Accounting · Financial Control
A newly established private limited company fails to keep proper accounting records as legally required, neglecting to document trade receivables and payables accurately. After 18 months, external credit rating agencies become aware of this failure, and subsequently, a key supplier threatens to withdraw credit facilities. Which statement accurately describes the likely consequence and category of failure for this company?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Consequence: The company will be legally required to immediately hire an external auditor to produce a retrospective qualified audit report. Category: Failure of Compliance.
- 2Consequence: The directors face immediate individual criminal prosecution under anti-money laundering legislation due to the undocumented transactions. Category: Failure of Compliance.
- 3Consequence: The company is likely to suffer cash flow difficulties and lost goodwill due to reduced trade credit facilities. Category: Failure of Financial Control.✓
- 4Consequence: The primary sanction will be a substantial fine imposed by the national tax authority for tax evasion. Category: Failure of Financial Control.
Correct answer
Consequence: The company is likely to suffer cash flow difficulties and lost goodwill due to reduced trade credit facilities. Category: Failure of Financial Control.
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