Large company accounts are works of fiction
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- เผยแพร่เมื่อ 26 เม.ย. 2024
- The accounts of large companies presented by them to their members induce numbers that no single company has ever produced. Instead, the numbers are made up by accountants combining all the accounts of all the companies that the parent company controls. That may work for the shareholders, but in the real world, the risks people take are in trading with the subsidiaries of a company - and large companies should be providing a great deal more information on what they do. Only then can we really appraise what these companies are up to - and where.
ABOUT RICHARD MURPHY
Richard Murphy is Professor of Accounting Practice at Sheffield University Management School. He is director of Tax Research LLP and the author of the Funding the Future blog. His best known book is ‘The Joy of Tax’.
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Often balance sheets only balance due to ridiculous overvaluations of goodwill and IP.
Um they'd still balance! Valuations might be ... ambitious.... for those assets but double entry means if they were different so would other figures so that the balance sheet would still balance. It not doing so is a far more basic error as far as accounting goes. It's like comparing a merely unrealistic computer game with one whose code won't even run on the intended hardware.
Various comments here which barely understand the points he's making specifically about the limitations of consolidated financial reporting.
@@artgreen6915 Where I worked at the time we had a some one who gave us a three day semina on different types accounting practices around Europe specially how the Book value was calculated.
As usual and as in law The British way is totally different to the rest of Europe and it is clear whose interest is taken care of in the method. However this is not to say that any of European ones are any more transparent when it comes to the public.
Whichever way you look at it the public loses. But within the EU there might have been a possiblity of standardisation that is now gone.
Wasn't it a coincidence that suddenly we were out of the EU hardly any of this was discussed at the time?
The agenda behind Brexit was always obvious and it was the public who fell for it. So, maybe transparency to the public is not such a good idea after all.
History is nothing but full of such tricks played by the few on the many. They only show up when the results turn out to be as disasterous as Brexit.
The American Revolution and the French Revolutions are connected is such stupid ways. The French supportted the big lanowners of the colony to drive out the British under the banner of "no tax without representation" whihc is as meaningless as "take bakc control" since I doubt that the poor were asked to pay any taxes. None the less they went along for the ride so that they could do what they liked later, i.e. massacering the natives and keeping slavery going. But the French ended up spending so much that afterwards they couldn't feed their own crowd that led to all the killing during the French revolution.
I wonder if Louis would have listened to the perfectly predictable result of helping the Americans in "gaining their freedom" form the nasty colonialist British?
The current lot who are going around smashing statues don't seem to have yet noticed it and they have the Internet. What is their excuse?
@@artgreen6915But these are used to inflate the asset value of companies.
Excellent report as always, Richard. Thank you. It pains me that you do not get as much media attention and exposure as you deserve
Presumably, accounting priciples were designed when smaller entities created the majority of world trade. Today the larger companies thrive on opacity, as the rules have become outdated. It's hard to analyse a complex mass; instead it must be broken down into its component parts. It's impossible to get fair play if the most powerful set the rules. A great video by a true professional seeking justice and social fairness. Highly informative, as ever.
Great video. We need more scrutiny of big PLCs otherwise they can be dangerous to society.
Always amused me taking part in Small Business Start Up training. The "How to lie to the Bank" part. i e: Your "Business Plan ' I expect that's where this fantasy game starts.
Followed R for about 20 years... 😀 As a fellow Chartered Accountant, his advocating "company by company" reporting, eliminating opaque group accounts would be a blessing to all users.
However, I have found that, like Richard himself, the main opposition to this idea is to be found in the professional accountancy bodies themselves. Talk about banging your head against a brick wall 🥶🥶🥶🥶🥶
Absolutely agree. Transparency and clarity lead to fairness and less corrupt practice.
This is a good approach 👍
Large investment banks such as Goldman Sachs and other Wall Street institutions. As a result of financial deregulation and lack of supervision of financial flows from authorities, the volume of global financial transactions increased from 15.3 times nominal world GDP in 1990 to 73.5 times by 2008. Overall increase in financial trading is exclusively due to the spectacular boom in derivatives markets. Most of the financhel flows comprise wealth shuffling speculative transactions with nothing to do with the facilitation of trade in real goods and services across national boundaries. Yet the global financial crisis demonstrated, they have the capacity to derail the entire real ecomomy when their engineered speculative bubbles burst. Why is everyone putting up with this?
They aren't, What do you think the War in The Ukraine is really about?
The Emporer has no clothes!
Those that proformed deregulation such as the removel of the Glass-Steagall and all other forms of financhel safeguarding criteria globally. Will never face the consequences of their enrichment. The actions of so few that has allowed this complete corruption
will/do bring death and destruction globally. They sit behind walls of security and law while they watch the entertainment of suffering. With just enough trickle down to from a top end closed currency loop, to look like they can cry for those providing the bloodthirsty entertainment of people attacking and blaming vunrable groups as poverty crawls upwards. We have reached the tipping point fixing this is no longer an option. It is amazing how fast things can unravel even in advance economies. A new benchmark will be set, with more damage than the Great Depression.
Thanks for the advice! I'm new to financial planning and wasn't sure where to start. Any tips on finding a reliable financial adviser or resource to guide beginners?
As a beginner, it's essential for you to have a mentor that is verified by finra and SEC to keep you accountable. I'm guided by a widely known financial consultant Stacey Macken
Wow...I know her too she is a licensed broker and a FINRA agent she is popular in US and Canada she is really amazing woman with good skills and experience.
Stacey demonstrates an excellent understanding of market trends, making well informed decisions that leads to consistent profit
I remember giving her my first savings $20000 and she opened a brokerage account for me it turned out to be the best thing that ever happened to me.
Yes I can believed that, I got victory with her, was so sad after receiving the first pay knowing I invested so low with fear
100% spot on right
If accounts from businesses are fiction surely job vacancy numbers are fiction too?
They are exaggerated for sure.
Accounts are produced primary for shareholders. Extending its use would make it even more meaningless.
Monthly accounting and taxation would be much better than annual book keeping.
So much can be hidden over the course of a year.
Creative accountancy very creative 🤔
This is spectacularly good information!
In my experience, all of this is true and is only the tip of the iceberg.
Company accounts are prepared in compliance with the law. They are not a valuation statement.
i see "CHAVS" by Owen Jones on ye olde book shelf. Thats a good one! Quite a few others look good too - do you do book reviews?
Not an accountant but I, we, still need to know this.
Agree it's a big step forward. Two questions;
Can UK insist on accounts for each country/business if local laws are different?
Will accounts by country/business stop transfer pricing?
Another excellent video. Just the right length for my attention span!
Superb ! ! !
Make sense that google layoff (flutter, dart, phyton) while showing massive profits. They know something about the fundamental economy that the public don't
I’d also like to comment that if we refer to funds in a bank account each part of that currency for eg £10 was transferred into that account at a certain exchange rate and value, that £10 in the account should have a ‘ serial number’ other wise it would not be seen as legal tender.
Working out actual profit manually is virtually impossible as a serial number would be needed for every £10 so it’s value could be tracked.
Similarly if a company took out finance then only those notes would be eligible for tax deductions.
As we all know the money in our accounts is just a ledger,
would be interesting to request all serial numbers of any funds throughout an account’s history from the bank 😂.
The same can be said for crypto if one say had half a BTC purchased and stored and a small part sold off , say 50,000 sats you would technically have to log each individual sat and price paid for it at the time of purchase..
So what is kpmg and the other big firms doing just following customers instructions. What customer states they sign off and when it goes bust tax payer picks up the tab.
bank i save with? not these days. living hand to mouth under the tories whilst they cut bank tax to 2%!
Welcome to the world of corporate totalitarianism.
taxman doesnt care about corporation tax. even small business owners can reduce corp tax by hiring stay-at-home partners, teenage children who dont actuallty have a job etc. to reduce down their profits.
Also do a lot of naughty naughty expenditures through the business to reduece their profits.
They care about the VAT which is paid by everyone registered for it and the VAT is a revenue tax and will be massive compared to the profits.
All business taxation is ideological dogma - that's why it is so complex. We should eliminate any taxes that do not fall on tax-paying voters - the entire purpose of business taxation is to enable politicians to harvest wealth without responsibility to voters whilst claiming to be doing everyone a good turn. Leave the profits & cash in the businesses and tax it when it spills into growth, dividends, pay - I cannot see why tax revenue should not increase overall - even if it didn't - just increase the personal rates for the voting tax-payers to contribute from their 'new' wealth.
To be honest, small company accounts are often works of fiction too.
Small businesses are easy to scrutinise by the revenue service.
The amount that a small business could get away with is so small it's not even worth trying.
They shouldn't be.
Thanks, Richard!
Taxation is theft, govt spends 45% of GDP, we get very little value for money.
Cost of capital goes up with taxation, of course some of this cost will be passed on to the consumer.
Latvia - 20%. Must be like Port au Prince in Haiti.
Ah yes, it isn't its doing nicely. Why the does Richard want 50% plus taxes?
Answer its his fat cat pension.
Do you think big four firms facilitate this deception?
All permitted by government that allows companies to operate in this manner and present their accounts in accordance with tax law. Personally I'd get rid of all company taxes (rates, VAT etc) and simply apply a consumption tax by product broken down into central and local tax. The local authority can then compete on lowering taxation and improving the local environment bringing in more trade and hence more tax revenue to them. Poor local authorities will lose trade and any deficit will need to be made up from council tax creating an incentive for people to vote for competent candidates instead of the usual failures that can't balance the books no matter how much money they're given.
Yes business taxes are ridiculous undemocratic and ideological. If I understand correctly your consumption tax is just even more complex VAT. VAT as a consumption tax needs simplification not more complexity - as per the dictum; simple, broad & low. When business taxes are removed personal income and consumption taxes will rise; possibly by more than the lost 'business' revenue - unless you meant to replace person income tax as well?
I would characterise the government's part slightly differently - it's not so much that it's permitted, but rather it's _designed_ in legislation to enable these practices.
Consumption taxes are regressive and don't take into account ability to pay at the point of purchase.
We should be doing away with indirect taxes like VAT and shift onto direct taxation.
Consumption taxes are an inflation multiplier, dampen demand and raises the bar to entry for a commodity. No thanks.
i just hope to hell they are not paying tax. I pay executives to do deals and avoid tax.
Given that companies are the works of our imagination, and do not in fact exist, I am not sure it really matters that their accounts are a work of fiction.
Come on, consolidated accounts are not "fictions", they are openly presented as consolidated throughout, and the financial statements of the parent company are in fact included (often right after the consolidated ones) as a requirement. Tesco PLC for example, which you mention, gives exactly the information about the parent company you are saying is omitted on page 191 of their 2023 financials. It's not hard to find.
Actually not fiction but chose lies. I mean if profits not as big as last year they proclaim a loss.ffs .
Plus smart ass city gents decide how much affirm should make in profit and if they don’t they considered failures .
No, nothing about the firm or anything else but just make stupid forecast A.
Big companies are almost all conglomerates. The accounts are an opinion, backed by an Auditor's opinion. The issue is the accounting regulations, influenced up by the large accounting firms, that are full of loopholes and tax avoidance/loss hiding constructions. If the company is multi-national, they are compromising their accounts to fit the multiple legal frameworks in which they trade.
It doesn't help that the banks, politicians, accounting firms and the ratings agencies are operating a revolving-door policy which ensures that the very people who make policy, and those who provide oversight are often the same people.
Absolutely.
In fact, the study of the end of year books is shockingly fascinating imho.
That probably says as much about me, but even so. The information I acquired learning about the books has served me well in lots of different little ways
Interestng that Richard and other Public Sector Accounts have missed over £16 trillion [not billion, trillion] of liabilities off the books.
I don’t understand how companies can make hundreds of millions a year loss year after a year and still not go bust!
They only make losses for tax purposes.
Theu are likely a subsidiary and as the commenter above says, will make a loss for tax purposes for the patent company.
The government is a corporation. Why does it leave these debts off the books? Is that what you are teaching your students?
1. Pensions
2. Nuclear clean up
3. Losses on insurance contracts
4. The EU
5. Unpaid wages
6. Unpaid invoices
7. Expected payouts - eg post office, NHS damages.
Well you’re the Professor and a Chartered Accountant - who puts this together…………..
and why do accountants like Richard [ex public sector] omit all the big debts off the balance sheet?
During 50 years in the finance business I have always used poetic licence (007) to read these wonderful works of fiction. It worked!