Why You Can’t Always Rely On Your Accountants View of Business Solvency

Recent events have shown that even some of the country’s largest accountancy firms can fail to spot the imminent collapse of a business.  

Take for instance the case of KPMG signing off the accounts of construction firm Carillion, only to find that just a few short months later the company announced a profit warning. This set in motion a chain of events that saw what appeared to be a giant stable business sinking into the abyss under the weight of £1.3 bn worth of debt. Humiliatingly the company was left with just £29 million of cash in reserve which was nowhere near enough to keep the business afloat.  

Other businesses have experienced the same kind of issues, which begs the question, why have the accountants of these firms been happily signing off accounts and why have they failed to notify anyone that existential threats were just around the corner?  

The main reason is accountants don’t always look at the bigger picture including some of the outside risks a company might face. Businesses can be exposed to all sorts of risks, from changes in interest rates to staff unrest to suppliers pulling the plug. All of these outside risks should be taken into consideration to ensure the short as well as long term survival of a business.