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A partner who specialises in commercial litigation and insolvency matters has urged auditors to keep an avid eye on those they suspect to be manipulating financial records.
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Auditors urged to remain vigilant on businesses ‘cooking the books’
30 November 2021
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10 minute read
Speaking to Accountants Daily, Blackwattle Legal partner Trevor Withane said a primary challenge for the tax profession going forward will be similar to what was seen in the aftermath of the GFC.
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“In the aftermath of the GFC in the United Kingdom and the United States, there was an increase in the number of claims made by businesses (and in some cases their liquidators) against accountants and other advisors,” Mr Withane explained.
“In our current context, audit accountants will need to pay special attention to any going concern issues and even be vigilant to identify any cooking of the books by management.
“In hard times, litigants will be looking for the party with the deepest pockets and accountants are often prime targets given that they are insured.”
Mr Withane also encouraged accountants to be vigilant to discover fraud and “ensure they are not involved in a company’s contravention of the Corporations Act (section 79), Fair Work Act (section 550) or Australian Consumer Law”.
“There have been cases where accountants have been liable for their client’s underpayment of staff, because they were aware of all the relevant elements of the contravention,” he said.
On a more general note, Mr Withane said his firm is keeping a close eye on the insolvency market in the coming years, and urged those in accounting to do the same.
“It is unknown at this stage whether as COVID-19 assistance tapers off, businesses will be able to generate sufficient cashflow to survive. It will be interesting to see how many insolvency appointments are made over the next few years – my guess is that future data will show us that many zombie companies have been lurking for the last two years,” Mr Withane said.
“We think that accountants are likely to see more clients in need of restructuring and turnaround type advice as we move out of COVID-19 and into post-lockdown recovery. We are fast approaching the point when it will no longer be possible to blame the pandemic for business failure.
“As things currently stand insolvency appointments are down, as against long term trends and recent experience. In financial year 19-20 there were 7,362 appointments and in 20-21 there were 4,235. The year before that, 18-19, there was 8,105.
“When the GFC hit in financial year 07-08 there were 7,907 appointments, the following year in 08-09 there were 10,005. That experience suggests that there is a bit of a time delay before firms hit hard times, and they start showing up in the statistics. There is nothing about the COVID-19 crisis that suggests to us that it will have made business failures less likely across the economy.”
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