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Directors loan accounts

Directors loan accounts

What is the impact on the audit report of a (substantially) overdrawn directors loan account (when there are in sufficient distributable reserves to clear it)?

Presumably there should be something on non compliance with the Companies Act 1985, and possibly a going concern paragraph?
Rob Easby


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20th Jan 2005 07:48

None, unless.........
The fact that the loan account may be irrecoverable leads you to have doubts about going concern - in which case the issues are just the same as the effect that any other irecoverable debt may have. You would need to consider whether provision against recovery was required and whether the provision (or lack of provision) had any impact on your opinion in the same way as any other doubtful debt.

The fact that the loan is in breach of CA85 is not a matter for the audit report. The audit report is about what it says it is about and nothing else. You would not, for example, include any reference to an EGM having been held without appropriate notice unless the consequences of that invalid EGM affected the accounts in a way which was material to the audit opinion.

The Institute have, I think, pronounced on this in the past and they recommend some disclosure in the notes beyond the stautory disclosure regarding maximum amount etc. However, this is "good practice" only - and if the directors don't want it, it is difficult to see how it can be a matter for the audit report.

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