18 September 2018

Katie Stanton

18 September 2018

Good morning,

Professional advisers are under attack from professional advisers. Today, it’s lawyers attacking accountants, with the Big Four financial auditors once again under scrutiny as lawyers question their environmental conscience – or lack thereof – in examining why audit processes did not see climate change risks properly flagged to investors. 

Campaign group ClientEarth has reported EasyJet, Balfour Beatty, EnQuest and Bodycote to the Financial Reporting Council after they allegedly failed to address the impact of climate change in their annual reports. The environmental lawyers have also written to each firm’s auditors, flagging what they describe as “material misstatements” in each report. 

This development marks just the latest in a string of attacks against the Big Four - EY, Deloitte, KPMG and PwC – which face calls for the break up of their virtual monopoly on the market, with critics claiming the lack of competition is negatively effecting the quality of audits. In the US, the Big Four audit 99% of members of the S&P 500, a concentration of assignments that speaks to the continuing dominance of the Big Four just a decade after they failed to spot Ireland’s banks drifting into insolvency.

So, should accountants be more accountable? The big firms would argue that they draw on several in-house areas of expertise to provide good quality audits to multinational clients and that, when it comes to auditing clients as big as Google, Amazon and Facebook, teams need to be“multidisciplinary”, assessing different areas of the business to provide a well-rounded product.

Nonetheless, senior UK politicians met yesterday with the largest challenger audit firms outside of the Big Four to discuss ways to solve the problem. Ideas include the introduction of a cap on market share for auditors of listed companies, establishing an independent body to assign auditors, and introducing a joint auditor system. This renewed and unprecedented political interest follows the collapse of government outsourcer Carillion, a longstanding client of KPMG.

Major audit firms are probably thick-skinned enough to withstand unpleasant letters from pesky lawyers, but they will be much more wary of politicians sniffing around their business models. 

News

A Russian military plane with 14 people on board has vanished over Syria, Russia’s defence ministry has said. The aircraft was returning to Russia’s Hmeimin airbase close to the north-western city of Latakia. The fate of the aircraft is unkown and a search and recue operation is underway. Russia began airstrikes in Syria in 2015 and so far the conflict has killed more than 350,000 people.

Vernon Unsworth – the British driver who assisted in the rescue of 13 people from a Thai cave in July – is suing the billionaire Tesla owner Elon Musk for libel. Unsworth was accused of peadophilia, having a child bride and moving to an area of Thailand notorious for sex trafficking, after he rejected Musk’s offer of a mini-submarine to assist with the cave rescue. The tycoon shared those claims with his 22.5 million followers on Twitter, reportedly causing great distress to Unsworth, who vigorously denies the claim. Unsworth’s lawyers have filed legal papers in Los Angeles, where Mr Musk lives, and are reserving the rights to bring similar action in Britain. (£)

It emerged this morning that authorities in Mexico’s second-largest city, Jalisco, left a trailer full of decomposing corpses in a suburb following a wave of violence which overwhelmed local morgues. Locals reacted with outrage after discovering the bodies, protesting that it “affects our kids, it smells horrible”. The news of between 100 and 157 abandoned corpses comes as Mexico’s homicide rate hit a record high as violence spreads throughout the country. 

Business & Economy

The US is imposing new tariffs on $200 billion worth of Chinese goods as trade talks escalate with Beijing. The higher import taxes will take effect from 24 September and mark the biggest round of US tariffs so far, applicable to almost 6,000 items. The taxes will start at 10% and increase to 25% at the start of next year if the countries fail to agree a deal in the meantime. China has vowed to retaliate with its own tariffs.

Saudi Arabia’s sovereign wealth fund invested $1 billion in Tesla rival Lucid Motors yesterday. This news comes just weeks after the Financial Times revealed that the Saudi Investment Fund, the state vehicle being used by Crown Prince Mohammed bin Salman to overhaul his nation’s economy, had built “a near five per cent stake” in Tesla. The deal quashes fears that Lucid would fail to gain backing, enabling the company to launch its first electric vehicle in 2020. (£)

Former UBS trader, Kweku Adoboli, convicted of the UK’s largest financial fraud in 2012, was given a “temporary reprieve from deportation to his native Ghana yesterday”. He was granted the injunction by the court hours before he was due to depart, pending a review of his case. He was convicted of rogue trades which cost his former employer £1.5 billion and subsequently served three-and-a-half years of a seven year sentence. The review is likely to take several months and he will return home to his partner in Scotland in the coming days. 

Markets

What happened yesterday?

The FTSE 100 ended trading down 1.94 points at 7,302.10 yesterday. The S&P 500 was down 0.2% while the 10-year US Treasury yield reached a 5-month high.
 
Speculation around the White House imposing $200 billion tariffs on Chinese imports caused the Shanghai stock market to close at its lowest level since November 2014 yesterday – and fears were confirmed this morning as President Trump moved forward with the plans. This weighed heavily on Amazon and Apple shares.  
 
Oil prices were more stable yesterday with Brent crude up 0.9% at $78.78 a barrel. The Bloomberg industrial metals index, consisting of copper, aluminium, zinc and nickel fell to a new low for the year, dropping nearly 20% from its April high.
 
Meanwhile, the UK pound rose 0.6% to above $1.31 ahead of the Brexit summit on Thursday, as investors grow more confident that a UK-EU agreement is on the cards. The pound was up 0.03% against the euro at €1.12.

Finals              
AEW UK Long Lease Reit
Eagle Eye Solutions Group
GRC International Group
Green Reit
Haydale Graphene Industries
Purecircle Limited (DI)
Springfield Properties

Interims          
Augean
Bango
Be Heard Group
Cloudcall Group
DP Poland
Faroe Patroleum
Fronteir Smart Technologies Group Limited
Hydrogen Group
Judges Scientific 
JTC
Keywords Studios
NAHL Group
Personal Group Holdings

Trading Announcements
Northgate
Ocado Group

AGMs
Accsys Technologies
Elderstreet Draper Esprit VCT
Great Eastern Energy Corp Ltd. GDR
HML Holdings
MediaZest
Northgate
Real Estate Credit Investments Ltd
Van Elle Holdings 

Columns of Note

Oliver Kamm discusses the economic impacts of adverse weather in The Times. This year the correlation between the weather and the UK economy has been more apparent than ever: in the first quarter, the ‘Beast from the East’ led to slower growth than predicted, whereas the balmy summer helped the economy to expand by 0.6% in the second quarter. Kamm compares this trend to the economic impacts of Hurricane Florence in the US. (£)
 
Ross Clark has some questions for Naz Shah in this week’s Spectator. He accuses the shadow women and equalitites minister of having a “change of heart” in regard to abortion. Shah declared that women have the right to do what they wish with their body, but this week condemned some mothers – particularly in the Asian community – for choosing whether or not to keep a child based on its sex. There is a paradox, Clark claims, between the “liberal position on transgender issues and abortion” and the “strictures of feminism”. (£)

Did you know?

From 2004-2005, the North Korean government broadcast a television show called "Let's trim our hair in accordance with the socialist lifestyle". 

Parliamentary highlights

TODAY 

House of Commons

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Topical Questions (if selected)

Economy, Energy and Fair Work Committee Debate: Bank closures: Impact on local businesses, consumers and the Scottish economy

 

TOMORROW

Scottish Parliament

Portfolio Questions

Transport, Infrastructure and Connectivity

Justice and the Law Officers

 

Member’s Business

Donald Cameron: Celebrating 10 Years of BBC ALBA