The news that KPMG has snapped up the audit of Rentokil Initial from rival PwC brings with it renewed concerns around the independence of firms providing additional services as well as opining on financial statements.

Under the arrangement KPMG would undertake all the statutory responsibilities associated with an external audit, while also ‘delving deeper’ and offering advice on internal audit issues.

Not only that, but the audit will cost 30% less than what PwC was charging. I wonder if the company will end up losing more than they’ve saved if the market punishes them for the perception of having a less independent opinion. The director of the Professional Oversight Board, the UK body responsible for monitoring the UK’s ethical standards, declined to state whether the deal would be investigated. For their part, KPMG says they are confident they can address the threats to their independence.

Some observers say the arrangement would not be a viable option for companies with a dual listing in the US, owing to strict independence guidelines or ‘bright lines’ set down by the Securities and Exchange Commission.

It may not help shave costs during a time of economic difficulty, but I firmly believe keeping internal audit service providers separate from external auditors is critical to preserving the independence required for a financial statement opinion and is just best practice in general. I would’ve thought 7 years after SOX we’d have this down pat.

A recent article on the New York Times about the political costs that Google is facing due to its market dominance, and their strategy to reduce those costs, caught my interest:

Google has begun this public-relations offensive because it is in the midst of a treacherous rite of passage for powerful technology companies — regulators are intensely scrutinizing its every move, as they once did with AT&T, I.B.M., Intel and Microsoft. Some analysts say that government opposition, here or in Europe, could pose the biggest threat to Google’s continued success.

Google’s SEC filings make repeated mentions of the high level of competition the company faces in their business. Microsoft and Yahoo are specifically named as the two biggest competitors, and Google notes that Microsoft has more cash and employees, and both companies have longer relationships with advertisers.

I find it interesting that Google is taking the strategy of talking about the “formidable competition” they face as a risk to their business instead of (or in addition to) the risk posed by increased government regulation as a result of their perceived market dominance.

In the section where they talk about government regulation and the risk it poses to their business, they discuss issues like privacy laws, copyright infringement and even net neutrality. But I couldn’t find mention of the risk presented by regulation due to the perception of unfair competition.

Does your business face political risks like Google and other tech companies?

I received an email late yesterday from the IASB with the following message:

The International Accounting Standards Board (IASB) issued today an International Financial Reporting Standard (IFRS) designed for use by small and medium-sized entities (SMEs), which are estimated to represent more than 95 per cent of all companies. The standard is a result of a five-year development process with extensive consultation of SMEs worldwide.

For non-public companies, the development of IFRS tailored to their needs is good news. (Get the IFRS for SMEs at the IASB website.) For Canadian non-public companies, move along – there’s nothing for you to see here.

The reason is because despite the full embrace in my country of IFRS for public companies (they’re making the transition as of Jan. 1, 2011), our governing body has decided that for private, we’re going to go it alone. All the good reasons to join the international community when it comes to accounting standards for public companies get thrown out the window when it comes to private. Apparently, Canadian private companies are a special beast that no one outside our borders can comprehend, and thus the job of maintaining a separate set of accounting standards is preserved.

The decision to develop a separate set of standards for Canadian private companies is the wrong one, and I hope it won’t be long before the powers that be see it as such. At the very least, the AcSB should allow private Canadian companies to use IFRS for SMEs. (Currently they have the option to implement IFRS when public companies do, but no word on the SME variant.)

What do you think?

Microsoft has the enterprise market cornered with its Office productivity suite. Skill with Outlook, Excel and Word is pretty much required in the corporate world. As a result, most companies have significant data tied up in the proprietary binary file formats doc and xls.

This is not to mention all the web-based software designed for Internet Explorer (and usually an obsolete version of IE like 6) which is a similar issue to the vendor lock-in problem. Corporations still overwhelmingly use IE6 as their default browser, but the missed opportunities related to browsers in industry is a topic for another day.

In Office 2007 Microsoft has made its XML-based formats (docx, xlsx) the default, which was certified as an open standard by Ecma International in 2006, and then by ISO in late 2008. But did we really need a second open document standard? We already had OpenDocument, which was an ISO standard as far back as 2006.

OpenDocument is now supported in Office Word 2007 SP2, and there are only a few formatting issues noted by me in informal testing. There are issues around the formula handling in Excel, as Microsoft built support on the 1.1 version of the standard instead of the newer 1.2 and thus strips formulas from ODF spreadsheets even if they’ve been created using the Excel add-in. For the time being businesses might be safer using Office Open XML.

Despite this, ODF is the future. Rob Weir puts it succinctly:

With an open standard, like ODF, I own my document. I choose what application I use to author that document. But when I send that document to you, or post it on my web site, I do so knowing that you have the same right to choose as I had, and you may choose to use a different application and a different platform than I used. That is the power of ODF.

There is a plugin available from Sun for older versions of Word, including: Microsoft Office 2000, Office XP, Office 2003, Office 2007 (Service Pack 1 or higher) or the equivalent stand-alone version of Microsoft Office Word, Excel or PowerPoint.

Governments and educational institutions have been making the move to OpenDocument, and it’s time for the private sector to follow suit. Preserving the integrity of data within critical files should be a top priority. OpenOffice.org is a free and open source productivity suite that with its latest 3.0 release has reached a level of maturity appropriate for business use, and its implementation of the ODF standard is without the caveats associated with Microsoft’s.

The most important benefit is the freedom to choose how to view and edit your data within documents and spreadsheets. But the cost differential between OpenOffice.org and Microsoft Office should also be a factor. And the history of Microsoft’s unique interpretation of the term ‘interoperability’ should be considered if your business chooses to continue to use closed standards.

There has been a migration in recent years from the desktop as primary computer to the laptop. As the cost of the laptop relative to its performance specs decreased, more and more people were finding that the benefits of mobility and a small form factor justified moving to a laptop.

Enter the netbook. These are basically laptops that have been shrunk down to half the size. The result has been increased mobility thanks to reduced weight and better power usage. The netbook is a recognition that users need primarily internet access to accomplish most daily tasks. But for most computer users, a netbook isn’t enough to do everything they need to do.

Re-enter the desktop. The limited mobility of a desktop would be complemented by the hyper mobility of a netbook and take the place where a single computer (a laptop) used to exist for some users. Take the netbook with you when you need to go, have the desktop waiting for you when you get back.

I think the possibility exists that we will have a segment of consumers that use the netbook+desktop setup. This could be the redemption of the desktop format, which has been in decline for the past few years at least. What do you think?