Some of the UK’s largest firms have begun ‘summer schools’ to educate junior auditors about warning signs to look for in failing companies, in the latest sign of the profession bracing itself for an economic downturn.

The firms are looking to highlight issues in companies’ covenant and financing agreements or unrealistic cash flow and future forecasts during the economic downturn.

‘While some staff have been around the block a number of times and seen periods of economic difficulties, there is a whole generation that has to really work to make sure they’re aware of the lessons of the past. The key thing is that this particular credit crunch is quite severe and we don’t know yet how long this is going to go on for.

‘It’s particularly important that people have high levels of scepticism and recognise that judgements they made a year ago, for instance, aren’t going to be the same judgements made now,’ said Deloitte partner Martyn Jones.

Jones said the firm has been running monthly courses for staff ­ including partners ­ since the credit crunch kicked off a year ago.

PricewaterhouseCoopers is running an Assurance Summer School this year to raise awareness among its 2,500 staff. The school is aimed at people with at least five years’ experience, rather than trainees, and who may not have experienced the early 1990s recession.

‘They’ve had a life in the profession auditing during a rather benign environment so they may not be as in tune with what to look for when the economy changes,’ said Andrew Ratcliffe of PwC.

‘We’re looking at covenant compliance and bank facilities closely, especially for those businesses heavily dependent on consumer demand. And we’re looking at cash flows and management’s views on prospects for the future. It’s not rocket science, but just raising their awareness,’ he said.

KPMG is increasing training and raising awareness through networking and forums, while Ernst & Young said it provides regular updates and guidance on working with its clients through the credit crisis.

Jones added that company directors should be on top of their financing arrangements. ‘Directors must put processes in place to get rid of problems early so that the necessary funding arrangements can be renegotiated in time,’ he said.