Accountants face Farepak fiasco probe

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The actions of financial experts in the lead up to the collapse of Christmas hamper firm Farepak are to be officially investigated. The Accountancy Investigation and Discipline Board (AIDB) said the probe will include examination of the company's 2005 accounts. Dan Martin reports.

The accountancy regulator revealed that the decision to launch an investigation was taken following consultation with the Institute of Chartered Accountants of England and Wales and the Chartered Institute of Management Accountants.

No names of specific individuals or organisations were disclosed.

The closure of Farepak, which was audited by Ernst & Young, was triggered when Halifax Bank of Scotland refused to accept a new borrowing plan and halted a large overdraft provided to parent company European Home Re...

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04th Jun 2007 18:57

A very predictable collapse
Whilst for the Farepak savers who lost their money, the collapse seemed like a financial tsunami - a totally unexpected catastrophe - for those who had the skills to read the accounts of the companies involved this was a very predictable collapse.

The seeds were sown when the group purchased in 2000, at considerable expense, a loss making business with negative net assets (so creating 'goodwill' equivalent to more than the purchase price). The business continued to be loss making and within 3 years, in July 2003, that business was sold for a fraction of the price paid for it (with a consequent write off of that 'goodwill'), putting the group as a whole into a negative net assets position.

From that time on, until the eventual demise in 2006 there were indications in the published accounts of the group that its bankers were back-peddling on their support. The Farepak savers unwittingly became the lenders of last resort to the group.

Eventually the only hope of survival lay in the sale of profitable subsidiaries, but a fire-sale seldom realises a fair value. The rest is history.

Thanks to the passion and hard work of Suzy Hall and others, there should be no repeat of the losses suffered by innocent savers.

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04th Jun 2007 20:46

Rollason the KPMG--connection
Until the ICAEW understands inter-company accounting, and proper provisions against uncollectable inter-company balances there will always be more "Farepaks".

No matter how much alleged debt is on the balance sheet, if the company or sub cannot pay, it is worth nothing.

Whether it is Maxwell, Enron, Heritage (KPMG audit), Sateways (KPMG audit) or Farepak one must ask how much longer the ICAEW is going to encourage this mis-use of accounting principles

The ICAEW's view was summed up:
"Moody noted that on the key audit issue raised by Lampert, KPMG concluded provisions made by the directors were adequate to provide for possible non recovery of group balances. "

jeff lampert
(former Chairman of Heritage plc)

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