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Dodgy Accounts

Firstly apologies for being anonymous-you will soon find out why I am taking this precaution, after reading this:

A client turned up at the office quite happy. He was happy because he thought he was buying a very successful and profitable business. The seller happily gave him a set of Accounts. The Accounts are not signed by the director or the accountant who is a member of a Chartered Body though they have an Accountant's report along with their details. 
The issue is I did a basic check and found out that there are no records of the business' premises at the land registry which was confirmed by the land registry over the phone.
Then I looked at the Accounts which showed a very profitable business. £50k profit in the last two years at £280k turnover. The issue is that the records submitted at the Companies House "do not" show the same figures. They show a loss! Needless to say the Balance Sheet at the Companies House shows a negative balance.
Quite annoyed as to how a fellow Accountant is conspiring, for a few hundred quid, with this Janus-faced seller in a scheme which would rob someone of their hard earned money. Sale price is around £170k.
What do I do? Who do I report? 

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By ms998
15th Mar 2019 15:25

Contact a lawyer if sale price is £170k. That is an awful lot of money at stake.

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By tom123
15th Mar 2019 15:26

Are they not management accounts, EBITDA or some other arrangement?

On the face of it what you say does suggest poor practice, but the accounts could be trying to show some kind of ongoing recurrent sale basis.

Anyway, due dilligence has revealed this, so you have shown your worth!

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By weuk
to tom123
15th Mar 2019 17:03

He has even declared dividends on £30k when retained earnings are £11999 in negative.

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to weuk
15th Mar 2019 17:06

That, to be fair, is the director's fault and not the accountant's, accountants don't declare dividends.

If the director has declared an illegal dividend then it should be in the accounts.

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15th Mar 2019 15:39

How do you know that the accountant has conspired to produce these and it's not the seller producing them?

At present you don't know which figures are correct, the Companies House figures or those produced by the seller.

Consider carrying out a Land Registry check, you can do it in an instant online for £3.

Advise the client to obtain (written) details from the seller and his accountant to explain the discrepancy.

Advise the client to ask the seller to give permission to correspond with you directly to carry out your due diligence.

Advise the client not to proceed with the purchase pending clarification and possible further enquiries.

No SAR necessary at this stage.

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By weuk
to Wanderer
15th Mar 2019 17:05

Land Registry has no records. Confirmed over the phone. It comes up with the address but states "no information held". A first timer for me and a few others I know!

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to weuk
15th Mar 2019 17:12

I thought you wanted to be anonymous.

Eh dear.

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By weuk
to lionofludesch
15th Mar 2019 17:17

curiosity killed the cat!

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to weuk
15th Mar 2019 17:22

Quote:

Land Registry has no records. Confirmed over the phone. It comes up with the address but states "no information held". A first timer for me and a few others I know!

Check when the accounts at Companies House show it as an addition. In E&W compulsory registration wasn't required before a certain date.
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By DJKL
15th Mar 2019 15:52

Re land registry no idea down south but up here only first registration would prompt an entry and the issue of a Land Cert, if held for a a long time the acquisition of any property could pre date the registry. Earlier properties still exist but could, up here, rest in the Sasine not the Land Register.

We only first registered most of our properties in 2016 upon changing banks (needed for standard security purposes) despite some of them having been owned by a group entity since the 1960s.

Re profit I would suspect a EBITDA set being supplied to a purchaser, and of course dividends paid could certainly wipe out profit.

Before leaping to the conclusion your client is being sold a pup I would ask them to confirm basis of accounts supplied and if a property intended to be included seek clarification where held and by whom.

Edit-

"Search the register
HM Land Registry holds records about most property or land sold in England or Wales since 1993, including the title register, title plan, title summary and flood risk indicator."

https://www.gov.uk/get-information-about-property-and-land/search-the-re...

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By weuk
to DJKL
15th Mar 2019 17:07

Well the current occupier is selling a lease which he holds-which initially was a long lease. Should have been recorded with the Land Registry but that is not there either.
The balance sheet is in negative at Companies House but that same balance sheet is in positive in the accounts being used for sale. Dividends of £30k declared in the Accounts given to our client when the Companies House balance sheet shows £11999 negative balance!

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15th Mar 2019 16:15

Just a thought - but a proper accountant would surely anticipate a comparison between the Dodgy Accounts and those at Companies House. Beware of throwing accusations around at this stage.

In the first instance, I'd write to the accountant asking for a reconciliation between the two sets of accounts. Maybe he'll say he's never seen them before.

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to lionofludesch
15th Mar 2019 16:22

Or give them a call. An email or letter that is ignored doesn't tell you enough.

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to andy.partridge
15th Mar 2019 16:28

Well, aye.

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By weuk
to lionofludesch
15th Mar 2019 17:08

Yes but then when we complain to their body he will find out who complained-something we are a bit apprehensive about at this stage

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to weuk
15th Mar 2019 17:14

Quote:

Yes but then when we complain to their body he will find out who complained-something we are a bit apprehensive about at this stage

At the moment, you don't know if you have anything to complain about.

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By weuk
to lionofludesch
15th Mar 2019 17:16

Agree. Perhaps that is why asking fellow Accountants.

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to weuk
15th Mar 2019 17:25

Except you haven't asked the one fellow accountant that could help.

If you go in accusing them of something you will get nowhere. You need to play it smart. Play dumb.

I wouldn't have thought the desire to report them is the priority tbh. I would be looking to sue the seller for issuing a false prospectus. But not before consulting a solicitor.

Edit. Oh, sorry I thought the sale had gone ahead.

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to andy.partridge
15th Mar 2019 18:21

Agree with Andy, play dumb. Real dumb.

Ask "why cant I get this to agree?" etc etc etc

Given 'em enough rope to swing from the rafters.....

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15th Mar 2019 16:47

Assuming that your engagement is a 'due diligence' exercise then you need to report your findings and await further instructions. The next logical step is to ask the vendors accountants for an explanation.

Has your client not visited the business premises? If not I suggest that the pair of you 'drop in' for a surprise visit.

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By weuk
to Vaughan Blake1
15th Mar 2019 17:14

Visited the premises. His story over the phone was different and when visited it changed dramatically (basically his reasons to sell). This prompted this investigation at our end as the client approached us after becoming suspicious

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15th Mar 2019 16:57

You've clearly done your job and its a refreshing change to see that your client has appointed an accountant before parting with the cash and not after. Does the accountants report refer directly to the set of figures that you are looking at? Are you sure that they aren't forged along with the accounts your client has received. I only ask because it seems very risky for a chartered accountant to get involved in what is a fraud for a few pounds. i would contact the accountant concerned explain you are doing due diligence and ask for an explanation of the differences including the property. They could be horrified to find out their name is being dragged through the mud by a client.

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16th Mar 2019 10:13

Is a solicitor involved to prepare a sale contract containing the usual warranties or is it just "I give you £170K - you give me share certificate"

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