The collapse of construction giant Carillion has been the dominant news story of the week, with a knock-on effect to the firm’s 20,000 UK employees, their pension funds, and those to whom they provided services. It has also led many journalists, and others, to question why the company received such a glowing financial statement from its auditors in its most recent annual report, published just ten months ago. While those responsible for the report are now set to be heavily scrutinised by the Financial Reporting Council, there are lessons to be learnt for businesses of all sizes around the dangers of painting a falsely rosy picture of your financial outlook.
In George Orwell’s Big Brother, protagonist Winston Smith famously realises the power of the State is such that, should they declare ‘two plus two equals five’, this would become the truth assuming everybody is sufficiently indoctrinated into believing it. In the real world, this is not a business practice others should adopt, or could even get away with adopting. Perhaps the most famous example of this going wrong in recent years was the Enrol scandal, where directors thought they could get away with presenting a healthy business amid a backdrop of mounting debts.