Summary
Tax havens have represented security against political repression for long. They have also with the evolution of tax laws become a pain for Governments. This is especially with the growth of acceptability of the right of the State to levy taxes. The recent developments with Tax Haven authorities agreeing to divulge confidential information raises questions for the accounting profession. In this analysis I look at issues that these developments raise for the accounting and auditing profession.
Analysis
1. The divulging of confidential information by tax haven authorities to Governments means that accountants and auditors will have to lay greater stress on the audit trail to pinpoint such transactions.
2. Most recent corporate and other frauds have involved the hiding of banking information from auditors or the auditors not checking such information - Madoff, Parmalat, Satyam and a whole lot of others.
3. Tax haven information was not available and as such did not figure.
4. Pressure built on tax haven territories only recently.
5. Since such confidential information will now be available to tax authorities, auditors and accountants will now have to be more careful in deciphering the audit trail in order to avoid charges of being negligent in their professional duty.
6. Some of the questions that these developments raise are:
- How will the auditors trace such information which is hidden by top management
- If the CEO hides assets in tax haven jurisdictions without the knowledge of the CFO how is he expected to unearth it - especially in complicated accounting/tax fraud schemes
- What will be the liability of auditors in such situations if they do not unearth the schemes and to what extent are they expected to use forensic audit/accounting schemes
Nitish Grover consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
