CAT / FIA FBT Syllabus C. Accounting And Reporting Systems, Controls - Consequences of Failing to Comply - Notes ^{2 / 3}

Failing to keep the proper accounting records and preparing financial statements that do not give a true and fair view are criminal offences and may lead to prosecution.

The responsibility is that of the directors and they can be fined for failure to comply.

There could be problems with the tax authorities if records are found to be incorrect; the tax authorities could investigate, and if the tax paid is too low, then, the company is guilty of tax evasion, which is a crime.

If the poor accounting records means that the financial statements do not give a true and fair view, and if this is detected by the auditor, the external auditor could give a qualified audit report.

This will damage the company's reputation and could make it harder to borrow money and to get shareholders to invest.

Poor accounting records could also mean that the company has inadequate records of receivables and payables.

It could therefore fail to collect money owed from customers which will damage cash flow, and pay suppliers on time which could lead to suppliers cancelling credit facilities.

These issues could eventually lead to financial difficulties and the company going out of business.

The accounting function which is very keen to be “self-regulated” has to follow the requirements of the Companies Act and tax authorities in order to avoid the company facing legal action.

By the 1970's, this meant that there was a multitude of different accounting standard worldwide making it very difficult for investors to compare the financial statements of companies in different countries.

In 1973, the International Accounting Standards Committee (IASC) was formed to try to harmonise (make similar) accounting standards in different countries.

In 2001 the IASC was replaced by the International Accounting Standards Board (IASB).