Audit and Assurance

Need for Accounting Services during Company Liquidation/Restructuring

May 6, 2021 Comments Off on Need for Accounting Services during Company Liquidation/Restructuring

Setting up and conducting a business can be a very hectic process. A company needs to follow a number of compliance rules as set by the jurisdiction. Similarly, the businesses also need to follow certain rules and regulations for the liquidation of the company in these jurisdictions. The liquidation process can become a little complicated for the management, and they may require Accounting Services to simplify the matter.

What is Company Liquidation and Company Restructuring?

Company liquidation can be defined as the process of winding up a company. This means that the company is slowly removed out of existence, and all the assets of the company are sold off to repay the liabilities of the business. If, after selling the assets of the company and allocating the proceeds to cover the debts, some money is left, then his money is distributed among the shareholders of the company.

The liquidation of the company is usually conducted when the business is in no condition to continue its business activities. This may be due to reasons such as unwillingness to carry on the business, change in the taste and preferences of the people, etc., but the biggest reason for company liquidation is insolvency.

The Restructuring of the company is done when the company has started to falter or has started showing a loss. This means that the business is experiencing problems financially. During the restructuring process, the management takes a stand about the changes to be made in the company. The changes can either be financial, which means the debt-equity ratio. The shareholder pattern, etc. or the management can take the route of organisational change, which means a change in the company’s hierarchical structure, redesigning job positions, changing the reporting relationships, etc.

The need for Accounting During Company Liquidation

Accounting and Bookkeeping are the basic functions in the management of a business, but these services come into use during almost all of the business functions. During the Liquidation of a company, they play an important role which is described below:

  1. Accounting helps determine the current financial condition of the Company

Before choosing which of the functions among Company Liquidation and company restructuring, the management needs to check all the company’s accounting records. The management needs to decide if there is any chance for the company for its survival, or they will have to shut down the company.

  1. Ensures that the Company is Compliant to the Rules and Regulations

By following the Accounting procedures, the company management will make sure that the business follows all the compliance regulations. These compliance regulations are very much necessary to follow by a company as not following them could lead to more penalties or fines for the company.

  1. Helps in the Comparison of the Company

The biggest decision which the management has to take is to choose between the restructuring of the business or liquidation of the business. This decision has to be taken after much thought as this decision can make or break the business. The accounting will help the management to thoroughly compare the pros and cons of both Liquidation and Restructuring.

  1. Helps create Future Projections after the changes

The accounting process helps determine what will be the future of the company if the company is restructured or if the company is altogether liquidated. After the decision is made, the Accounting function will help provide a guideline for the future of the company and will also assist in choosing the correct future for the company.

These benefits of Accounting can mean a lot during the period when the management chooses between the Liquidation of the Company and the Restructuring of the business.

JAXA Chartered Accountants is a reputed Accounting and Auditing firm in the United Arab Emirates and will take care of the company’s financial requirements. The experts at JAXA will understand the requirements of your business and will accordingly provide a solution for your business. To know more about the services of JAXA, feel free to Contact Us. We will be happy to assist you in all the financial matter of the business.