Backdating – ‘but everyone else does it’

Backdating

We often receive enquiries where someone suggests that I should assist in backdating a transaction or asks me to draft a document, intending to backdate it.

What is backdating?

Backdating is when you date a document prior to its actual execution or create a transaction (by journal entry or otherwise) and pretend that it happened before it actually did. 

Everyone Else Does it

Whilst it might be true, “everyone else does it” is simply not good enough (it also is not a civil or criminal defence).

Recently in an email, someone who worked at a bank suggested that we should backdate a transaction – 3 times!  

More often than not, they are surprised when they are advised they cannot do it. 

Consequences

The intent of that backdating was to potentially defraud the Commonwealth of taxation revenue. If you backdate a document, and you are found guilty, you will likely be in jail. Yes, it really is that simple – in the last 10 years we have seen a number of professional advisers go to jail for crimes which, whilst complicated, can be boiled down to being as simple as backdating.

If you are backdating a transaction, there is a real risk that you are intending to defraud someone or something. Committing a fraud can be a criminal offence and could also lead to civil litigation. 

There are other consequences. Consider how you might earn a living, facing the almost certain loss of your professional memberships and accreditation if you are convicted of a criminal offence.

Then there is your professional indemnity insurance, which is usually designed to pay out if you act negligently. Almost all policies do not pay out if you are sued for what constitutes a criminal offence (even if it was also negligent). It follows that if you make an honest mistake your insurer would (hopefully) pay, but if you make a criminal mistake, they will not. 

Alternatives

There are sometimes – completely legitimate and legal – alternatives to the client who insists a document/transaction has to be backdated. I will look at some of those options in a further post. 

Conclusion

Backdating is simply not an advisable option for a professional adviser or your clients. There are obvious – and not so obvious – consequences and sometimes alternatives. 

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