Chamber chief takes offence to ‘creative accounting’ comment

By a staff reporter

Creative accounting for tax avoidance purposes is a sensitive issue and when HSBC Chief Executive Tom Robson raised the subject during a seminar organised by The Malta Institute of Accountants, many business people were irked by his comments that accountants are in collusion with the business community.

The phenomenon is not new, but it made the spotlight recently because of the Price Club saga when creditors took the supermarket chain and its auditors to court, claiming that they were misled on the financial soundness of the company.

The case is still pending but it has raised a number of questions on Maltese business practices. And it was Mr Robson who broke the silence. But his speech, at what was considered to be a private function, was leaked out to the press.

A move, which prompted the newly appointed Chamber of Commerce President Reginald Fava to react.

In an article published on 17 January Mr Fava defended the business community and described Mr Robson’s remarks as ‘general and unfounded claims’.

Responding to questions put to him by The Malta Financial and Business Times yesterday, Mr Fava reiterated the stand he took last week.

"I sincerely believe that my remarks made in response to Mr Robson’s reported speech were factual and certainly not exaggerated."

Mr Fava insisted that the Malta Chamber of Commerce took exception to certain derogatory remarks made by Mr Robson, which he defined as sweeping statements.

Mr Fava maintained that the Chamber, which has represented the local business community for the past 154 years, was duty bound to protect the interests of the people in business and rectify any misconceptions which Mr Robson’s remarks may have created.

When asked specifically whether the Price Club saga was just the tip of the iceberg or an exception to the rule, Mr Fava said that he sincerely hoped that the incident was an exception.

"The unfortunate event was indeed very damaging to the local business community in general. Its repercussions will continue to be felt for a long period of time particularly in the case of those suppliers whose resources do not permit a quick recovery," Mr Fava remarked.

The Chamber president observed that the supermarket sector was passing through challenging times characterised by very tight competitive forces. However, Mr Fava expressed his conviction that the void left by Price Club will serve to bolster the situation of the remaining participants permitting a wholesome upturn in the sector as a whole.

Asked specifically on creative accounting, Mr Fava did not mince his words, he expressed unequivocal confidence in the integrity of the accountancy profession.

"I certainly do not believe that the majority of Maltese accountants engage in ‘creative accounting’ in collusion with the business community. Accountants are bound by the code of ethics set by the profession. Failure to abide to this code renders members of the profession subject to serious repercussions such as the loss or suspension of their warrant," Mr Fava reiterated.

He further explained that several legislative safeguards introduced in recent years have rendered tax evasion and avoidance most unfeasible, stating that the authorities have succeeded in this respect.

Mr Fava explained, "The provisions made in the Companies Act, the audit trail inherent in the VAT regulations and the powers vested in the Tax Compliance Unit are but three valid examples of the legislative strengthening made specifically to discourage ‘creative accounting’."

Mr Robson’s reported speech also made reference to the bartering system, which is rife in Maltese business circles.

Admitting the reality of such a claim, Mr Fava expressed the Chamber’s preoccupation with the fact that bartering is common-practice amongst local entrepreneurs.

"Proof of its existence has emerged from the outcome of regular surveys performed by the Chamber amongst its members," Mr Fava said, attributing the cause of bartering to the tight cash-flow situation, which continues to persist within the local economy.

Mr Fava insisted though, "bartering certainly does not take place for tax evasion practices as is commonly suggested by Government."

Mr Fava, a veteran businessman himself, explained that bartering causes great inconvenience to the businessman but, in certain cases, it is the only way to recover debts.

"It is certainly regarded by the Chamber as a retrograde step because, whilst in other countries, it is becoming the norm to transact over the internet simply by keying a credit-card number, in Malta we are resorting back to the first method of transacting mentioned in basic economic textbooks," Mr Fava stated.

Asked about the stricter banking practices adopted by local banks, which have raised the hackles of the business community at large, Mr Fava agreed that banks must safeguard their interests.

"In so doing, however, they should not undermine the position of the entrepreneur," he stressed.

Mr Fava reiterated that the bank must remember that the economy is likened to a chain. "If a weak link is not assisted to regain its strength, it could easily undermine the collective force of the chain as a whole," he stressed.

The Chamber president advised banks to be more far-sighted in their relationship with clients. "They must allow a certain degree of flexibility to their clients which would be necessary to neutralise certain exceptional circumstances."

This flexibility, according to Mr Fava, will ensure the bank would be safeguarding the interests of its client-base as a whole and ultimately of the bank itself.

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