Why The Recovery Audit Is Now Saving Otherwise Doomed Companies

Recovery audit systems are put in place to try to help an ailing business recover from financial difficulty. They can also be used on the finances of public bodies who have got themselves into trouble by overspending. These systems are very similar to many used in internal auditing, where a company is trying to improve its own performance by assessment and then adjustment. As with all auditing, it is best carried out by someone with a knowledge of accounting, and knowledge of the specific business which is in trouble. Often, though, it is simply an accountant from outside who instigates a recovery plan.

Auditing has come more than ever into the public gaze in recent years, following high profile cases in which millions of dollars were lost, and a great deal of damage done. The most famous of those cases was the Enron scandal, when a company which had concentrated its entire business strategy on the artificial inflation of the share price finally fell apart. The elaborate web of deceit which had allowed Enron management to cover up their financial affairs was finally exposed, and the accounting firm who audited them was forced out of business.

When such a high profile accounting firm loses its license to audit, it obviously sends shock waves around the entire industry. Accounting firms, even though they are so often paid by the very firm which they are auditing, now know that they need to be more wary than ever before. Methods of operation have been tightened up and changed, and accountants can now usually spot an ailing company very early on. The earlier problems are noticed, the easier it is to implement recovery strategies.

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The recovery audit can be carried out by a specialist accountant, or by someone with a knowledge of the operations of the company. Obviously, if you can find a combination of these, you are likely to achieve the best result. The first step is obviously to try and identify the causes for the company getting into trouble. Where the cause is nothing more than changing market demands, there is really little more that can be done than to wind down the business and sell off any assets. Occasionally, it will be possible to use the same infrastructure to create other products or services.

Once the recovery audit has taken place, the conclusions drawn from it need to be implemented. In some cases, the company itself will still be in a position to follow these recommendations. In others, the court will have determined that another organization needs to oversee the running of the operation. If there are debts, the court will need to rule on how those debts will be paid off. The repayments cannot be so severe that the company is unable to recover by following the provisions of the recovery audit.

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