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Unpaid HP Agreements when asset sold

HP agreement not settled, underlying asset has been sold. Audit implications?

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My employer has had a difficult year.  We have ended up in the position where the company has sold a number of assets for which the finance agreements still in place - i.e. amounts are still owing.  The directors are not disputing that the amounts are owed and fully intend to pay them off in due course, and in the meantime are making monthly payments against the agreements as if the assets were still owned. 

The auditors are due in imminently and I would expect that the auditors would notice these agreements are still outstanding although the assets are sold.  Is this likely to generate a qualified audit report or other adverse impacts?  I am not comfortable with the current situation, but the company doesn't have funds to settle these agreements and the amount owed is growing - I anticipate it could take more than a couple of years to repay.  I'm wondering if I can be held at fault, and if it is time to look for a job elsewhere?

Many thanks. 

 

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By Paul Crowley
13th May 2021 23:18

It is really difficult to get a bad audit report
All the HP becomes current liabilities.
This is the problem of the decision maker. Not his staff.
Your worry should be whether the company will survive.

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By johngroganjga
14th May 2021 07:44

I am not sure it’s as simple as that. All will depend on the wording of the agreements, but if they are classic HP agreements as the title of the question suggests, the assets weren’t the company’s to sell, and the purported purchasers of them have been conned, and have no title to the assets they believe they have purchased. How the auditors will say the accounts should reflect that reality is another matter.

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Replying to johngroganjga:
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By Paul Crowley
14th May 2021 08:25

I agree it is wrong, but it happened.
The HP definitely is now payable upon demand.

I have come across this situation before. the client merely continued to make payments and HP company did not notice. It was probably 20 years ago.

Nothing bad happened.

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Replying to Paul Crowley:
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By thevaliant
14th May 2021 16:20

Regrettably, I'm with Paul (though John is legally correct).

As the audit junior twenty years ago, this exact situation had occurred. Client flogged the assets eighteen months into the thirty six month term. It was vehicles as well, but I think the name on the V5C was the company rather than the HP firm.

Nothing happened. We noticed, reported it to partner, who, as they always do, justified it as being fully compliant with FRS15 and the audit report was signed nice and clean.

Client just kept paying and then paid £50 at the end to acquire 'title'. Vehicles long gone; no one cared.

We DIDN'T make the liability all < 1 year either. Probably should have, but didn't.

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By Roland195
14th May 2021 07:51

Aside from your optimistic view of auditor's abilities in actually noticing, I can't see how it could possibly be your fault.

If they do notice, assuming you can't tell them that the office toaster is the £300k laser cutter they are looking for, then the potential impact on the report will depend upon the amounts involved but sounds like will only be part of greater going concern matters anyway.

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By tom123
14th May 2021 08:22

Is the OP a qualified accountant?
Did the OP raise the sales invoice knowing the goods were on HP?

That would not be a good look,

(and I speak as someone who has had pressure put on me in various scenarios over my career - it is not pleasant)

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By tom123
14th May 2021 08:20

I once queried a direct debit to a finance company (in a large ish employer), only to find it was for water coolers.

Spoke to our factory who said "oh, we threw those away ages ago"

Pointed out they were not ours to chuck.

Ended up paying in full for the goods as well.

But - at least that was innocent error.

Personally, I would not want to work for people that couldn't even be trusted not to be that dishonest.

Presumably these assets are not any kind of vehicle?

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Replying to tom123:
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By Paul Crowley
14th May 2021 08:54

In my example it was a van
Traded in on purchase of new van, but old HP not settled
Same HP company.

Client version was that HP company were happy to let the old HP run.
But not in writing, it was a telephone call that supposedly happened after we pointed it out.

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Replying to Paul Crowley:
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By Roland195
14th May 2021 12:13

That's not unnecessarily not untrue - My recent experience of a lease cancellation was client told to organise the sale of the asset himself. This happened over a quick phonecall with someone who probably wasn't senior enough to grant permission, not that it was mentioned and were not remotely bothered by the details thereafter. Much of the funds ended up being used of a deposit for a new asset that the same HP company financed immediately.

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By Duggimon
14th May 2021 09:35

If you are still making monthly payments, why is the amount owed growing?

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Replying to Duggimon:
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By Paul Crowley
14th May 2021 19:17

I thought that odd too
I assumed it was conflated with other borrowing
OP probably should be looking for a job with a more stable employer

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Replying to Paul Crowley:
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By cacatchpole
15th May 2021 11:19

I saw situation in a previous role where an asset with an HP agreement was sold - the auditors spotted it and then corrected by Dr Asset, Cr P&L rather than looking into it any further. Makes you wonder...

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Replying to cacatchpole:
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By Paul Crowley
15th May 2021 21:04

Correct treatment for accounts
The liability is still a liability payable.
The asset has been sold with probably good title. Seller owes money to HP co. HP co does not want the asset back, just the money owed to them.

On a solvent company no major issue.
The issue here is that company sounds insolvent and the secured asset being sold means HP company may lose its money.

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By JB101
14th May 2021 15:24

I would suggest the auditors MUST consider making a Money Laundering Report if they find HP assets sold. A big indicator of fraud and I know of one director who was banned from being a director after having sold a company asset in order to get the funds to repay the HP creditor only to find his bank kept the proceeds and took away his company overdraft, bringing the company to an abrupt liquidation.

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Replying to JB101:
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By Paul Crowley
14th May 2021 19:09

Banks can be challenging, but that bank was probably waiting for a suitable time to reduce its exposure on a significantly insolvent company
I suspect there is a lot more to that disqualification.

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Replying to Paul Crowley:
Maytuna
By DJKL
15th May 2021 01:44

But notwithstanding the requirement to submit a SAR may exist, the entity has taken money from a third party for assets but the third party possibly has no title to but merely possession of the assets. I think I would be getting a legal opinion as to whether entering into such a transaction was fraud. (Accountants not tending to have studied criminal law)

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By tom123
15th May 2021 16:38

I can't see how it cannot be fraudulent, personally.

but then IANAL

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By Hugo Fair
15th May 2021 18:21

Likewise ... on both points. But it seems clear to me that selling something for which the seller does not possess title is a crime (irrespective of accounting treatment).
One 'interesting' aspect (as in 'not a lot of people know that') is that the vehicle logbook (V5C document) does not provide proof of ownership - it is merely a record of the registered keeper. So with a lease or h.p. scenario you need the original agreement to ascertain with certainty who is the legal owner in specific circumstances.

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