Punters punting our tax pennies offshore

Australian punters will be thrilled to know that when they do their shirts gambling their post-tax dollars, those very same dollars, which become the pre-tax dollars of the British online betting giants, are funnelled off to places like Gibraltar, pre-tax.

University of NSW accounting academic, Jeff Knapp, and Fairfax Media have reviewed the accounts of William Hill Holdings; Hillside (Australia New Media), which trades as Bet365; Paddy Power Australia (aka Sportsbet) and LB Australia Holdings (Ladbrokes).

Collectively, their accounts are further evidence of the abject failure of the audit profession and regulators, failure that reduces transparency and conveniently facilitates tax avoidance.

The breaches of audit standards are too numerous to detail here. Suffice to say that it would be in the national interest for the Big Four audit firms to be stripped of their duties auditing multinationals.

That task should go to the Auditor-General as the industry seems unable to cope with the conflict of interest of sticking to its own professional standards while serving the interests of its global clients.

Instead, they are even struggling to adhere to the Meatloaf principle: “Don’t be sad, ‘cos two out of three ain’t bad.”

Only one of the online betting companies, Paddy Power, disclosed it paid tax last year; yet, in breach of Australian Accounting Standards Board standard AASB107, failed to disclose the cash it holds for its clients.
Only one, William Hill, broke out GST paid (under the watch of auditor Deloitte). It also disclosed its sports book turnover. The others only displayed a net turnover figure, that is, after wins and losses. Only one, Ladbrokes (audited by PwC), produced proper general purpose accounts.

Senate inquiry

This brings us again to the matter of falling disclosure and transparency. Amid the gallant stonewalling by multinationals and their auditors at last week’s Senate inquiry into corporate tax avoidance, independent senator Nick Xenophon did manage to extract a helpful admission.

Xenophon chimed in when the Australian Accounting Standards Board – the industry standard-setter – was giving testimony.

“I want to ask some questions about the financial reporting practices of online betting companies operating in Australia,” Xenophon asked.

“Are you able to shed some light as to why Ladbrokes prepares general purpose financial reports but the other three companies – that is, Sportsbet, William Hill and Bet365 – do not? They only prepare special purpose financial reports. Does that seem to you to be a strangely divergent accounting practice?”

AASB chair, Kris Peach, replied: “I could not comment on those particular instances. I have no personal knowledge of what their particular circumstances are.”

Xenophon pressed on: “So … the fact that Ladbrokes does prepare general financial reports but the others do not appears to be a divergent practice, given that on the face of it there is a fiduciary capacity.”

Peach responded: “That certainly sounds like there would be something to consider there, yes.”

The point of this exchange was the belated admission from the AASB that if these multinationals were holding millions on behalf of Aussie punters, they might do well to prepare proper accounts, not the skimpy special purpose variety, which enables them to hide things.

Special purpose

Special purpose reports facilitate tax avoidance but an increasing number of multinationals are being allowed to get away with this reduced disclosure, despite the fact that under accounting standards they clearly have multiple users of their accounts: not just those they are holding money for, but the likes of trade creditors, staff and the communities in which they operate.

Since it was revealed here two weeks ago that 20 multinationals had slinkily switched from producing full accounts to the bush-league variety, Big Audit has simply brushed the matter away; altogether refusing to own it.

UK health insurance juggernaut Bupa (auditor KPMG), for instance, switched to special purpose reporting although its marketing materials claim it is: “Proudly looking after the needs of 4.7 million Australians.” Really? These policyholders are not users of your financial statements?

Let’s take this one step further. The Corporations Act requires companies to comply with the accounting standards. If they are not complying, they are therefore not obeying the law.

There are probably dozens of them but let’s look at three examples of multinationals and their auditors switching to special purpose accounting policy – and delivering less relevant information – in contravention of both the standards and the Corporations Act.

Merck Sharp & Dohme (PwC) switched without explanation in 2009. Pfizer Australia (KPMG) changed, with nary a note to its accounts, in 2008, as did Sanofi Aventis (Ernst & Young) in December 2006.

Then there are the US digital giants, eBay, Google and so forth, that infiltrate the life of every citizen, except when it comes to their own disclosures.

All of them file special purpose reports, except for the likes of Uber, which managed to swing an exemption from reporting at all, on account of somehow being part of a “small company”.

In the least, if the Big Four deserve to continue as auditors they should be subject to audit rotation. A large part of the problem is cosiness.

Some multinationals have been audited by the same firms since the 1980s, the decade in which the chairman of the Senate’s tax inquiry, Sam Dastyari, was born.

Even if auditors and directors only had lunch once a year, we are talking upwards of 25 lunches. That’s cosiness. Auditors should be required to rotate every four years.