Legal threat looms on qualified accounts

Bill Knight: opportunity to put matters right

Directors who help prepare qualified accounts and then fail to co-operate if
they have to be corrected could find themselves in court.

The Financial Reporting Review Panel (FRRP) has sent out a warning letter to
50 companies whose accounts fail to give a ‘true and fair’ view of the business.

FRRP chairman Bill Knight said: ‘We are giving directors of companies with
qualified accounts an opportunity to put matters right.

‘We are writing to some of the companies concerned, but our warning applies
to all of them and in future we will not hesitate to take appropriate action
where such qualified accounts come to our attention, whether or not we have
previously written to the company concerned.’

Businesses will be advised that if they continue to produce accounts that
fail to meet standards under the Companies Act, the
FRRP will review their

The panel will focus on large private companies as well as large listed
businesses and those quoted on AIM.

If businesses still fail to co-operate over preparing revised reports, the
FRRP has warned it will pursue a court order against them.

In such cases the directors would be personally liable for the legal costs
and the expense of revising the accounts if they were party to producing the
defective reports.

The panel said that so far it had managed to agree ‘appropriate resolution of
issues’ without resorting to legal action.

The panel has employed a credit reference agency to alert it to companies
with qualified accounts lodged at Companies House on a quarterly basis. So far
it has received 740 notifications.

The FRRP hired the agency after its consultation on qualified accounts with
auditors, found they could not voluntarily report qualified reports without
their clients’ permission.

Yvonne Lang, technical director of Smith & Williamson, said she was glad
the panel was being selective in the cases it chose to pursue.

‘Our concern was which companies the panel would pursue because the reasons
for qualifying accounts are quite wide,’ Lang said. ‘Sometimes you qualify
because you can’t get the evidence, but the accounts might not be wrong.’

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