The Hindu Business Line : Cons in the fine-print of credit advertising

THE Office of Fair Trading (OFT) in the UK is probing the operation of credit advertising, according to a report in Accountancy. There have been many complaints about how personal finance products are advertised, and so the review is looking at compliance by advertisers and publishers.

"In a short review of eight national tabloid and broadsheet newspapers carried out in November last year, the OFT found that 36 per cent of credit advertisers failed to comply with the Consumer Credit Act and the Consumer Credit (Advertisements) Regulations. A further review of six Scottish newspapers in January found that 48 per cent of credit advertisers did not comply."

What were the breaches? "Omitting the APR (where it is required by law) or failing to give it due prominence; advertising credit agreements as `interest-free' where borrowers in fact are liable to interest charges should they fail to pay off the full sum by a specified date; failing to give information on brokers' fees and other charges that have to be paid under the agreement advertised (when it is required by law); and using very small print."

Some goals that Indian consumers too can aspire for.

Controls beyond consideration

A RECENT auditing standard from the Public Company Accounting Oversight Board (PCAOB) of the US is "An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements," and this has been approved by the Securities and Exchange Commission (SEC).

AccountingWeb cites the PCAOB Chairman, Mr William J. McDonough, as saying: "This standard is one of the most important and far-reaching auditing standards the Board will ever adopt." Why? Because, "In the past, internal controls were merely considered by auditors; now they will have to be tested and examined in detail. That process will add an important protection for investors because solid internal controls are the first line of defence against misconduct and one of the most effective deterrents to fraud."

Worth studying.

Arson at accountant office

A RECENT crime story on Accountancy is about an intruder who broke into the office of Sharma & Co in the UK and setting it on fire after ransacking. "Police are still hunting the arsonist who almost destroyed the accountant's practice," reads the report. "The burglar opened filing cabinets, moved computers and scattered papers before starting a fire." Shyam Sharma, the sole practitioner and owner of the business, is philosophical:

"I can't think of any reason why anyone would do this. But these things happen, I suppose." Looks like somebody was interested in erasing evidence.

Goals versus bonus versus taxman

THE Internal Revenue Service (IRS) in the US is scrutinising companies that give bonuses to top executives when they have not met previously agreed-upon performance goals. AccountingWeb cites a report in The Wall Street Journal that the IRS has found abuses of the bonus-payout deductions in its study of executive-pay practices at 24 large companies. "Businesses are changing the performance goals, or paying the bonuses even when executives failed to meet the targets outlined in the bonus plans." Defence that companies offer is that bonus targets are lowered in a tough economy.

"The study of executive pay is part of an IRS pilot project, designed to look at tax compliance for eight kinds of management compensation, which can include personal use of corporate jets, generous severance packages, deferred compensation or stock options."

Executives may fear the taxman more than they fear their company bosses.

Pay-for-performance strategy

A RECENT study by Aberdeen is on making compensation strategic in the pay-for-performance world. "For many enterprises, compensation payout is the largest line item in the general ledger," it notes.

"In the past, that expense was regarded as a single entity, part of the cost of doing business. With the growing emphasis on pay-for-performance initiatives, a concomitant increase has emerged in those applications that are equipped to manage variability in compensation." Don't stop with managing "the transactional tasks of variable compensation," advises Aberdeen.

Look strategically at the total payout picture across the enterprise — by division, by department, and by individual employee. How to go about such a strategy? "Articulate employee goals and objectives clearly enough so that employees can act on them; delineate what constitutes success or levels of success (for example, what makes an A player as opposed to a B+ player); ensure that top talent is in fact rewarded while business processes for reward are equitable, fair, and accessible to all who achieve requisite levels; maintain a corporate-wide view of all payout and reward — to be able to ascertain at a glance which departments have highly successful people who are rewarded properly and which do not; model compensation plans to simulate the total effect of various payout schedules across the company — before they are executed."

The day does not seem far off when rewards may be so tightly interlinked to performance that what is credited to one's account may happen in trickles, in real-time.

Drug studies in public database

THE New York State Society of CPAs has posted an interesting development in transparency. GlaxoSmithKline has announced it will create a public database of all its company-sponsored drug trials. Recently, in the US, it was accused of withholding findings about the antidepressant Paxil's effect on children. NYSSCPA cites Bloomberg News to state that the online database will contain the results of trials of Glaxo's marketed drugs, as well as references to studies published in medical journals.

"Glaxo's announcement comes as the 260,000-member American Medical Association this week said it would seek new rules requiring drug companies to disclose their drug trials in a US public registry."

For most of us, however, annual reports that are made public are as sedative as potent drugs with too much foggy info.

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