G
Gobsmaked
Guest
After being asked to support a SME review their business model it has become clear quickly that the MD is not financially competent when it comes to understanding P&L's and Balance Sheets. They also haven't got an effective cash flow model.
After having had doubts about the quality of the financial statements I asked an experienced accountant (not the one employed by the SME) to review the accounts. We quickly spotted that the company is effectively insolvent (or close to insolvency) due to a combination of repeated double counting of invoices caused by the MD’s spread sheets and a spend rate which has exhausted shareholder funds and broadly matched current income.
This double counting has created a completely unrealistic debtors position. This mistake is repeated over a 5 year period. My experienced accountant challenged the figure within 20 minutes of working through the P&L and Balance Sheet and then within 2 hours had isolated the issue.
In addition there are some concerns about the way in which the MD has used director’s dividends every month to reward their performance (tax issues) and a combination of credit cards and petty cash to fund personal purchases not related to the business.
So all in all some major concerns.
On the assumption that I'm clear where the responsibilities lie opposite the MD I'm interested in your thoughts re what redress we might have against the accountancy firm who have (in my view) been negligent in their understanding and assessment of the business health of the company.
Clearly in the financial statements there are all the usual caveats re working under the instruction of the MD, only reporting what they were given to report etc but in my view they were not asking the questions that I think a reasonably well qualified accountant should be asking of an MD. My intervention and the experience of my accountant colleague spotted the issue very quickly, they haven't spotted it in 5 years. Is there any action I can take?
After having had doubts about the quality of the financial statements I asked an experienced accountant (not the one employed by the SME) to review the accounts. We quickly spotted that the company is effectively insolvent (or close to insolvency) due to a combination of repeated double counting of invoices caused by the MD’s spread sheets and a spend rate which has exhausted shareholder funds and broadly matched current income.
This double counting has created a completely unrealistic debtors position. This mistake is repeated over a 5 year period. My experienced accountant challenged the figure within 20 minutes of working through the P&L and Balance Sheet and then within 2 hours had isolated the issue.
In addition there are some concerns about the way in which the MD has used director’s dividends every month to reward their performance (tax issues) and a combination of credit cards and petty cash to fund personal purchases not related to the business.
So all in all some major concerns.
On the assumption that I'm clear where the responsibilities lie opposite the MD I'm interested in your thoughts re what redress we might have against the accountancy firm who have (in my view) been negligent in their understanding and assessment of the business health of the company.
Clearly in the financial statements there are all the usual caveats re working under the instruction of the MD, only reporting what they were given to report etc but in my view they were not asking the questions that I think a reasonably well qualified accountant should be asking of an MD. My intervention and the experience of my accountant colleague spotted the issue very quickly, they haven't spotted it in 5 years. Is there any action I can take?
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