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Investigating Accountants
Is your company facing an investigation by “reporting
or investigating accountants”?
If yes you should read this guide to the issues and the FAQ’s at the foot of
this page now.
What are investigating accountants (or reporting accountants)?
Background
When a business has financial or operating difficulties it can often breach
its borrowing facilities from the bank or from factoring companies. This can
lead to bounced cheques, problems with the payments of direct debits, missed
loan repayments and generally builds pressure on the cashflow.
Banks have quite sophisticated systems for monitoring this risk, but often
they are “in the dark” with regard to the up to date financial performance
of the company that owes it the money. One way of addressing this is to
demand (as their borrowing conditions usually allow) detailed and up to date
information from your company.
If such information is difficult or impossible to produce because of
failings in the financial reporting systems within the business then they
will worry that old and out of date information is being used to run the
company and their lending could be at more risk.
You may have noticed by now that bank’s do not like risk! So the next remedy
is to insist upon the introduction of investigating accountants. This will
normally be paid for by the company, thus the act of appointing
investigating accountants could lead to further breach of the facilities!
Investigating accountants (IA) usually have a brief to investigate the
following
Cashflow, current daily and for say the next 12 months month by month
The current profit and
loss activity, previous results and forecasts for say the next 12 months
month by month
Performance against your
past forecasts (in other words can your forecasting be relied upon).
They will investigate the
current creditors and forecast that for say the next 12 months month by
month. They will look
for red letters from creditors leading to CCJ's Warrants, Statutory Demands
and winding up threats.
They will check to see if
the company is up to date with the Crown creditors (PAYE and VAT) or if in
arrears.
They will check the
quality of debtors and current assets like stock and WIP in the business.
The strength of financial
reporting will be assessed, as will the people involved.
They will look at the
business and marketing plans and check whether they are fit and feasible for
the business.
Taking all of the above into consideration they will then write a report for
the lender to state the options the lender should consider and what their
recommendations are. The options they can outline for the bank are as
covered in depth in this website: receivership, administration, liquidation,
advancing more money to help a short term requirement (yes that does
happen!), withdrawing banking facilities, asking the shareholders to put
more money in etc.
What will this cost?
Well the answer is how long will it take and who is doing it. Usually it is
an insolvency practitioner and some of his/her managers/admin staff as a
team. We have seen IA’s charge anything from £7-10,000 to £100,000’s
depending upon the complexities and size of the company. BUT the bank almost
always insists that the company pays for this. Even if you refuse to pay and
refuse to issue a cheque, the bank has the ability to “dock” the money from
the company’s account!
But we cannot afford that?
Yes that’s part of the problem. You can always refuse to pay and state that
the board/finance managers will do much of the information provision, but
generally there is a significant cost and it is seldom that the bank gets
the work done for nothing or agrees to pay for it.
Will we see the report?
Often no, however if you have a cooperative approach then the bank will
share some or all of the report with you. Often the report remains
confidential. So you may pay for it but you often cannot get access to it.
Will we have any input into the report?
It’s much better to take part and put your views across forcibly with good
information to back it up. So if you have not got that level of information
(particularly as described above allied to information on orders, sales,
enquiries, marketing, restructuring plans, downsizing and cost cutting) then
you must get it to get your views across.
Who can we get to help?
You can often get assistance from your accountants/auditors. But if they're
not up to speed with the problems then that can be counter productive as
they will generally look on negative information as a weakness that the bank
may exploit.
We can help your business prepare restructuring plans; we have worked with
dozens of companies and advised them how to plan their actions when the bank
starts putting pressure on the facilities and asking for investigating
accountants. Then we will normally help present those plans to the bank,
this may avoid investigating accountants or indeed reduce their negative
reports to the bank.
Our adage is go to the bank with the solution not
the problem!
So if your company looks at risk from its bank and or investigating
accountants, then call us NOW. 0800 9700539 and ask for one of Keith Steven,
Garry Mumford or Iain Campbell.
For more information see the navigation bar and read up on Receivership,
Administration, refinancing, and company voluntary arrangements.
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