Tax and Twitter

I have some issues with tax. I'm happy to pay it, up to a point. The biggest cheque I have ever written was to settle the inheritance tax bill after my mother died and I really resented having to do it. The capital amassed by my father (and preserved by Mum) was formed mostly from his taxed earned income and it was being taxed again, which didn't seem fair.

When I sat my final chartered accountancy exams, if you failed one paper you had to retake the whole lot.  I always struggled with tax. It made no sense to me at all, there was no underpinning logic to the calculations. I failed the tax paper (in spite of expert revision tuition from an aristocratic future ICAEW president), got married, moved out of London and could not get a job with the biggest accountancy firm in the area, not because I hadn't passed my finals but because... they would only employ women in one department: tax. I went to work in the NHS, finally realised that all numbers are socially constructed fiction, resat my finals when heavily pregnant, got the precious letters after my name, dashed Husband's hopes that I'd do his business books for free and ended up, quite by chance, as an academic.

Obviously, I have never taught tax. I have kept well away from the topic (even when I discovered that tax guru Robert Maas was Bob who lived opposite when I was little, whose sister was my best friend). But a couple of years ago at the annual BAFA conference I went along to a session in the tax stream to support a colleague who was presenting and found something sufficiently interesting to stop me checking email on my phone. It seems that there is qualitative research in tax: who'd have thought it?

Back in April this year I blogged about cutting down on my reading and on Twitter. Well, it's partly worked. I cancelled the alerts and I no longer feel compelled to follow every link. But I haven't been able to break the Twitter habit completely, partly because I've found some even more fascinating people there. Following tweets from a few of my favourite accountants (@Truen Fairview, @nairobiny, @Bombarde16) led me to the fearsome critiques of @fcablog, many of which are directed at @richardmurphy. Now I've been reading Richard Murphy's blog on and off for a while, to find out why he seems to be the go-to commentator on all sorts of things. He is cut from similar cloth to my inestimable pal Prem Sikka: if such people didn't exist, we'd probably need to invent them. But the arguments that they provoke can be a bit wearing, often because of the tone. And I'm an academic: I want properly constructed and supported argument, couched if possible in elegant prose without jargon. Or numbers, because I'm never happy with numbers.

And in among the fretful sniping I found the charming @JolyonMaugham and his blog. Beautifully written. I am astonished to find myself reading for pleasure the words of a tax barrister. I can actually understand some of it. Or I think I can: I once attended a lecture by Stephen Hawking and came out believing I had understood everything he said because he made it seem to simple and obvious. Of course I didn't but the feeling persisted for several hours until I tried to explain it to someone else. (That's the real test of what you know. I was horrified to discover I knew so little about accounting when I started teaching it. If I'd been forced to teach tax I might have understood it eventually but I had enough trouble dealing with double entry: in my first ever class a first year student posed the great unsolved mystery of life: just why is debit on the left?)

Anyway, I now know what an APN is and all sorts of other things which will never feature in questions on Pointless or Only Connect but may lodge in the bit of my brain that stores stuff in case I should ever be a contestant. Today Jolyon has bravely offered a platform for others on his blog. To be honest, I'd rather read what he writes because he writes so well. And he is now wrestling with the problem of comments and whether and how they should be edited. A very time consuming and somewhat depressing, task, I imagine (I don't have that problem here, the passing traffic remains silent, as do my three faithful readers).

But why should I bother reading about tax at this point in my life? Well, at some point someone will no doubt make a connection between corporate governance and taxation and I might feel a need to pontificate.  <Checks Google Scholar> Yes, they already have and it looks quite interesting...

Every little helps...

The Tesco tale is so interesting that I almost wish I were still teaching - such a gift of a case study, we haven't had a meaty UK scandal for a long time. But what exactly is scandalous about it?

One important aspect is the highlighting of the very strange relationship that supermarkets have with their suppliers. When the perils of the demand for cheap food are discussed in the media, the focus is often on dishonesty by suppliers - the horsemeat scandal, for example, or poor animal rearing conditions. The trading practices of supermarkets are rarely discussed. I remember my shock years ago when interviewing an internal auditor who told me that milk suppliers operated without the protection of contracts and supermarkets could switch at a day's notice. Some of the media reports suggest that the revenue Tesco had booked did not materialise because the suppliers were refusing to accept the demands placed on them. In a previous post I was dismissive of the idea of supply chain governance but there are clearly ethical issues to be explored here and opening these up to media scrutiny is not a bad thing.

In terms of accounting practice, what, if anything, has gone wrong? Revenue recognition is, despite accounting standards, a very subjective area. Early reports have noted that Tesco's auditors commented on the potential difficulties in this area but suggest that the audit committee responded that there was no problem and adequate controls were in place. The audit committee members have impressive backgrounds but none of them appear to have retail experience. How far have they and the rest of the board relied on advice from members of the executive committee? With all the recent changes among senior management, it would not be surprising if that advice was at the very least confused. Does this support my view of the unintended consequences of the purely NED board? And what about the role of internal audit?

If, as has been reported, the issue was revealed by a whistleblower, I wonder how the Tesco system works. This could be seen as a positive feature in that the company listens to whistleblowers but what protection will be in place for that brave individual?

Watching all this unfold will make for riveting reading but we should not forget the consequences for individuals. Actions taken to retrieve the company's situation may mean job losses in stores and distribution, as well as in suppliers' businesses.