A Guide to Investigating Accountants

4 August 2017

Investigating or Reporting Accountants

Is your company facing an investigation by "reporting or investigating accountants"?

If yes you should read this guide to the issues and the FAQs 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 missed payments, 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to produce because of failings in the financial reporting systems within the business then they will worry that old and out of date information is being used to run the company and their lending could be at more risk.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 CCJs 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 Work in Progress (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 50,000 depending upon the complexities and size of the company or group. 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 on 08009700539 and ask for one of Keith Steven, Eric Walls, Wayne Harrison or Iain Campbell. .

The Ultimate Guide For Worried Directors

The Ultimate Guide For Worried Directors

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