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Firms run ‘summer schools’ on how to spot companies in trouble

Deloitte offices Strand

Septicism is important says Deloitte partner Martyn Jones

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.

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