Consequences of Unqualified Directors for Accountancy Firms

Unqualified directors in accounting – whether unqualified from the off or disqualified – can have serious repercussions on your firm. A director may be disqualified for a number of reasons: fraudulent trading, failure to submit annual accounts, failure to meet legal responsibilities, or failure to pay the company’s tax, to name but a few. The consequences for accountancy firms take a number of forms: in this blog post, we take a look at what director disqualification could mean for your accountancy practice, how to avoid it happening, and what we can do to help.

The Impact of Unqualified Directors on Firm Reputation

Director disqualification can, of course, have a huge impact on the individual concerned. However, it can also have a significant impact on the business in question.

Your firm’s expertise in accountancy and trustworthiness will be two of the key reasons your clients use your practice. The revelation that your firm has had a director disqualified for accounting-related failures will leave them questioning the firm’s legitimacy – and perhaps fearful that their own accounts have not been processed correctly. Trying to convince clients that their businesses are safe in your hands can be a challenging – and sometimes fruitless – task. After all, if an accountancy firm can’t adequately handle its own financial matters, why should they trust you with theirs?

Ultimately, director disqualification will seriously damage a practice’s credibility and trust. Its effects won’t be shortlived, either: with long-term negative effects on client relationships, it could be hard for a practice to rebuild then.

Legal Consequences and Director Disqualification

There are many consequences of director disqualification for the individual involved. They will be made to step down from their current directorial role, banned from acting as the director of a business for up to 15 years and prevented from forming a new company. During the disqualification period, they will also be banned from taking on other positions of trust, including those of pension trustee, charity, school or police board member, or social landlord.

If any of these disqualification terms are breached, the individual could face a hefty fine – or even up to two years in prison.

The legal process for disqualification can go one of two ways. Once unqualified directors in accounting have been investigated by the Insolvency Service and an application for disqualification has been made to the court, directors then have the chance to go through a disqualification undertaking. Here, they can voluntarily disqualify themselves to avoid the case going to court. As a result, fines, compensation requests and disqualification periods may all be lower.

Preventative Measures for Accountancy Firms

A loss of chartered status for a director can be highly damaging, with significant consequences for accountancy firms. The good news, though, is that there are plenty of measures you can put in place to avoid the risk of director disqualification damaging your practice.

Adopting best practices in director selection will make it less likely that disqualification will be an issue. Before you appoint a new director, carry out your due diligence. Check whether they have previously been disqualified from being a director and whether they are currently bankrupt. Avoid giving a directorial position to an individual who acts as the firm’s auditor (or replace the auditor, if so).

You will also want to ensure that ongoing training and qualification verification are in place. By reviewing your firm’s directors, their capabilities, and their qualifications for the role on a regular basis, you’ll reduce the risk of disqualification and give your clients peace of mind.

Why Join ICPA: Protection and Support

The prospect of such severe consequences for unqualified directors in accounting can be terrifying. However, it’s not something you need to deal with alone.

ICPA members benefit from a range of resources for firm management: resources that can help you ensure that you and your directors remain on the right side of the law.

Our member advice lines offer support as and when you need it, while our “ask an accountant” service will provide you with expert advice from accounting and bookkeeping specialists – including support with the most up-to-date legislation.

We know how important it is to learn from others in your position, which is why we also host regular member webinars and networking events to give you access to both peers and industry experts who can help when it comes to protection and support.

To find out more about how we can help, get in touch.