In an article in The Conversation, he records that – for the first time – activists have demanded and secured a standard against the wishes of the accountancy establishment.
Bloomberg has reported that the European Union will adopt country by country (CbC) reporting to enable citizens to scrutinise corporate practices and ask critical questions. The aim is to make large companies disclose the taxes they pay and profits they make on a country-by-country basis.
Going through the usual channels
Meetings were sought with the more traditional accounting standard setters, such as the International Accounting Standards Board (IASB) and the Financial Reporting Council (FRC), but they showed no interest.
Sikka records that considerable opposition came from the professional accountancy bodies, major accounting firms and corporations. The Institute of Chartered Accountants in England and Wales was vehemently opposed to it. Deloitte said “we do not believe that imposing incremental country by country disclosure in financial statements prepared under IFRSs is warranted”.
A survey in 2010 did not show enthusiasm for CbC among FTSE 100 directors. The usual arguments were that disclosure would be costly, even though companies should already have the information about the performance of their subsidiaries in each country of their operation. The cost of publishing this internally held information is negligible.
The ‘civil society’ process
In 2003, Professor Sikka – as director of the Association for Accountancy and Business Affairs (AABA) – encouraged Richard Murphy of Tax Research UK, a chartered accountant, to make the first draft of a proposal that could highlight flight of capital, profits and the mismatch between profits, employees, assets and tax. The draft was published in later 2003 and has continued to be refined.
The main turning point was the support given by NGOs, such as Christian Aid, Publish What You Pay (PWYP), War on Want, Tax Justice Network, Oxfam and many others, in the UK, the EU, developing countries and the US. The credit for this must go to Richard Murphy. This campaign was joined by some Members of the European Parliament (MEPs) and also Labour MPs. Sikka adds:
“Much to the dismay of the accounting establishment, their pressure persuaded the EU to launch a consultation exercise in 2010 and has now resulted in partial implementation of CbC. No doubt, there is more to come”.
CbC is the culmination of a decade-long campaign by civil society organisations in the social media age. When fully enacted, it will be the first accounting standard formulated and developed by civil society rather than the traditional accounting standard setters.
He concludes that in the digital era it may well be possible to mobilise alternative centres of power . . .