Internal Audit Taskforce

"Seeing the wood for the trees"

Balance Sheet Integrity Checking

Our focal point for this activity is Malcolm Ritchie, a Chartered Accountant with many years experience at finance director level within both major PLC’s and SME’s. Malcolm has worked in a wide variety of sectors, including manufacturing, FMCG and construction.

The balance sheet, the measure of a company’s assets, liabilities and ownership structure is the pulse which provides the most comprehensive indication of the overall health and value of a business to the trained and experienced eye.

There are a number of circumstances in which a thorough balance sheet review is desirable, including:

  • Acquisition of a new business
  • Revelations and doubts arising in relation to an existing business (including the possible impact of fraud and false accounting)
  • Concerns arising in relation to the possible impairment (reduction) in asset values
  • Changes of senior management
  • The need to provide assurance to a potential business partner or customer
  • Funding Applications to the Institutions

The following are examples of problems which have come to light as a result of balance sheet integrity checks with which we have been involved:

  • Receivables and work-in-progress inflated by the inclusion of old and disputed billings
  • Internal debtor and creditor figures having been ‘fudged’ to agree with statements from fellow subsidiaries
  • Fixed asset balances which include the value of lost and obsolescent equipment
  • Failure to provide for potential and contingent liabilities such as damages arising through litigation
  • Differing accounting treatments by subsidiaries of the same transaction/topic
  • Material differences resulting from an ineffective inter-company accounting process, which allows disputes to remain unresolved
  • Ageing and collectability of debtors not being recognized in the bad debts provision (thus affecting cash flow and profitability)
  • Lack of reconciliation of creditors to statements (resulting in overpayments and duplicate invoices)
  • Adjustments made to the reporting pack which are not reflected in the accounting systems

Business owners and managers should not be lulled into a false sense of security by an annual statutory audit. With statutory audit budgets and timetables being relentlessly squeezed from one year to the next, and with reliance being placed on ratio and reasonableness checks rather than detailed examination, there is no certainty that all material balance sheet discrepancies will be detected. Moreover, our accounting experts will search out problem areas at a fraction of the cost of employing a public accounting firm.