise
designed to make the Big Four look more independent but ignores the lack of
independence and competition that have blighted audit quality in the U.K.
Critics say the voluntary agreement lacks regulatory muscle and will not be
enforceable. Some groups have said that it will fail to stimulate competition
from smaller firms or make auditors more independent of their clients.
4. What about the regulator?
The FRC has powers to sanction firms and individual
accountants for deficient auditing, and does so. Without legislation, however,
the agreement isn’t legally enforceable and has been criticised for allowing
the big firms to continue offering consulting services. The move was taken
partially to pre-empt lawmakers from weighing in with their own, likely
tougher, solution.
5. Why the need for reform?
The Carillion collapse in 2018 that shocked lawmakers into
action came after the government refused to bail it out, costing almost 3,000
jobs and leaving 30,000 suppliers and sub-contractors with 2 billion pounds
($2.5 billion) in unpaid bills. Administrators liquidating its assets believe
KPMG’s auditing was negligent in relation to its long-term construction
contracts and goodwill. Thomas Cook collapsed in September, 2019, leading to
9,000 job losses in the U.K. and leaving 150,000 tourists stuck overseas. That
also sparked an investigation by the FRC into auditor Ernst & Young.
6. Have things improved since then?
No. Middle Eastern hospital operator NMC Health Plc, listed
in London, started unravelling this year after unearthing undisclosed debt amid
allegations of fraud, leading to the departure of top executives. The FRC
opened a probe into Ernst & Young’s auditing of NMC’s financial statements.
And in Germany the admission by payments company Wirecard AG in June that 1.9
billion euros ($2.2 billion) it had reported as assets probably never existed
led to the resignation of Chief Executive Officer Markus Braun and his
subsequent arrest, with the company filing for court protection from creditors.
Ernst & Young’s refusal to greenlight Wirecard’s long-delayed 2019
financial report followed reports by the Financial Times raising
questions about Wirecard’s accounting practices. Ernst & Young called it an
‘elaborate’ fraud that even a very rigorous probe may not have discovered.
7. What will the government do?
The U.K. government has promised to replace the FRC with a
new regulator, the Audit, Reporting and Governance Authority, as recommended by
an independent report in 2018. Unlike the FRC, this will be a statutory body
with legal powers granted by Parliament to regulate the big accounting firms
directly. The government still says it will act on the findings of three
reports it commissioned after Carillion’s collapse. Beyond the
accounting-consulting split, the recommendations included requiring large listed
companies on the FTSE 350, such as Aviva Plc and Tesco Plc, to use joint
auditors to help bring other firms into the market and creating a distinct
auditing, as opposed to accounting, profession. All these moves would require
legislation, however, and Parliament may not have the time to pass the
necessary laws.
8. Does this sound familiar?
Yes, it’s reminiscent of regulatory action taken in
Washington almost two decades ago. Since 2002, auditors of publicly-traded
companies in the U.S. operate under strict rules that bar them from providing
most consulting services to their audit clients. The Sarbanes-Oxley Act was
part of Congress’s response to accounting scandals that brought down Arthur
Andersen LLP and its clients Enron Corp. and WorldCom Inc. It also imposed
audit regulations and created the Public Company Accounting Oversight Board,
which enforces standards and annually inspects the largest firms. U.S.
regulators are increasingly concerned about the patchwork of regulations in
force around the world. Securities and Exchange Commission chief Jay Clayton
said in December that he wants more financial reporting and audit uniformity
worldwide.
9. What’s next in the U.K.?
The Big Four have promised to submit plans to the FRC by
October next year, before a split effective in 2024. That gives the government
time to pass legislation and audit reform proposals may be released in the
coming months. Though legislation would supersede the agreement, there is
speculation the government could use this pact as a reason to put audit reform
on the back burner.
(Source: Bloomberg Tax – By Guy
Collins, Hugo Miller, 17th July, 2020)
