The Problems of Debt Management in Financial Institution

THE PROBLEMS OF DEBT MANAGEMENT IN FINANCIAL INSTITUTION. (A CASE STUDY OF UNION BANK PLC GARDEN AVENUE ENUGU)

A critical analysis of the capital structure of financial institutions will reved that these institutions themselves are debtors to the owners of fund, with which they are operating with, and in turn other investors come to them to borrow these funds to run business all promising to pay back in future time.  In view of this fact, the evaluation of the problems encounter by the managers of these funds needs not be over emphasized.

For a better appreciation of what this subject matter is all about, I will review the following terms that are related to this subject matter.

• Debt and Debt management Defined.
• Types of Debt
• How Bank create money
• Common causes and problems of bad debts
• Fundamental of credit analysis
• Prudential guide lines in Nigeria banking
• Minimizing risks associated with bank lending
• The need for frequents government regulation
• Short coming of the traditional method of credit.

 

• DEBT AND DEBT MANAGEMENT DEFINED

It is credit receives d by a borrower informal pretender who may be or informal financial institution against the borrower promise to make future payments.  Debt management involves the arrangement put in place for repayment and recovery of such facilities when the need arises.

 

• TYPES OF DEBTS

Traditionally there are two types of debts good debts and bad debts.  But Prof. Don. N. Ike also argued that there are three types of debts namely.

Good Debt: Its classified as those debts which payment are certain.  These debts are recoverable.  They are the best type of debts as the interest.  Any bank would prefer this type of debt as it not only enhances the banks profitability but also enhances economic growth.

Bad Debt:   These are debts that are not recoverable within the time span saet for their normal recovery.  They are written off as bad.  The losses arising from bad debts should be recognized as soon as possible and written of as adequate provision are made to accommodate them.  The reasons for customer’s failure to pay may be due to financial difficulties or outright unwillingness to pay

 

Doubtful Debt:     These are debts that are doubtful of recovery.  The different between doubtful and bad debt.  This difference is only examined at the end of each accounting period when the accountant addressed himself to the problems of measuring the income of the year.  A final security of the debtors accounts considered to be bad and the necessary transfers will have been made to the bad debt account of the remaining debtors some may ultimately prove to be bad.   The convention of conservation requires that the risk of further debts becoming bad should be discounted.  The4 normal practice is to made a provision for doubtful debts out of current year income without seeking to identify particular debt as being doubtful.

 

• HOW BANKS CREATES MONEY

It becomes necessary that we appreciate this particular area of how banks creates money having known that this debts we are talking bout arises as a result of banks intermediation between the surplus economic unit and deficit economic units.  This illustration below will and helps us appreciate how bank create money.  If for example Mr. a deposit N5000 in his bank, the bank credit his account by same amount and has entered into contact to pay Mr. A. the sum of N5000 cash on demand Mr. .A. can now make use of this bank entry to pay Mr. A. can now make use of this bank entry to pay Mr. .B. say N200 by issuing him a cheque Mr. B. can either cash this cheque paid into his own account in the bank.

If Mr. .B. cashed the N200, the effect ill be a decrease in the bank deposit of Mr. .A. by the amount of N200 and at the same time an outward flow of money from the bank to the same value.  However if Mr. B. did not want cash, the bank will pass a book entry crediting his account with N2000, hence the total deposit balance of bank remains the same, the transfers not with standing .

The recording of the transactions becomes more complex if Mr. B. does not bank with Mr. A’s bank. However, the banking system has developed a method of setting their claims against each other through the system of clearing and that makes the payment mechanism easy.  As was the practice in the days of the goldsmiths or earl bankers, modern banks known that only a mall proportion of the customers wish to have their money in cash at any one time.  The banks no create money by granting loans, overdraft which for exceed the actual cash-available when an overdraft is granted the bank allows the customer to issue cheques in excess of his deposit in payment of debts .  in the case of loans, the bank enter into a contact to grant a customers a fixed sum of money, even where he had no deposit with the bank.  In each case the bank credits the amount of the customers the banks has created deposits and of course dept has also arises.

Thus, the principal process by which the banking system creates deposit is the granting of loans and overdrafts.  Every loan and overdraft approved by a bank creates a new deposit upon the granting of a bank facility.  The customer can draw a cheque has been cleaved, there is an increase in the total deposits in the banking system as a new deposit has been created

ILLUSTRATION

In Nigeria banks generally are required by law to lead up to a maximum of 70% of Teri total deposit. The remaining 30% is held up in liquid assets to meet depositors demand for cash below is a brief illustration of how the rocess

Union bank PLc grants a, N10,000 overdraft to its customers Okoro to enable him to pay for some merchandise purchased from Ahmed and Sons, who pays the cheque into their account with bank of the North PLC. Bank of the North keep 30% of the deposit (N300) as reserves and proceeds to give out 70% (N7,000) as loan to its customer Adebayo.  Adebayo issues his cheque for N7,000 to Andys motors to pay for the cost of a new saloon car.  Andys motors pays the cheque into it current account with UBA PLC.

UBA PLC also lends 70% of the deposit (4900) to its customers plus, who issues a cheque for  this amount, thus creating another deposit within the banking system.  This process goes on and on and can be measured by the credit creation multiplier which is calculated as follows:

 

CHEQUE DRAW AND DEPOSIT CREATED

N                N

Overdraft             Granted                70%  x        10000    =   10,000

Ö                                    Ö                 70%   x       1000     =    7,000

Ö                                    Ö                 70%   x       4900     =    4900

Ö                                    Ö                 70%   x       3430    =     3430

Ö                                    Ö                 70%   x       2401    =     1681

Ö                                    Ö                 70%   x       1681    =     1176

Ö                                    Ö                 70%   x       1176     =    824

Ö                                    Ö                 70%   x       824     =      576

Ö                                    Ö                 70%   x       576      =     404

Ö                                    Ö                 70%   x       404      =     282

Ö                                    Ö                 70%   x       282    =       198

Ö                                    Ö                 70%   x       198      =     138

Ö                                    Ö                 70%   x       138      =     97

Ö                                    Ö                 70%   x       97      =       68

Ö                                    Ö                 70%   x       68        =     48

Ö                                    Ö                 70%   x       48        =     33

Ö                                    Ö                 70%   x       33      =       23

Ö                                    Ö                 70%   x       23        =     16

Ö                                    Ö                 70%   x       16       =      11

Ö                                    Ö                 70%   x       11       =      8

Ö                                    Ö                 70%   x       8          =     6

Ö                                    Ö                 70%   x       6 =    4

Ö                                    Ö                 70%   x       4   =  3

 

overdraft granted           70%   x       3   =  2

Ö                                    Ö                 70%   x       2   =  1

Total                                                                    33,330

Credit multiplier  =        Total amount of new deposit credit

Amount of original advance

 

=       33,330   =3.3

10,000

 

Credit multiplier   =    3.3

 

• COMMON CAUSES AND PROBLEMS OF BAD DEBTS.

Money is probably the most difficult asset to manage.   And lending is the most risky activity in banking.  There is the like hood that loans when granted may not be repaid or that investment made by customers may deteriorate in quality resulting in loss to the bank.  Few bankers even knowingly make poor lending decision.  It is certainly what occurs after a loan is made that causes it to deteriorate in quality such adverse circumstance ma sometime foreseen obvious credit weaknesses are overlooked or ignored.  However, many are unforeseeable.

Let us go now to consider the more common causes of problem loans.

1. BANKS CUSTOMERS: From the bank customer problem of diversion, poor financial analysis and financial knowledge, dishonesty lack of managerial skill are significant causes of bad debts.

1. DIVERSION: Bank give loans on the basis of good feasibility

studies viability and profitability of the proposal.  However, some customers divert to project other than one originally intended.  Show term loans are often diverted into long term project lending t gaping mis-match and resultant default.  Also some ignorant borrows are still living under the illusion that loans are part of their national cake.  Without making any plan to repay as the fall due.  This factor is more prominent with agricultural lending.

1. POOR FINANCIAL ANALYSIS AND KNOWLEDGE

Some bank customers are unable to adequately determine the amount of loan facility required to financial a project.  This results in customers sometimes asking for less funds that would complete a project.  Such project thus cannot be complete without extra funds.  This delays the completion and affects repayment schedule.  Bad debt usually result from this, some of the customers do not keep proper book of accounts of transaction and so have no records of their  business activities of course sound decision by management fests on information provided by its financial records.  Thus by not keeping such records, management is unable to picture the trend in the company.  They fail to keep track of relationship existing between assets and liabilities and hence may not know when the later exceeds the former.

Repayment by such business is almost impossible.

1. DISHONESTY: Some dishonesty customers mislead banker by presenting bogus proposal which the point I the most attractive picture and support some with false statement of affaires by giving incorrect picture of the financial position of the borrowers.

There are instances where customers vacate their places of residence after obtaining loan or overdraft facilities or in some causes giving fiction addresses and bank officials usually find out later the addresses are either non-existence or uncompleted building.

 

1. LACK OF MANAGEMENT SKILLS

Some bank customers lack managerial skill and  ability to appraise the market, economic and political environment in which they operate and hence are incapable of taking decision in relation to these factors.  Most of them are not separate utilities from their business and they lack the ability to promote their business to be result oriented.  They mismanaged funds, materials and human resources at their disposal and are incapable of producing good results which in turn will make repayment of loans impossible

 

THE BANK

Bankers on their own contribute to this unhealthy situation.  The following cold be attributed as laxity on the side of the bankers.  Lack of strict adherence to the principle of good lending.

 

POOR CREDIT ANALYSIS

Lack of supervision and control of loan account. Dishonest bank officials (corruption). Unqualified bank managers and lending officers lending on political grounds.

The non-adherence to the principle of gods lending is a major cause of the incidence of bad debts.  Banks establish lending policies to guide them in their lending operation but due to one reason of the other bankers do not have strictly to the polities

 

POOR CREDIT ANALYSIS

Customer presents to financial proposal which a customer presents to the bank he is expected to finish to the bank his plans for generating funds for repayment.  It is then the job of the bank to verify the reality of this plan by way of preparing customers cash flow forecast.  It shows whether the customer would be able to generate  the required amount by the time the loan will mature.  Unfortunately, lending officers either by ignorance or conscious negligence, have in some cases been unable to do this analysis as required which is effect result in loan loses.

According to Enyinaya U. (1988) some of the risks may be revealed in the analysis but these may be played down other considerations outside prudent financial management, the risks are the identified weakness in credits analysis being discountenanced.  This poor credit analysis on the part of banks and other financial institutions.

Contribute to the incident of bad debts.  Seeming poor judgment and negligence by credit officers may indeed by deliverable resulting infraududent loan.  This may not be common place, but does exist and result in problem loans.

Poor credit administration is another factor within the bank that often results in problem loans.  Banks that have poor monitoring and follow up process have found to carry relatively higher volumes or proportions of problem loan than banks with properly administered credit transactions.

Changes in the management of the borrowing organization, especially the replacement of the key operatives, many cause a facility to go bad.  This may result from incompetence of the new management or a repudiation of the loan.  The latter again underlines the importance of legal consideration in loan agreements and covenants.

Chapter in economic police can also effect the management of debts for instance, the Nigeria structural Adjustment programme (SAP) lauch in (1986) resulted in several bank facilities going bad. We must recognized the place of natural disasters and other natural occurrences that may jeopardize the repayment plan of the borrowers.

 

• FUNDAMENTALS OF CREDIT ANALYSIS

Oluma .E. Oluma (1992) argued that in order to reduce or even eliminate the incidence of bad debts in financial institution there is need for proper analysis of credit requests. In an attempt to bring the message down home he emphasized on the fundamentals of credit analysis, we recognized the following as the fundamental component of credit analysis:

1        Assessing the c’s of credit analysis

• Assessing the loan applicant financial plain
• Assessing the applicant potential source of finance other than the bank

1        in generalized assessment, the credit analysis first observe the potential source of finance than the packaging of the proposed planning. Thereafter the proceeds of carryout

the analysis assessment of the borrowers credit worthiness. In doing this he usually wound rely on the basic criteria popularly known as c’s of credit analysis.

 

I        Character

The probability that a customer will try to honour his obligation could be seen by his character as may have been identified by his / her past dealing with people.

Ii       capital

There a look into the customer memorandum and article of Association (as a case of registered bodies) to know the capital base not to lend company become very necessary in order not to lend the company above its agreed amount that could be taken as loan by law.

 

Iii      capital

Here consideration is given to the customer based on the physical observation of the customer business to determine if he /she could be able to pay back the loan at the appropriate time.

Iv      collateral

It could be justified claimed that if a loan is made for a sound purposed and if the repayment are realizably scheduled to flow from the profit of transaction being financial, little is required to make it a “good loan” since business is a risk and life itself uncertain. The proper function of collateral is to safeguard the interest of the bank in the event of death of borrower or if his income fail to materialize sufficiently to repay the facility for one reason or the other. As a matter of fact, facilities granted are expected to be seared.

 

However, for collateral to be useful in minimizing risk, it must be sound, easily realizable and must appreciate if it is to cover the principle and interest in case custom defaults and security is to be realized.

 

V       condition  

The impact of the general economic trend on the firm or to special development in certain area of the economy that may affect the customer ability to meet his debt obligation must all be put into consideration before grant certain credit facilities

 

• ASSESSING THE FINANCE PLAN

It is one thing to have in existence source of financing and quite another to choose the right source and package them into a coherent financing plan.

 

Financial plan which is the sum total of the design put up in order to attain the objective of financing the commencement of envisaged activity is no doubt should be property assessed before granting such organization credit facilities.

The basic component of this plan is the capital structure of the organization. This is made up of

A       long-term debt

B       Preferred shares

C       Retained profit (reserves) but excluding short term credit.

All thing being equal proper assessment of this plan give the leader, the provide of capital and manager some assurance that the enterprises is being properly managed.

• ASSESSING THE POTENTIAL SOURCE OF FINANCE OTHER

THE BANK

Potential source are both internal and external. Here internal sources could include retained profit. Depreciation provision, tax provision, reduction is non-liquid asset such as inventories and debt on the other hand external source of finance could include trade creditor, factoring, debenture and mortgage, hire purchase, leasing, sale lease back, share (new issue and right issued) specially government agencies and international finance organization.

 

After examining the above, the credit analysis could then consider the justification of the borrower need to have the loan overdraft

• PRUDENTIAL GUIDELINE ON NIGERIA BANKING

In November 1990 the central bank of Nigeria issued a circular entitled prudential guideline for licensed banks. The circular imposed new and for ranging requirement on the bank in the classification of risk asset and provisioning for those considered doubtful on recovery. The guideline are based on normally accepted standard prevailing in the banking industry world wide and seek to establish these criteria as a sound and uniform system amongst Nigeria bank.

No banker can really quarrel with the principle of providing for doubtful risk in a conservative manner and in order to achieve uniformity, a certain amount of rigidity is necessary. Never the less this was the first time that central bank had imposed categorical rules for provisioning which had hitherto been a subjective exercise

 

2.6 (I)                   THE TERM OF PRUDENTIAL (CBN) GUIDLING

With these guideline, bank are now compelled to review their credit portfolios at least once a quarter. Credit facilities include advance, commercial paper, banker acceptance, bill discounted leases quarantines and other loss contingencies.

It also stipulate that they must be classified either performing or non- performing, with the latter being defined as those where principal or interest is due and unpaid for 90day or more. This includes where interest is capitalized rescheduled or rolled over.

 

Non- performing facilities are to be further classified into three categories as follow:

A       sub-standard:

This is where interest or principal is in arrears for 90day –180days

B       Doubtful:

Where interest or principal is in arrears for 180days and perfected tangible security is in course of realization.

 

1. LOST

This is where the interest or principal payment are in areas for more than 360 days, and no perfected tangible security is in course of realization. In addition to these objective criteria, certain subjective standards are also suggested to facilitate classification. All interest overdue for more than days should now be automatically credited to suspense account and not taken into reveunue. All principal payments overdue for more than 90 days should be fully provided for. Whist the relevant outstanding balances should be provided for scale rising from 10% for standard, 50% doubtful, to 100% for lost of facilities.

 

The terms of guidelines can there be seen to be quite comprehensive and conservative, giving precise rules in many instance where previously management could exercise discretion. However there is little or no allowance made for the special condition of the Nigeria environment and this give rise to a number of criticisms.

 

1. HIGHLIGHTS AND EFFECTS OF PRESIDENTIAL GUIDELINES ON NIGERIA.

However, despite these criticisms, there can be no doubt that the prudential guideline are a welcome and statutory addition to Nigerian banking regulations.  They introduce realistic standards for the recondition of income and losses which will shake the complacency of some of the older and prevent the viewer ones from indulging in manipulation  of earnings.

The main and most desirable effects across he banking industry was a general lightening of controls . credit portfolios now have to be reviewed at least once a quarter and the figures closely watched by management and board in view of direct impact on profitability.  There was great pressure on unit managers to remove accounts from the Non- performing category and to prevent other lending from lapsing into default because such movements will be highlighted in periodic reports.

Control of provision level therefore becomes a more important and palpable factor is performance assessment of management ad had inevitably have a beneficial effect on the granting and monitoring of credit facilities.  In the field of debt recovery also, banks were forced to take a tougher and possibly less socially responsible stance with tougher and customers.  Success in obtaining repayment took a greater significance and banks were not as patient with recalcitrant customers as in the past.  In particular the enforcement of security will now be pursued at an earlier stage since only collateral in course of realization is recognized in the classification of accounts under the guidelines.

However, the prudential guidelines can be seen as landmark by imposing harsh reality on risk provisioning and effectively removing this source of profit and balance sheet manipulation.  The measure were however criticized for been too severe in not taking due account of local Nigerian factors but overall they must be acknowledged to be fair and necessary.

Nonetheless, all the existing prudential guideline on early recognition of loan loses and adequate provisioning for bad and doubtful; debts still remain in force.

 

• MINIMIZING RISK ASSOCIATED BANK LENDING

According to D.U. Amigbogun of U.B.A PLC, stated that the scale of write off and allowances for bad and doubtful debts by all banks in this country over the past years point clearly to the increasing magnitude of risks in lending and a call for vigilance in identifying potential difficulties early in the banking relat6ion with clients.

In view of this he highlighted some safe guards to obviate the risks in lending.

They include:

1. Adequate tools
2. High credit standards
3. Periodic credit review
4. Collateral or security
5. Competition

 

ADEQUATE TOOLS: from a policy view point, it is imperative that the lending authority, be it the manager, credit committee or the board of directors as appropriate, be provided with adequate tools, sufficient information on the client and business to be financial and a free hand to appraise and take decision on credit requests.  To this and the policy should inside on financial statements and earning records from al borrowers, no matter how sound their character may appear, or how intimate the principle in the business are with top management or director of the bank.

 

1. HIGH CREDIT STANDARD:

Minimize risk, lending should not be influenced by subjective consideration which have no rightful place in sound lending.  A borrower is worth credit if he can produce credible evidence of his ability and willingness to repay his loan as agreed.  Furthermore, the relationship of the borrower’s contribution to his obligations and the risk inherent in the business are essential area that must not be over looked when considering whether or not lend.

The borrower’s net-worth like the banks capital serves to win the confidence of the lender, that all things being equal, the borrower will be able to meet his obligation.  Earning capacity is a vital ingredient of both credit worthiness and confidence in supervision the same is true of liquidity.  Finally character, which along with capital and capacity as one the three C’ of lending consideration must be given emphasis when appraising credit requests.

1. PERIODIC CREDIT REVIEW

He also emphasis on the important of continuing close analysis of financial position of the borrowers as much as possible.  As early observation of unfavorable trends will enable the bank to take effective protective measures or render often vital financial guidance which makes a difference not only between payment and loss but also between the success or failure of borrowers

For this device to be effective officers carrying out the review must have sound lending knowledge and be fully aware at an early stage if loan is going bad in order to appropriate recommendation to salvage it before it is too late.

Additionally, an alert collection procedure is vital other wise if the problem has grown to the point where the trend is inevitable, the bank is left with no other choice than to appoint a receiver, if it is n incorporated company.  Then, of course it becomes a matter of maximizing the proceeds of liquidation rather than of implementing a financial reorganization for on going business concern.

 

1. COLLATERAL OR SECURITY

One aspect bank mangers or lending officers tend to overlook is an element of competition in the business in which the borrowers is engaged. No matter how uncreative a business may be, when faced with  stiff competition, it profit margin is bound to be narrowed as large existing business in that field backed by access to the source of raw material and capable of rapid innovation, may render other competition impotent.

It is prudent to exercise care in lending to customers in this types of business environment in order to minimize risk.

2.8     THE NEED FOR FREQUENT GOVERNMENT REGULATION

According to Prof .G. .O. Nwankwo (1990) banks are regaled more heavily than any other business activity.  From the time of the early renaissance the present, bankers, their customer and the general public have considered banking a very special business, set apart from all others apart from their trivial role in financial the ventures of others by at first issuing notes when making loans and later by crediting deposit accounts of borrowers, banks began to provide a position of the money supply of the nation.  As hard money (silver and gold coins) became les important in effecting payments, the portion money supply provided by bank credit increased.   Today virtually all independent countries in both developed and developing world, banks, particularly.

 

Commercial banks, operating under constraints imposed on them by governments through their central banks for all practical purposes, create the money supply.  Clearly then, banking business is one in which the public has more than a passing interest.

Prof. .Uche .U.U. (1991) agreed that pressure for banking regulations grew as people realized that the failure or of a firms working capital

Prof. .G.O Nwankwo (19900 affirms tat banks are regulated because their liabilities are money the quality of which national authorities seek to control to achieve monetary stability.  Banks are controlled because of their key role and centrality in the saving investment process to influence the direction of these flows to attain national objectives.  Banks role as repository for the public savings makes them a prime target for consumer protection regulations and because of their proneness and vulnerability to financial collapse, banks and objects of extensive prudential regulation.

 

Finally the concern for systematic stability of the financial system reflecting the danger that multiple bank failures might lead to a sudden contradiction of the money supply and cores ploddingly to serve dislocation of the real economy, makes banks an inevitable and indispensable target for control to attain public policy objective of financial and economic stability and development.

Agbor George (1991) said finally, that there is interplay of nationalism and the need to maintain national competitive positions.  Worse the failure of a bank casts a all over the entire community its serves as the means of financing the already strikes business disappears.

 

Nor does the damage of failure necessarily store wit the foundering of a single institution.  A run on one bank often generates uncertainly and panic among depositors of other banks in the community and the spill over of failure could, in turn, be transmitted to more remote parts of the country.  As hurried banks they try to increase their liquidity by selling security, security prices fall dramatically and if a bank cause in loans or refuses to renew loans as they fall due, the trouble is transmitted further to the real sectors.

 

Thus, public concern about the condition of banks was particularly acute when no one seriously advocated government intervention to moderate business cycles.  The only sure protection of the public appeared to be in an ever more complex set of rules and regulations aimed at keeping banks sound.  It is not therefore, that much of banking regulation where aims at weaknesses, real or fancied, that became apparent in depressions long since gone by.  Competitive pressure arising from interpenetration of financial markets, nationally and internationally and the multinationalisation and globalization of financial markets. Have generated competitive national regulations to secure and for defend national competitive positions.  This has brought about increased international co-operation and strengthened the case for and the regulation of national and international financial markets.

 

Mr. Adebayo Faluso (1993) argued that in many countries including developing countries with an developed competitive domestic banking systems, nationalism has dictated regulation of banking system and prevent it from take over or domination by foreign banks which may be inclined to give to commercial advantage or to another nations interest.  This concern or consideration is not, however, limited to developing countries or under developed markets.  Indeed, available evidence and informed judgment suggest that (foreign) acquisition of Orge banks would be acceptable to most governments, even where there is not explicit prohibition.

 

In the contribution of Mr. Nwachukwu Ogwezie (1993) the regulation which varies immensely in role nature, and intensity from country to country depending on the soci-political and banking evolution, generally takes four forms. Structural regulations and exit. Monitory regulation deals with the money supply its quantity, cost and distribution and the payment system. while prudential regulations focus on permissible business risk concentration or diversification and capital and liquidity adequacy for solvency, fair weather regulation deal with disclosure of information advertisements and loans to directors and employees to ensure competitive equality and level play ground for all operations

 

• SHORT COMING OF THE TRADITIONAL METHOD OF CREDIT ANALYSIS

1. A. PITCHER (1985) of the chartered institute of bankers.

London has identified the following short coming with the traditional method of credit analysis

1. Basic C’s of lending tend to be given exaggerates importance for the

information utilized there of seems to chiefly background looking.

2. Audited accounts as a tool could be misleading because:
   1. Figures look backwards not forward
   2. They are out of date by the time they are seen by banks and customers
   3. They only show assets and liabilities that can be measured in financial terms.

1. At present the normal financial measure used in one which relates assets to their original cost and their resale value of replacement cost.

1. The accounts are often produced for tax purpose thus, there is possibility of manipulation especially for small firms.

1. The accounts are snap short of a business as a moment in time.
2. Most forms of accounting allow a considerable degree of interpretation to the individual or firm compiling the figure.  No wonder different firm of auditors would have different views on the same set of accounts

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