Global accounting watchdogs identified serious problems at 40 per cent of the audits they inspected last year, raising fresh concerns about the quality of work being done by the world’s largest accounting firms.
According to the International Forum of Independent Audit Regulators, accounting lapses were identified at two-fifths of the 918 audits of listed public interest entities they inspected last year.
The audit inspections focused on organisations in riskier or complex situations such as mergers or acquisitions, according to the IFIAR, whose members include 52 audit regulators around the world.
The most common issue identified by these regulators was a failure among auditors to “assess the reasonableness of assumptions”.
The second-biggest problem was a failure among auditors to “sufficiently test the accuracy and completeness of data or reports produced by management”.
The findings have intensified concerns about weaknesses in the auditing process, an issue that has been thrust into the spotlight over the past 12 months following a string of high-profile accounting failures across the world.
These include the collapse of BHS and Carillion in Britain, a corruption scandal involving oil company Petrobras in Brazil and the share price collapse of South Africa’s Steinhoff after the retail conglomerate admitted to a series of accounting irregularities last year.
Capital Economics took a look at today’s industrial output, fixed asset investment and retail sales data from China and said the figures suggest a strong start to the year for the Chinese economy.
Robust foreign demand remains a key prop to activity, as indicated by growth in industrial sales for export edging up to 9.5 per cent from 9.3 per cent year on year, the economists said.
Still, the economists expect growth to start slowing again in the coming months, they said, as a one-off boost to output from pairing back pollution controls fades.
New Zealand posted a wider-than-expected current account deficit in the fourth quarter on the back of aircraft imports and robust earnings by foreign firms on local investments, official data showed on Wednesday.
On a seasonally-adjusted basis, the quarterly deficit was NZ$1.951 billion, up from NZ$1.544 billion in the previous quarter.
The actual quarterly deficit was NZ$2.77 billion in the three months to December, compared to analysts’ expectations of a NZ$2.4 billion deficit.
“The increase was slightly more than we or the market expected, but the details of the release don’t give us cause for concern. The current account deficit remains well within the range of what we would consider to be sustainable,” Westpac economists said.
“We expect some widening in the current account deficit over the next few years as global interest rates rise from their lows. But even then, we expect the deficit to remain manageable,” the economists added,
China’s industrial output expanded at a faster than expected pace at the start of the year, suggesting the world’s second-biggest economy has sustained solid momentum.
Industrial output rose 7.2 per cent in the first two months this year from the same period a year earlier, the National Bureau of Statistics said on Wednesday, surpassing analysts’ estimates for a rise of 6.1 per cent and picking up sharply from 6.2 per cent in December.
Other data out on Wednesday showed that China’s fixed-asset investment growth unexpectedly picked up to 7.9 per cent in January-February. Analysts polled by Reuters had predicted it would cool to 7.0 per cent from a 7.2 per cent pace in all of 2017.
Private sector fixed-asset investment rose 8.1 per cent, compared with an increase of 6.0 per cent in 2017. Private investment accounts for about 60 per cent of overall investment in China.
In addition, retail sales rose 9.7 per cent, slightly missing expectations of 9.8 per cent growth but up from 9.4 per cent in December.
The Australian dollar was trading at US78.75¢ after the data.
The ASX is losing ground again on Wednesday, with banks the worst performers by sector amid a probe into the sector, as the sacking of Rex Tillerson dented broad market sentiment.
The S&P/ASX 200 index fell 47 points, or 0.8 per cent, to 5926 while the All Ordinaries declined 43 points, or 0.7 per cent, to 6034.
The Australian dollar traded at US78.64¢, gold moved up 69c to $1327.15 an ounce and Brent oil futures rose 2 cents to $64.66 a barrel.
Across Asia, stocks were also losing ground with Japan’s Nikkei 225 down 0.8 per cent, South Korea’s Kospi down 0.6 per cent, the Hang Seng Index down 1.1 per cent in Hong Kong and the Shanghai Composite lower by 0.4 per cent in mainland China.
The broad losses followed the news that Donald Trump has sacked Secretary of State Rex Tillerson from the top diplomatic post and replaced him with hardliner CIA director Mike Pompei.
“Equity investors remain extremely cautious about trade war escalations,” said Stephen Innes at OANDA. “While the game of revolving chairs in Washington plays on, there is more risk aversion creeping into play.”
Along with jitters over what the new appointment could mean for global trade and economic growth, Australian investors were also contending with an inquiry into the banking sector.
The banks were the worst performers by sector on Wednesday, taking 21 points off the index, with NAB in the spotlight as Hayne inquiry heard a NAB executive explain how bankers gamed bonus systems.
NAB shares were down 1.4 per cent, CBA lost 0.9 per cent, Westpac declined 1 per cent and ANZ fell 0.8 per cent.
Telstra shares added to the previous session’s losses made amid speculation of changes to franking credits for retirees, by losing another 2.4 per cent.
Several gold miners advanced along with the gold price, with St. Barbara up 2.7 per cent, Regis Resources rising 2.3 per cent and Resolute Mining higher by 2.1 per cent.
Newcrest Mining couldn’t join in gains, however, falling another 1 per cent. It has lost more than 9 per cent since March 8 and is down for the fifth straight session.
The banks are all lower at lunchtime with hearings for the Royal Commission into the financial services sector underway again.
Hearings started in earnest yesterday, with several banks taken to task by the commission for the quality of their submissions and one NAB banker grilled over lending practices.
Banks fell on Tuesday and were lower again today as Westpac fell 1 per cent to $29.00, NAB lost 1.2 per cent to $29.97, CBA is down 0.8 per cent to $76.47 and ANZ is down 0.7 per cent at $28.30.
On Wednesday, the inquiry heard that KPMG had informed NAB in a report that problems with its introducer program were much worse than it thought with bankers falsifying supporting loan documents and transferring money into and out of customer accounts.
KPMG identified “a litany of control issues” in a draft report that was provided to the bank on December 23. The bank would not provide ASIC with a formal notification of its concerns until February 2016.
A task force established by the bank would later identify a group of four introducers or non-bank employees who referred to the bank $139 million of payments and collected around $695,000 in payments. One of them was the owner of a gym.
Southern Cross shares are up today, with the stock moving higher by 2.6 per cent.
Macquarie analysts said they have revisited their investment case for the radio station operator following the release of the first GfK metropolitan ratio ratings survey for 2018.
“Southern Cross had a good first survey,” the analysts noted.
They were impressed with the performance of the Hit network which they said saw gains across all five capital cities compared to the last survey of 2017.
The company’s operating momentum continues to recover, the analysts said.
On the other hand, HT&E performance in the survey was mixed, according to the analysts.
Ratings for the firm’s KIIS Drive radio program fell by 1.7 points in Sydney and 2.0 points in Melbourne following the introduction of new talent Will & Woody, the analysts said.
But Macquarie believes the performance was a good outcome “given Will & Woody are relatively unknown talent transitioning from local Drive to a National slot, replacing established talent Hughesy & Kate.”
HT&E shares were down 1.4 per cent.
Markets haven’t taken the news that US secretary of state Rex Tillerson has been sacked and will be replaced by CIA director Mike Pompeo well.
US stocks sank overnight and Asia stocks followed Wall Street lower on Wednesday, as Japan’s Nikkei dropped 0.8 per cent. South Korea’s Kospi index declined 0.7 per cent.
Australia’s S&P/ASX 200 fell 0.7 per cent to 5932 and the US dollar index was trading at 89.70, a decline of 0.4 per cent.
Eurasia Group president Ian Bremmer says Tillerson was a “moderating force and fairly independent voice” in the Trump cabinet, but Pompeo will be “none of those things” due to his hardline ideology against China, North Korea and Iran.
“[Under Pompeo] either the US gets what we want on all these issues or you’re going to see a considerable more hawkish policy,” Bremmer says. “It’s a much more dangerous world and much more volatile for the markets.”
Mr Pompeo is a hardline nationalist in close alignment with President Donald Trump’s “America First” gut instincts.
The top-of-the-class West Point military school graduate and former Harvard Law School student is a Tea Party renegade elected to represent conservative Kansas in the House of Representative in the populist revolt against Barack Obama in 2010.
Tillerson, in contrast, is a former ExxonMobil chief executive who lasted just 13½ months as Trump’s top diplomat.
He is the latest ex-business, moderate and globalist casualty to exit the Trump administration after White House economic adviser, former Goldman Sachs executive Gary Cohn, quit last week in protest at Trump’s tariffs on foreign steel and aluminium.
President Trump said that a pro-market economist and television commentator, former Reagan administration official Larry Kudlow, was a “good chance” to replace Mr Cohn.
The sacking of Mr Tillerson adds to signs the nationalists such as protectionist trade adviser Peter Navarro are gaining ascendancy in Trump’s inner circle, as dissenting and independent voices disappear.
National security adviser H.R. McMcaster is rumoured to be on thin ice.
Tillerson was a mainstream Republican foreign policy advocate. He favoured free trade, security alliances, multilateralism, international engagement and US global leadership.
The bulk of professional stock pickers have once again been unable to beat the market, as shown by Standard & Poor’s scorecard for the industry, which reveals another disappointing year for the industry in 2017.
Over the 12 months to December 31, the average large-cap Aussie equity fund managed to match the S&P/ASX 200’s return of 11.8 per cent, including dividends. But six in 10 of those funds underperformed the benchmark (the performance of which doesn’t include the costs of tracking the index).
Stock pickers typically tell their investors to concentrate on longer-term figures, but there, the results are more disappointing. Over three years, 67 per cent of these so-called “core” Aussie shares funds lagged the market, over five years it was 63 per cent and over 10 years, 74 per cent.
Underperformance by Australia’s professional investment class comes as no surprise and mimics the experience in overseas markets, but more startling is the way portfolios investing in mid- and small cap funds have also struggled to match the market. In this part of the market, lower volumes and less analyst scrutiny should allow professional stock pickers to gain an edge.
Yet S&P’s “mid-small” Aussie equity index recorded a total return of 21.2 per cent in 2017, while the surveyed funds on average earned only 17.9 per cent.
Over the one- and three-year periods, 74 per cent and 75 per cent of mid-small funds underperformed the benchmark, respectively, and over five years 56 per cent lagged. Over 10 years, though, six in 10 funds beat the market.
A measure of Australian consumer sentiment inched fractionally higher in March as some improvement in the state of family finances just managed to offset concerns about the long-run economic outlook.
A Melbourne Institute and Westpac Bank survey of 1,200 people published on Wednesday said its index of consumer sentiment rose 0.2 per cent in March from February when it fell 2.3 per cent.
The index was up 3.3 per cent on February last year at 103.0, meaning optimists just outnumbered pessimists.
“Sentiment continues to hold in slightly optimistic territory with March marking the fourth consecutive monthly reading above the 100 level,” said Westpac senior economist Matthew Hassan.
“That followed a year in which pessimism dominated. However, the index is still well below levels typically associated with a robust consumer.”
The survey’s barometer of economic conditions over the next 12 months bounced 1.7 percent in March, but the outlook for the next five years dropped 4.1 percent.
Mr Hassan noted recent news coverage of US President Donald Trump’s placing of tariffs on imported steel and aluminium may have caused some jitters.
The most notable shift in news recalled by respondents was around ‘international conditions’ which had the highest recall in 2 1/2 years and was viewed as significantly more negative than in December.
The measure of family finances compared to a year ago added 2.4 percent, while the outlook for the next 12 months rose 2.1 percent.
The index on whether it was good time to buy a dwelling rose by 0.8 percent, to be up 5.0 percent on a year ago.