Accountants warned of hidden risks in traditional financial reporting

“Four of the past five months have seen the largest number of tax inflows outside of the immediate post-COVID period, when the ATO reinstated its enforcement activities. As a result, the total tax defaults in effect have risen by nearly 20 per cent over the past six or so months, from around 30,000 companies to around 36,000 currently,” CreditorWatch’s report read.

Speaking with Accountants Daily, CreditorWatch chief executive Patrick Coghlan noted that, for accountants, “relying solely on historical financial statements may provide an incomplete view of client risk”. 

Further, advisers working across diverse client bases are facing a more complex risk environment, he said. 

He noted the uneven distribution of stress across sectors is causing this. According to the report, some areas face acute pressure, while others remain relatively stable, which Coghlan said indicated that broader economic conditions are fragmenting rather than deteriorating uniformly.

One of the sectors facing growing pressure is the waste services industry, which has experienced three times the national average of insolvencies.

However, “trade payment default rates have recently dropped to 3.5% per cent from a record high 4.3 per cent in February,” compared to the national average of 0.6 per cent, the report read.

“As recently as 2020, insolvency rates in the sector were lower than the national average. By May 2026, they were more than three times higher. Trade payment defaults and arrears show a similar divergence.”

This is due to a combination of heavy reliance on diesel amid high prices and the inability to pass these costs on. 

“Contracts with councils and commercial clients are typically fixed or indexed to CPI, not to fuel costs, meaning that operators absorb the shock in real time,” the report read.

“As recently as 2020, insolvency rates in the sector were lower than the national average. By May 2026, they were more than three times higher. Trade payment defaults and arrears show a similar divergence.”

Coghlan told the masthead that accountants in struggling industries, such as waste services, may face greater pressure to identify emerging issues, particularly regarding working capital management, tax obligations, and debtor performance, earlier.

“The businesses that will navigate this environment best are the ones that can spot stress early - in payment behaviour, arrears and changing trading patterns - and act before those pressures turn into serious financial distress. That is why real-time risk intelligence is now essential for protecting cash flow, managing exposure and making confident decisions in a tougher economy.”

“The combination of rising early-stage indicators and sector divergence is likely to increase demand for proactive client support,” Coghlan said.

“Overall, the data points to an environment where financial stress is becoming more behavioural and less visible in lagging indicators, requiring a more forward-looking approach to client oversight and advice.”