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Audit not done - what can be done now?

Audit not done - what can be done now?

Upon review of the new client's previous year accounts it became obvious that the company should have carried out a statutory audit in 2005 & 2006, but failed to do so!

The company had balance sheet total in excess of the audit threshold. The failure appears to be the result of negligence from the previous accountants/directors.

Interestingly the directors’ report has the small company exemption note!

The directors have also since changed.

We/the present directors are eager to rectify the situation, but not sure how to go about. We have not approached the companies house yet.

Has anyone had a similar experience or can suggest how to proceed?

Who has the legal responsibility to put this right now considering the directors and accountants have now changed?

We wish to avoid taking any legal actions against the previous accountants/directors unless the company suffer any damages?

Look forward to any comments

Thanks

L Rob

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20th Oct 2008 15:20

Alastair
Yes, sorry, it had been a bad day. I hadn't actually thought it was directed to me, it was the language I overreacted to.

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17th Oct 2008 12:54

Paul
don't be so sensitive - it was aimed at me!

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16th Oct 2008 17:35

Alastair
I'm not happy with the title of your "contribution" perhaps you could expand, ie to whom was it directed, what is the point you were trying to make and why the need for insulting terminology?

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16th Oct 2008 13:12

audit engagement
It would appear that the engagement letter of the previous accountants engaged them to do accounting and audit work.

The directors were corporate directors provided by the same accountants.

So I guess they are to blame here.

But discussing the matter with the shareholders, they are not keen to take this forward (ie inform companies house, have the previous accounts audited etc.) unless that is necessary and there is some kind of onus upon the current / previous directors or the company to do so.

Many thanks for your comments

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By Anonymous
16th Oct 2008 12:44

They only look for a signature
I am only aware of Companies House rejecting accounts because they have not been signed or are made up to the wrong year end.

They to not check general compliance as can be seen by some of the accounts that have been filed.

We have come across a company that we think has filed abreviated on line and never produced the full set for shareholders.

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16th Oct 2008 11:13

RTFQ!
http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073791917

would appear there are 3 conditions which all have to be met - of which only one is qualification for small company abbreviated accounts!

In any case, it is the directors responsibility to produce the accounts, and the shareholders responsibility to appoint auditors, and approve the audited accounts. the culpability of the previous accountants would in large part depend on the terms of their letter of engagement. You refer to them as accountants, presumably because they were not appointed as auditors?

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16th Oct 2008 11:01

3 out of 3
Under s.249A CA 1985, a company has to satisfy all 3 of the following conditions to be exempt from audit:

- qualifies as a small company (satisfies 2 out of 3 of turnover under £5.6M, total assets under £2.8M and under 50 employees), AND
- turnover under £5.6M, AND
- total assets under £2.8M

If a company qualifies as small because it has under 50 employees and turnover under £5.6M, it can still prepare accounts under the FRSSE, but will require an audit if its total assets exceed £2.8M. Also, a company has to fail 2 of the small company conditions for 2 years running before it ceases to qualify as small.

Sorry to digress. I agree with Paul about what to do now.

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16th Oct 2008 09:44

2 out of 3?
I read somewhere that it is only 1 out of 3 for audit exemption but 2 out of 3 for determining small companies.

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16th Oct 2008 09:06

but do remember
the rules are more complex, and that size is based on meeting two out of 3 conditions and change of size reflects persistence over more than one accounting period.

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15th Oct 2008 20:56

Disclose and carry on
Whilst it is not publicised I’m sure this happens a lot with smallish companies. In reality (ie maybe not in accordance with law & regulation) if it were me I’d submit the 2007 accounts with suitable disclosure about the absence of an audit in the previous two years and maybe a qualified or “commented” audit report. Unless a creditor or shareholder feels they have been disadvantaged by the lack of an audit I very much doubt anyone would force the issue and don’t see that any purpose is served in trying to rectify the situation, ie disclose & get on with the present.

As far as Companies House is concerned, I see even less reason to worry about them and here I speak from experience. I commenced the 2006 audit of a regulated company only to come up against a brick wall over evidence and other matters. I tried for months to complete the work but eventually gave up, wrote to the regulatory body & withdrew from the assignment leaving the directors to the hassle and expense of having to reappoint and suffer late filing penalties.

A few months later I noticed that 2007 accounts (which by chance did not need an audit) had been filed at Companies House and queried this with the registrar, to be told that, they are just registrars and as long as there is up to date information filed they don’t take things further, ie no more fines or sanction. I did ask if I could perhaps employ this practice with my own Ltd Company clients, ie only file every other year but he wasn’t prepared to comment.

What makes this even more ironic is that the owner/directors of the offending company were the partners in a firm of ACAs.

Anyway, I’d love to know whether there is any legal or regulatory precedent but, as I say, I shouldn’t lose any sleep over it.

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