ROLE OF INSOLVENCY PROFESSIONALS IN BOOKKEEPING AND ACCOUNTANCY UNDER THE IBC

Introduction: The Insolvency and Bankruptcy Code (IBC) has significantly transformed the landscape of corporate insolvency and bankruptcy in India since its enactment in 2016. One of the key components of the IBC is the role played by Insolvency Professionals (IPs) in managing the resolution process. Alongside their responsibilities in overseeing the financial restructuring of a company, IPs also play a vital role in bookkeeping and accountancy. This article explores the crucial role of IPs in maintaining accurate financial records and ensuring transparency in the insolvency process.

1. Appointment of Insolvency Professionals: When a corporate debtor undergoes insolvency proceedings, the resolution professional (RP) is appointed to manage the affairs of the company. The RP acts as an IP and plays a central role in conducting the insolvency process. The IP can either be an individual or an insolvency professional entity registered with the Insolvency and Bankruptcy Board of India (IBBI).
2. Preparation of Financial Statements: One of the primary tasks of the IP is to prepare the financial statements of the corporate debtor. These statements provide a comprehensive view of the company’s financial position, including its assets, liabilities, and income. The IP is responsible for accurately recording and presenting this information in accordance with the applicable accounting standards.
3. Verification and Analysis of Financial Records: IPs are entrusted with the responsibility of examining the financial records and books of the corporate debtor. This involves scrutinizing financial transactions, verifying the authenticity of records, and identifying any discrepancies or irregularities. The IP’s expertise in bookkeeping and accountancy enables them to thoroughly analyze the financial data, providing valuable insights into the company’s financial health.
4. Maintaining Transparency and Fairness: Transparency is a fundamental aspect of the insolvency process, ensuring fairness and trust among all stakeholders. IPs play a crucial role in maintaining transparency by adhering to accounting principles and practices. They ensure that the financial statements accurately reflect the corporate debtor’s financial position and provide regular updates to the creditors, committee of creditors (CoC), and other relevant parties.
5. Management of Funds and Assets: During the insolvency process, IPs are responsible for managing the funds and assets of the corporate debtor. This includes safeguarding and preserving the assets, identifying potential sources of funds, and allocating funds for various purposes such as operational expenses and repayment to creditors. Proper bookkeeping and accountancy practices are essential for managing these financial aspects effectively.
6. Compliance and Reporting: IPs have a duty to comply with the legal and regulatory requirements governing insolvency proceedings. They are responsible for preparing and submitting various reports, including the information memorandum, resolution plan, and progress reports, to the CoC, IBBI, and other regulatory authorities. Accurate and timely reporting ensures transparency and accountability throughout the resolution process.
7. Collaboration with Professionals: In complex insolvency cases, IPs often collaborate with other professionals such as forensic accountants, valuers, and legal experts. This collaboration strengthens the bookkeeping and accountancy process by bringing specialized expertise and insights into the resolution process. IPs work closely with these professionals to ensure that all financial aspects are thoroughly assessed and appropriately accounted for.

Conclusion: The role of Insolvency Professionals in bookkeeping and accountancy under the IBC is critical to the effective functioning of the insolvency process. IPs play a crucial role in preparing financial statements, analyzing financial records, maintaining transparency, managing funds and assets, complying with regulatory requirements, and collaborating with other professionals. Their expertise in accounting and financial management contributes to the overall success and integrity of the insolvency proceedings, promoting fairness and trust among all stakeholders involved.