The bigger picture – and why accountants do not always see it

September 4th, 2018
04 September

Inspector Morse turned towards his detective sergeant who had been puzzling aloud over some aspect of a baffling case.  (Stay with me here…)

“Try and see the bigger picture, Lewis”, he said, wearily. That was always a favourite quote of mine and not just because John Thaw delivered it with just the right amount of quiet exasperation while Kevin Whateley looked suitably abashed. We all knew that the opera buff in the maroon jag was about to reveal the significance of all the clues that had been building up over the last hour or so.

I was reminded of this when it was revealed this week that the cricketer who deliberately bowled a ball over the boundary to prevent a batsman scoring a century was an accountant (here). He has since been outed but I am not going to further embarrass him by naming him again. He did receive a great deal of flak for not only behaving in an ungentlemanly fashion but also denying the opposition batsman the opportunity to score his maiden century.

He apologised handsomely later and this time next year it will all be forgotten. But the thing that struck me about this incident is that because he was so focused on the inevitable outcome of a match that he was obviously going to lose he neglected to consider the other players in the drama – in short, like some accountants before him, he failed to see the bigger picture.

Earlier this year, KPMG were grilled over why they had signed off on Carillion’s 2016 accounts on 31 March 2017, just months before the construction company issued its first profit warning in July and announced a £845m write-down in the value of its contracts. Just six months later (here) collapsing with only £29m left in cash and over £1.3bn in debt.

In August, House of Fraser collapsed with nearly £1 billion of debts (although it was “saved” with a pre-pack sale – another story!). One of its suppliers is XPO, an American transportation company, which is owed £30 million. Shareholders of all of these companies may reasonably ask if there had been any conversations between the executive teams and their accountants about the size of the growing debts in these businesses; and, in particular, in those instances where debt had been growing disproportionately with just one of its customers.

It is easy to be wise after the event but accountants sometimes do not ask the ‘what if?’ question often enough. Company A may have a problem that it can cope with or trade through now. But what if the Bank Rate goes up (again)? Or a poor harvest causes a raw materials collapse?  Or a labour dispute makes delivery of finished goods impossible? Or, heaven forbid, a hard Brexit?  And you still have the original problem? What’s viability looking like now?

Asking “What if?” is all about seeing the bigger picture. OK, he may have walked with a limp and drank a bit too much red wine; but while Sgt. Lewis was still staring at single column of evidence, Morse was taking in the whole spreadsheet.

At ipd, we endeavour to do the same.  We will, at times, be called in by the bank, owner, director or accountant of a business to assess its current position and what might happen in the future.  Our Financial and Options Review (“FOR”) service provides an immediate snapshot of the solvency (or otherwise!) of the business and outlines what might happen in various insolvency scenarios, including possible personal liability issues.

Being aware of those scenarios allows the various stakeholders to act knowing they have as many facts as possible.  A decision based on the whole picture is better than spending all your time on what’s happening now…  Call us and we’ll talk you through it.