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Practice Tip ' Watch out, Companies House is monitoring you

4th Jan 2006
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I received a letter from Eric Anstee of the ICAEW a couple of days before Christmas. It was marked confidential and since we are not personally acquainted I was somewhat surprised by this. As it transpired, it is hard to see what confidence I will be breaking by sharing its content with you and so with due apology to Eric, that is precisely what I intend to do.

It transpires that Eric's concern is that a sample of accounts filed at Companies House show's that 'many of those accounts had been prepared with a lack of care.' The review that came to this conclusion was undertaken by the Professional Oversight Board for Accountancy (POBA) who, amongst other things, seem to share the ICAEW's view that 'small companies need a better understanding of the full benefit of using professionally qualified accountants'. One can only conclude from Eric's somewhat anxious missive that some of the accounts that do not come up to scratch must have been prepared by some of those professionally qualified accountants.

Apparently the POBA will be undertaking a further survey of accounts filed at Companies House during the course of January. Somewhat cheekily, Eric clearly wants professionally qualified accountants to be aware of this fact so that they improve their performance whilst others remain unaware of the quality control checks that will be undertaken during the course of this month.

Now you won't be surprised to know that I am entirely in favour of a high quality of corporate reporting and of compliance with the requirements of the Companies Acts, the FRSSE and any other applicable standards. But I am not convinced that the ICAEW, or anyone else come to that, should seek to distort the results of a survey. That is why I am sharing this information now.

I do so knowing two things. The first is that I have had accounts I have sent to Companies House returned, but only because I have failed to check that they had been properly signed (which is daft, nonetheless, and I admit it). The second is that I have seen atrocious accounts on file at Companies House. The worst example I ever saw were from a company that had passed itself off as being a company of which I was a director. The accounts, filed in about 1997, might have complied with the requirements of the Companies Act 1967, but certainly did not in any way meets the requirements of the 1985 Act. The auditor was also very obviously the sole director of the corporate company secretary. The police pursued the case. The professional institute of the auditor pursued the case. Companies House declared when complaint was made to them about the accounts that they could see nothing seriously wrong with them. In fact, as far as I can tell, so long as they balance and so long as they are signed and include a directors report, a profit and loss account, a balance sheet and notes Companies House have been willing to file just about anything.

I am pleased to see that might no longer be the case. There is though a clear warning in this development. Even if you do not audit accounts you have, as the POBA points out, a clear duty to ensure that the work with which you are associated is of a suitable standard. And as the POBA says, association can be created by simply sending a set of accounts to Companies House even if your name is not appended to them in any other way. Because only Companies House can know who is sending accounts to them it must be the case that they are co-operating with the POBA in the work that it is doing.

So, you have been warned. If you file duff accounts this month expect some form of comment. And there's really no excuse for doing so. There is ample software available to assist this process and even if you don't audit a set of accounts there is nothing to stop you using a checklist to ensure that proper disclosure is made.

Richard Murphy
AccountingWEB contributing editor Richard Murphy is a sole practitioner chartered accountant but was previously senior partner of a firm for 11 years. He has also been chairman, chief executive or finance director of 10 SMEs. A collection of previous articles by Richard on practice management themes is available in Practice Management Zone


Replies (12)

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By Paul Scholes
09th Jan 2006 14:03

Thanks & What?
To John:
Thanks for your comprehensive answer to my query. I feel particularly embarrassed because I subscribe to the FRC/APB newsletters but this aspect of the FRC passed me by.

To Stuart:
From what I can tell this exercise is the start (albeit late) of a process to identify the extent of the problem with a view to hopefully doing something about it, so I don’t know what you expected from your question at this stage. I agree that the object should be to increase the quality of reporting but with the complexity of disclosure maybe more effort should be put into pressing for simplification for small companies?

I must take issue with the inference in your question that only “unqualified accountants and owner/directors” submit incorrect accounts. Are you not concerned if qualified accountants submit incorrect accounts? I agree that anyone “unqualified to prepare accounts” should not submit but I know many accountants and directors of all shapes & sizes and whether or not they have letters after their name can have little to do with their ability in this area. I passed my driving test 30 years ago but you may not feel happy as a passenger in my car.


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By User deleted
07th Jan 2006 01:25

Why show accountants name on Accounts?
I stopped including an accountants report or showing the name of my firm on the cover of all audit exempt accounts filed at Companies House a couple of years ago so the review of accounts does not worry me. I did this not because my accounts are not compliant with all regulations but because I became fed up with credit reference agencies (or one well known one in particular) telephoning me and asking for the directors personal telepnone number and the company's business address. I feel this practice also reduces my risk of being sued by any third party as they are not aware of my association with the accounts and cannot have relied upon my work in any way. Is my practice not widespread?

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By JSJ54
07th Jan 2006 09:44

POBA have replied
It is important to remember I asked for their views on the problem of accounts prepared by unqualified accountants and owner/directors.

Their reply was:

We expect to publish the report of our review in February or March and this will include our views on the monitoring of the quality of accounts submitted to Companies House. We will send you a copy of the report when available and would welcome any further thoughts you may have at that stage.

Well thanks, just for a moment I thought I was expecting POBA's comments on the issues raised in my letter.

Another drain on our subscriptions.

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By JSJ54
09th Jan 2006 09:04

I thought I should ask POBA a direct question (in the hope that I shall receive a direct reply) namely:

Why will unqualified "accountants" and owner/directors continue to be allowed to submit incorrect accounts (see example in my letter) without "penalty" whereas qualified accountants are subject to your and the ICAEW, ACCA, CIMA, etc actions?

I shall post the reply when I receive it.

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By philiprjones
04th Jan 2006 20:26

Not in the public interest
A couple of years ago I complained about a set of accounts that clearly did not meet any disclosure requirements at all and expressed my surprise that they were even accepted for filing

The response was similar - Companies House "could not see anything wrong with them".

After sending a second letter pointing out some of the worse errors and descrepancies, the reply received back eventually was "that it was not in the public interest to pursue this any further"

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By JSJ54
05th Jan 2006 10:37

What about accounts submitted by owner/directors and others?
I have sent Mr Anstee a set of accounts for a local company which have been prepared by the director. They are actually revised accounts so this is the second attempt!

I pointed out the four main mistakes:

1. Incorrect wording for director's report
2. No comparatives
3. No share capital
4. A current asset of £1 described as "Nominal share value"

and have asked him for his comments. At the same time I sent a copy to POBA and asked for their views.

I shall let members have details of their replies.

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By AnonymousUser
05th Jan 2006 12:18

One sided balance sheet
Took on a new client recently, director had done his own accounts last year.

Pulled them off Companies House, and, hey ho, there was only one half of the balance sheet - no capital or reserves shown.

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By martinfoley07
05th Jan 2006 12:52

.......presentation and substance.........
(i) re presentation of the article, the introductory remarks and paras are particularly petty and silly ;
(ii) re the point of substance of the article once you get past the silly season stuff, it is indeed true that
(a) Co House demonstrably do not fulfill any substantive monitoring function of info filed with them (I suspect the only thing they check is that the accounts have been signed)
(b) given the astonishing stuff that is filed and accepted, hardly a bad thing that some checks are being conducted
(c) I am sure there are some "professionally" produced accounts which are indeed less than compliant. Perhaps those flogging Companies Acts checklists, FRSSE checklists etc will see a surge in sales!

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By User deleted
05th Jan 2006 13:05

What does the ICAEW do?
Apart from advising members (yes I'm included there) to check what they are filing is not complete rubbish and the odd merger proposal and of course exams for potential members the purpose of the whole Institute does seem a bit vague. For £252 this year before my additional Tax Faculty subscription what exactly do I get?

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By Paul Scholes
05th Jan 2006 16:36

Longer Term?
Being a member of "the other lot" (Rachel check them out) this is the first I've heard of this, but about time.

I too have seen some wonderful sights on Companies House from "qualified" and not so "qualified" providers and have lost potential clients who didn't see why they should have to pay more for compliant accounts when the last non-compliant versions had been accepted without query.

I'm interested to know whether the one month review is with a view to seeing whether formal policing by the DTI is justifiable, ie in the public interest, can you let us non-ICAEWs know please Richard? Also, I didn't spot but who established the POBA?


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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
05th Jan 2006 17:02

POBA - set up by the government as part of new style FRC

POBA grew out of the govrenment's proposals for reforming financial reporting and audit regulation following the Enron scandal.

POBA has been operational for around two years and is one of the constituent bodies of the revamped Financial Reporting Council. In 2003, the government decided to drop the old self-reguation body (remember the Accountancy Foundation?) and merge its functions into the FRC. This body is beginning to resemble the "companies commission" suggested years ago by Sir Bryan Carsberg to the Company Law Review and it appears to be taking on similar funcitons to the US Securities and Exchange Commission - for example with the FRRP taking a more pro-active look at company accounts for errors and omissions.

POBA's name appears to emulate the US Public Company Accounting Oversight Board set up as part of the Sarbanes-Oxley Act. Among the most relevant work it has done so far has been to examine the work quality of the Big Four audit firms (medium size firms are next). Somewhat embarassingly, the firms ignored POBA inspectors' request to examine audit papers of international clients and appeared to limit investigators access to audit quality review meetings.

The audit inspection report makes for interesting reading and includes the conclusion: "While we understand that the level of access provided by individual firms was in line with their practice in previous years, we do not consider it acceptable for any firm to seek to limit the scope of our work in this way. Accordingly, we will expect full access to be provided by all firms in future."

John Stokdyk

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By JSJ54
09th Jan 2006 17:43

Paul, keep your hat on!
If you read my comment again (slowly) you will note that my complaint is unqualified accountants and directors will not be subject to any action whereas qualified accountants will face action from their association/institute.

Recovering our steps (yet again) about qualified v unqualified distracts from my argument.

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