Independent business reviews
Lenders, investors and venture capitalists often require accountants to carry out an independent business review (IBR) before finalising a lending or investment decision. Whether management is seeking additional funding, or lenders or investors require reassurance as to the viability of the business, an IBR will provide a sound base from which management, lenders and investors can move forward.
Directors do not normally have much say in the choice of the reviewing accountant - the bank or investor will usually choose him from a panel of accountants selected by the particular bank or investor. The reviewing accountants' principal client relationship will be with the bank or investor and not the company - although the company is always responsible for the costs of the IBR. Normally, the bank or investor will introduce the prospective reviewing accountant to the directors before the instruction is finalised. This gives directors the opportunity to discuss and agree the costs and timing of the IBR.
Generally, the reviewing accountant will seek to agree his fee on a time cost basis, and he will prepare an estimate of the expected fee based on the directors' representations regarding the quality of information that they will provide to the reviewing accountant. It is important that directors are honest in the representations that they make to the reviewing accountant - misleading information is likely to lead to additional costs that the company will be expected to pay and may create an atmosphere of mistrust.
Directors should expect an IBR to add some value to their business - it is therefore important for directors to consider carefully the reviewing accountants' terms of reference.
Typically, an IBR would include an assessment of:
- Current trading and financial position
- Profit and cashflow projections
- Business and financial strategies
- Sensitivity analysis
- Management and systems
- Bank security cover
- The way forward for the business
The reviewing accountant relies upon the co-operation of the management when preparing his report and one of the first things he will notice is whether the directors are genuinely on top of the financial situation or not, and whether they have a clear view of the future.
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