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Audit and Accountancy - Treasury Contents

Written evidence submitted by Actionaid


  The hearing announcement indicates that, "the Committee will also be seeking information on any recent developments in audit and accounting, with a particular emphasis on regulation and the future role of auditors in banks and other financial institutions."

  ActionAid would like to draw the committee's attention to a recent development in international accounting standards regarding which the Committee may wish to seek the witnesses' opinions. This is the development of a country-by-country financial reporting standard, which now looks increasingly likely in two forums:

    — The OECD and the UK's Financial Secretary to the Treasury, Stephen Timms, have indicated that an internationally agreed best practice standard for country-by-country financial reporting should be developed, as part of an update of the OECD's Guidelines for Multinational Enterprises.[1] This follows a meeting on 27 January of the OECD's Committee on Fiscal Affairs and Development Assistance Committee.[2]

    — The International Accounting Standards Board is this month expected to publish a discussion paper on a new financial reporting standard for extractive industries (IFRS6) which will include consideration of a country-by-country reporting standard.

  Suggested questions:

    1. How will the development of a voluntary standard at the OECD be bedded down into industry practice, given that the latter is based on mandatory IFRS rules?

    2. What steps is the accounting profession taking to support the development of a country-by-country reporting standard?


  At the beginning of last year, ActionAid estimated that Africa alone would lose some US$49 billion of external revenue as a result of the financial crisis and recession, including falls in overseas aid, export earnings, remittances, foreign direct investment and other sources of external income. The crisis has shown the fragility of a development strategy based only on finance from overseas, and demonstrated the importance of developing countries strengthening their domestic sources of revenue.

  Rather than acting to facilitate stronger domestic financing for development, the current system helps those who seek to avoid their financial obligations in developing countries. Developing countries lose valuable revenue through tax evasion and avoidance which is frequently channelled through tax havens. The government estimates that developing countries lose between $50 billion and $280 billion through tax avoidance and evasion.

  The first step in the fight against the global pandemic of tax evasion is to lift the veil of secrecy over corporate tax payments. Currently multinational companies are—broadly speaking—only required to report their financial results on an aggregated basis. Introducing a requirement to break this information down on a country-by-country basis would: give tax inspectorates in developing countries more information on which to prioritise their investigation of potential instances of MNC tax evasion; give governments, media and civil society the information they need to map and understand the patterns of capital flight due to tax avoidance and evasion; have a strong preventative effect on MNC profit-shifting.

1   The Financial Secretary's speech to the OECD meeting can be read here: Back

2   OECD brings country-by-country tax reporting a step closer, The Guardian, 28 January. Back

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Prepared 6 April 2010