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Do you ALWAYS insist on seeing underlying documents for a/cs prep?

There seems to be a general consensus on this site that an accountant should always look at the underlying paperwork when preparing accounts. (Assume this is not an audit). What about:

a) client sends CSV downloads of bank statements - do you still ask for the original printed bank statements, assuming that they exist?

b) client submits TB that appears sensible, e.g. has share capital figure, debtors are a reasonable proportion of sales, PPS not an enormous figure, etc, etc. - do you still ask for purchase invoices, sales invoices and bank statements?

Red Leader

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By Monsoon
31st Oct 2011 20:44

Case by case basis
I have no problem with electronic documents, no problem at all. So no, if I have a csv download of the bank, that is fine. I may want a screen grab of the last statement as at the BS date, or ask the client to confirm the closing balance but I work on the premise that my clients are honest.

I will not always take source documents, no. I know I will get frowned at by some of you for this, but on a case by case basis, sometimes it is not needed. It depends on the client, of course, and in the first year for a client we will check things in more depth. In subsequent years, if they have proved themselves to be good bookkeepers, we may not check as much. If their records are ropey, we will do more in depth checks every year to make sure things are correct. For those existing clients for whom we do not take source documents as standard, we will request specific ones if we require them through our routine checks.

The usual suspects are always checked as applicable - bank rec, control accounts, reading through the nominal for any discrepancies or mispostings etc.

We don't operate a sausage factory, nor do we believe in doing a "full work up" (and charging accordingly) on every single client that comes through the door. We tailor what work needs doing to each clients needs, no more and no less.

I trained at a sole practitioner who also trained at a sole practitioner. Therefore I don't have first or even second generation 'normal' practice experience on which to draw. I just do what logically makes sense to me to get the job done correctly.

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31st Oct 2011 22:04

Agree with Monsoon

Pretty much what Monsoon says - assume client is honest, and just ask for what I need not everything - looking at everything is not the nature of the engagement (usually).

 

 

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31st Oct 2011 22:48

No

We do not look at the source documentation. Though a fair amount of time is spent on training and supporting clients on maintaining their financial records.

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31st Oct 2011 23:52

look at SOME key docs

depends on the client ... for companies & sole traders, i want the full years bank statements (CSV, download to xl, hard copies, scans - whatever).  for individuals, the p60 and p11d must be originals. 

recent checks include:

 

1.  insurance docs for a company claiming 2 cars are pool cars

2.  property client - copies of original bills for large repairs and other costs 

3.  intercompany loan check to accounts published by another firm. 

 

i do think it keeps clients on their toes if you do a few spot checks ... plus a bit of analysis to pick up odd trends/figures.  

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By blok
01st Nov 2011 09:15

.

FirstTab wrote:

We do not look at the source documentation. Though a fair amount of time is spent on training and supporting clients on maintaining their financial records.

WOW!

How can you honestly say that you just dont look at source documents.  Surely you must look at some.  OK, if you have built up a level of comfort with the client over a number of periods you can skip a few steps. 

But, to say that you dont look at any documents is just asking for trouble.

How will you know they have not made a mistake? 

Without seeing the bank statement how do you ensure that the bank is reconciled? 

Are all outstanding bank items genuinely outstanding or are there errors? 

Are all loans and HP balances agreed?  Doubtful.

Do you review the vat returns to ensure they are sensible?

Does the wages agree to the payroll records?

I could go on!

What do you charge the client for exactly?

The training and supporting clients is absolutely fine, but you must do basic checks and that must mean looking at some paperwork.

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01st Nov 2011 10:38

This Accounts for the Variation in Fees

blok wrote:

...to say that you dont look at any documents is just asking for trouble.

Without seeing the bank statement how do you ensure that the bank is reconciled? 

Are all outstanding bank items genuinely outstanding or are there errors? 

Are all loans and HP balances agreed?  Doubtful.

Do you review the vat returns to ensure they are sensible?

Does the wages agree to the payroll records?

The training and supporting clients is absolutely fine, but you must do basic checks and that must mean looking at some paperwork.

I believe this thread highlights the difference between practices who do the basic control account reconciliations - as blok has highlighted above - and for that matter who have sight of and vouch key documents such as purchase and sales invoices; and those practices who rely on self-entry by the client (eg on a cloud bookkeeping system, or similar).

I guess that's why the latter practices charge a few hundred pounds, and the former many times more.

At the end of the day, it's the client's neck on the chopping block if things are wrong - not the accountant's - and I guess it's time those practices who still take the old-fashioned approach of preparing control accounts, vouching material invoices, and testing accounting systems for reasonability should focus their marketing on the added safeguards that come as standard for their clients.

Maybe it's also time the Revenue focused their attention on accounts prepared solely from client self-entry systems. 

 

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01st Nov 2011 05:21

Quality assured firm

Does it make any difference if you are a quality assured firm and do HMRC assume practices have reviewed (vouched) source documentation or at least electronic copies of documentation?

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01st Nov 2011 07:46

Why do we do it?

We always view the more important documents, but I am doing the random checks less and less these days.

We ask our clients to separate important documents (such as purchases of expensive assets), before they bring in their records.

The random check procedure can take up quite a lot of time. Most clients file their invoices in a reasonable order, but some don't, and someone can easily spend an hour, or more, looking for an invoice that is never found. Is it not found because it isn't there, or because the filing system is rubbish, or it is attached to something else not easily identified?

Even where documents are 'missing' we just tell the client to get a copy, if it is an important document or VAT is involved. We disallow some expenses if it's a large cash payment and the client admits there is no receipt, and therefore no hope of getting a copy, but I often wonder if I am being a bit harsh!

We always tell clients to retain every invoice/receipt (even low value ones) within our annual 'recommendations', especially where cash is concerned.

I see that the accountants offering online services don't even want prime records, so I question whether this procedure is placing an additional burden on my practice for very little benefit to anyone!

 

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By BKD
01st Nov 2011 08:41

Risk analysis

The nature, size, etc etc of the client determines the extent of record review for us. Simples

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By lja20
01st Nov 2011 09:43

thanks for this thread

This is something I do struggle with, and I don't think I am helped in that I have an auditing background.  I certainly do not audit my client numbers but I do insist on the first year with any client that they send me all the source documentation so that I can check it through.  It depends on the complexity and how organised the client is, but I wouldn't feel comfortable in preparing the accounts and tax returns (company or personal) without knowing that the client is at least attempting to do it properly, and to understand this, I need to see the source documentation.  In subsequent years I am more hands off, but by then my clients know that i am a details person.  I would hope that this detail gives my client confidence in me.

Paying for it - I know I am not the cheapest out there but my clients value the service levels they get from me.  I am continually amazed at some of the poor records I have inherited from other accountants.  I could be a lot more profitable if i didn't do the detailed works but at the end of the day I don't want to miss anything or treat something incorrectly.  Yes it is my clients information but they have engaged me to prepare their tax returns, if they understood tax legislation they wouldn't need me.

I recently was asked to quote for a small limited one man band, I was too expensive, the current accountant charged £400 and by all accounts received a quickbooks file and worked from there.  I asked about dividend vouchers and board minutes and was met with silence.  So that client gets what they pay for, in my view half a service and exposure to HMRC if there was an enquiry.  I suspect they miss out on a number of deductions that they could claim but the current accountant is just processing.  At the end of the day, that is that clients choice.  

Sorry a bit of a long winded post but in essence, start with year 1, assess risk, complexity from there and adjust the level of detailed required for subsequent years.  

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By Flash Gordon
01st Nov 2011 09:43

What I do

Always do the basic reconciliations (bank (always look at last bank statement), vat, wages, paye, review creditors & debtors), look at invoices for fixed assets, larger repairs, anything unusual or new etc. If it's a client who puts a good description in their records and you know they're reliable then you can go with it and if it's a client that shuts their eyes and picks a code you know you need to spend more time. I've one client whose bookkeeper uses 4 different codes for bank interest received so I know I have to fish them out every year. No point keep telling her because she's a few sarnies short of a picnic basket and will then keep asking me every month instead (despite having it in writing). Most of the time I don't need to look at sales invoices but if it's a client where there could be WIP....

It's about knowing your client and materiality to a large extent..

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Assumptions

1. I assume the client is honest, until I am presented with contrary evidence

2. I assume the client is pretty clueless about accounts until I am presented with contrary evidence.

When it's a new client I generally ask for the whole works and over time I might back off to receiving bank statements.

I don't subscribe to the view that our job is simply to present what the client gives us in a statutory format, but I have met accountants who do. There is no joy for me in assembling crap even if it pays the same or more than a conscientious approach. How noble am I!

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By blok
01st Nov 2011 11:04

.

I just wouldn't be comfortable discussing or putting my name on a set of accounts when I have not done a "proper" amount of checking.  As others have said, experience of the preparer plays a crucial role in deciding what is enough. 

For me I need to see the bank statment showing the closing balance, I need to see the loans reconciled, I need to understand why the income and costs are as they are.  How can I charge them a fee if I dont understand their business?  Any monkey can throw some numbers on a page.

The worst conversation you can have is the one where the client says - " I thought you said I made a profit of £X, but now you are saying I acually made a loss of £Y.  Why is that?" 

Been there once because of a spreadsheet error when I was a good bit younger, dont want it to happen again.

 

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01st Nov 2011 11:37

I am somewhere between Monsoon, lja20 and andypartridge.

I generally ask for all records in the first year of their being a client.

In subsequent years, I often still receive them all, just because it's sometimes easier for the client to hand over the entire file(s) rather than go through it pulling out certain documents.

(I don't work purely from a TB. I'd ask for the detailed transactions listing, aged debtors and creditors - If they've managed to produce a TB, then they're probably using software, in which case, they can also run a few other reports, just as easily)

The minimum I'd ask for, if I knew the bookkeeping was good, is bank statements, VAT returns, payroll info, loan/HP statements, factoring statements and copies of any significant invoices (for which you'd need a detailed transaction listing, in order to identify what these might be - not sure how you could do this just from a TB, but perhaps that is me, as I'm very cautious).

I have no problem with receiving csv or scans or bank statements, or scans of invoices etc... (although, occasionally, the scans are so bad, I ask for the originals).  One of my clients scanned documents were quite faint, even when they adjusted the settings.  It turns out, all they needed to do was give the scanner glass a quick dusting.

 

Louise

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By Monsoon
01st Nov 2011 11:39

Tangent: do you send queries to the client?

A related tangent here: how many of you go back and send queries to the client as part of accounts prep? We tend to generate a LOT of queries with quite a few clients, asking for explanations, more information, etc. "Who is John Smith in Professional Fees? Isn't he a local osteopath?" (Yes, he is. Right, disallowable expense....).

In my experience, clients seem surprised that we ask so many questions. Previous accountants have just taken what they are given, worked their secretive magic and produced a set of accounts. I've even had some clients who think we must have a lower standard of intelligence/ competence because we don't automatically know all the answers (!). Personally, I'd rather ask the questions and get it right, rather than fudge it, but apparently this is what some accountants do.

So, in addition to seeing source documents, or not, how much do you ask further questions of your clients as part of the accounts prep process?

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@ Monsoon

Monsoon wrote:

A related tangent here: how many of you go back and send queries to the client as part of accounts prep? We tend to generate a LOT of queries with quite a few clients, asking for explanations, more information, etc.

As many of your queries are as a result of not having the source documents, I wonder why you don't ask for the source documents?

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By Monsoon
01st Nov 2011 12:33

Good point!

andy.partridge wrote:

As many of your queries are as a result of not having the source documents, I wonder why you don't ask for the source documents?

I've never thought of it like that before :) However, some are, some aren't, so having all the documents wouldn't address everything. A lot of queries are actually requests for source documents that should already have been provided but weren't. Others are asking for explanations over and above what's stated on a source document in order to establish exactly what something is and therefore capital or revenue treatment, for example.

We have clients all over the country - neither we nor our clients see the point in paying postage charges for shipping lots of paper around the country, or indeed risking its loss in transit. Therefore we ask for what we need.

Edit: actually, it's often those who have the messiest records (and who provide everything) who generate the most queries!

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01st Nov 2011 13:04

Some thoughts

I guess all the responses can be summed up by "it depends". I recall an accountancy lecturer saying that based on his involvement as an expert witness, he had come to the conclusion that no absolute standards exist for accounts preparation (as opposed to accounts disclosure). You just come back to what a "reasonable accountant" would do. Where's that piece of string, I need to measure it again.

@lancsboy2: at what point do you view the insurance docs for the alleged pool car? Has it resulted in a P11D with car bik being submitted past the deadline = penalties + big NI bill? My reason for asking is that I know you are well tuned in to client presentation and I wondered how you might have presented that. (Genuine query on my part, not trying to be smart, in case it reads like that!).

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01st Nov 2011 23:07

A Few Good Men ...

Red Leader wrote:

I guess all the responses can be summed up by "it depends". I recall an accountancy lecturer saying that based on his involvement as an expert witness, he had come to the conclusion that no absolute standards exist for accounts preparation (as opposed to accounts disclosure). You just come back to what a "reasonable accountant" would do. Where's that piece of string, I need to measure it again.

@lancsboy2: at what point do you view the insurance docs for the alleged pool car? Has it resulted in a P11D with car bik being submitted past the deadline = penalties + big NI bill? My reason for asking is that I know you are well tuned in to client presentation and I wondered how you might have presented that. (Genuine query on my part, not trying to be smart, in case it reads like that!).

 

how do red leader ... hope you're well.  let's have a curry again with FT & any other peeps in SW ... maybe mid feb?  post tax season, post-post-tax season holiday?! ... if you get me. 

 

i asked for the insurance docs when i was told the cars were pool cars ... as i thought it was cobblers, haha.  turned out not be ... damn, haha. 

 

in terms of how i presented that request to the client - i said that i wanted to check that they really were pool cars, as many other clients (not you, ahem, my favourite client), misunderstand what a pool car is.  

 

do you remember the scene in "a few good men" ... near the start, when tom cruise & demi moore go out to cuba to check out the base & colonel jessop ... there is a scene where they are having dinner & tom c. asks for the flight logs ... "for the files" ... deliberately trying to give the impression he is an office nerd, who asks for info for the sake of it ....

 

.... yet, cunningly, he asks for a damn good reason.  

 

... that's how i ask for client docs to support the numbers they give me ... just like tom c. in a few good men!!

 

 

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02nd Nov 2011 10:07

A Cunning Plan, Baldrick

Lancsboy2 wrote:

 

do you remember the scene in "a few good men" ... tom cruise asks for the flight logs ... "for the files" ... deliberately trying to give the impression he is an office nerd, who asks for info for the sake of it ....

 

.... yet, cunningly, he asks for a damn good reason.  

 

... that's how i ask for client docs to support the numbers they give me ... just like tom c. in a few good men!!

 

 

So you ask cunningly, like an office nerd.

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01st Nov 2011 13:40

The answer is analytical review

I started as a trainee with a old fashioned firm where we had to rubber stamp every last piece of paper and tick everything in the "books" and on statements with a variety of styles and colours of ticks as a trail of what had been checked against what (for non audit sole traders etc).  If there was a piece of paper that matched the entry on the statement and in the book, the partner was happy.  We had to persecute the client for missing invoices and receipts, whether they were relevant/important or not!  Trouble was what about the stuff that wasn't there - i.e. unrecorded takings, illegitimate expenses, etc?  Never got considered.  Then came the stock - often the most important figure on the balance sheet - partner never pressed the client for accurate stock figures and would often "guess" a suitable figure with the client at the year end meeting.  So, despite all the appearances of a quality checked job, it was all fur coat and no knickers. 

My next job was in a more modern thinking audit practice where analytical review was the order of the day.  Minimal ticking & bashing, but vast amounts of analytical review.  Basically the audit started with AR and often ended with the bare minimum of paperwork checking, only in material areas and where AR showed any irregularities. We did a far superior job for those clients by actually thinking about the accounts rather than mindlessly ticking bits of paper.

Now, with my own practice, I adopt the same philosophy.  If things look OK, then I don't want to see the paperwork (sometimes nothing at all).  If anything in particular looks irregular, then in first instance, I ask the client for an explanation, and after that, may well ask for sight of the paperwork.  For example, if a client is using cloud accounting, and I log in and see that they're doing bank reconciliations themselves frequently, and that the closing bank balance per the system "looks" reasonable, then I'll leave it at that.  If, however, there's no sign of previous bank recs on the system and the bank balance has changed from a balance of £2k to an apparent overdraft of £20k over a year, then that rings so many alarm bells, I'll want to see the final bank statement to check it's right.  

At the end of the day, the paperwork doesn't mean anything at all.  It doesn't show what isn't there (i.e. unrecorded sales or expenses), doesn't show expenses claimed as business that are in reality private (i.e. laptops for children).  Nowadays it's criminally easy to "forge" paperwork such as bank statements, invoices, etc., by simple scan and edit software so seeing the paperwork means nothing if the client has fraudulent intent.  There's a lot been said on Aweb about duty of care, but an accountant doesn't satisfy this duty of care by merely checking the underlying paperwork - you've still got to apply common sense and that means extensive AR to check margins and a reality check on how it all looks.

 

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01st Nov 2011 14:18

Duty of Care

Good Post, KH.

I too remember heavy reliance on analytical review ("Never forget the ultimate control account is the balance sheet").

The duty of care is an interesting issue though. Most of the posters so far have some mixture of checks in place - be they review, control accounts, or sighting original docs - to assure some degree of credibility to the accounts they produce. Now we all know it's our clients' responsibility to ensure the accuracy of their accounts and returns, but I wonder to what extent the practices who rely solely on clients' self-entries to online bookkeeping systems are leaving themselves exposed to such liability? 

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01st Nov 2011 16:07

I would think it depends on how obvious any errors were

I'd suggest that if, say, the client put down the purchase of a car into motor expenses, then it's negligent of the accountant not to notice it if, say, motor expenses are usually £5k per year, but in one year are £25k (car bought £20k).  Same if client puts his own s/e tax and NIC down as employees' tax and NIC on the P&L, of say £5k if the wages charge was only £3k otherwise (as the tax/nic couldn't be £5k if wages were £3k).  

But, if a client buys a car for £750 from the same garage where he usually has his car serviced, then I'd say the accountant would be justified for assuming the charge was for repairs rather than a replacement, especially if there was a history of spending a few hundred every year on car repairs.

Surely it will all come down to materiality - if there isn't any material difference to the outcome, i.e. in terms of profit for year, or tax liability, or whatever, then I don't think there'd be a case to answer.

Another point is that the client is clearly aware that the accountant isn't looking at the underlying paperwork if the client doesn't actually give the paperwork to the accountant, so can't cry foul afterwards if something is missed.  I think that's a far better position than having all the paperwork and not looking at most of it as the client could easily form the impression that it had all been checked over.

If the client was deliberately concealing sales or inflating expenses, then I can't see the courts treating them sympathetically if they tried to sue for breach of duty.

I always remember our lecturer at college teaching us auditing - a favourite expression of hers was that an auditor is a "watchdog not a blood-hound" - I've taken that on board ever since and that's exactly how I view my work as an accountant - an inquiring mind and on the look-out, but I don't purposely go sniffing out errors and mistakes if there's nothing to arouse suspicion.

 

 

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01st Nov 2011 16:11

blok

No need to go on. Despite what you and others think. I do know what I am doing.

 

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By BKD
01st Nov 2011 16:44

I'm sorry, FT, but ...

FirstTab wrote:

Despite what you and others think. I do know what I am doing.

 

... you have announced elsewhere that to date you have not carried out a single MLR check. You must surely understand why some have doubts about how your practice is being managed.

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01st Nov 2011 16:54

However..

FirstTab wrote:

No need to go on. Despite what you and others think. I do know what I am doing.

 

 

Is it correct to say though that you never look at source records ?

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By blok
01st Nov 2011 16:54

.

ok, good luck to you then.

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01st Nov 2011 17:16

Judging ability of others

I do not think anyone can judge another person's ability here.

I am  very open in  questions I ask. To be big headed, I have the front to ask what others want to but  do want to embarrass themselves. This to some narrow minded people is seen as lack of ability. Just who the hell are you to judge! 

My weakness is I let stupid comments like these get to me. 

It is not correct to say I never look at source records. I revise this to say  I rarely look at source records. Ken pointed to analytical review. I do this but did not realise that this is what I do till I read Ken's response.

This is my last word on the subject before I get all heated up and spend more time on this and get upset. It does not deserve any further time and attention.

 

 

 

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Interest thread, in particular to see how different posters approach things.

For me a solid balance sheet , an analytical review and lots of questions seems to throw up the important things for the types of clients we deal with. Ie what's not there and what shouldn't be claimed.

If I was dealing with plumbers and pubs I would have a different approach, then again I dont do them precisely because I dont like that sort of work.

I look at it as tax, accountancy and business advice, not bookkeeping.  Many of my larger clients have their own bookkeepers in any case.

@ First Tab, at the risk of getting personal I get the impression you probably know what you are doing technically but just have low confidence about your ability to run a business. This is often a good thing, as I know to my cost the second you think you can do this job you make a right male chicken* up out of it.

 

*For the benefit of mod amusement.

Edited to add as FirstTab posted while I was posting that, I should say, confidence and ability are not the same thing, and of course I dont know you any more than you know me either than by our posts. I think I come across as a bit of an illiterate cowboy but its not really so. I just generally type really quickly and am lazy in my language when not writing to clients.

 

 

 

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01st Nov 2011 17:48

Cheers for Chivers

I think many of us have doubts about whether we are running our businesses properly. Especially those of us that are small practices with little in the way of a yard-stick other than our distant upbringings of either Auditing, Old School, or Manual ETB and working papers (depending on our ages and memory-lengths).

I think asking on this forum is the only way most of us will get any worthwhile benchmarks: three cheers for the OP and for anyone else who has divulged their innermost secrets; boos and hisses to anyone criticising them. 

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01st Nov 2011 19:19

Great thread and highlights why we should charge well!
I have really enjoyed reading this thread, and I can say that I am an advocate of checking some things to source documents.

Like many have said, it depends on the nature of the expense, the amount involved and the client.

If you just take what they say and prepare accounts then you can't charge a decent fee because, to be honest, they could probably do most of it themselves.

If you review for reasonableness and help them claim for all allowable expenses, advise them of the records needed in the event of Hmrc enquiry, analyse their information and correct identified errors and discuss all of this with them, then they should pay accordingly.

Some clients don't want quality - so either charge them accordingly or, if you're like me, tell them that's not how you work and they should find someone who doesn't want to do a proper job like we do. I would explain that, whilst we aren't cheap, they are getting the supper they need to help them produce reliable information on which to base their business decisions and also reduce the risk of hmr enquiry and the hassle should an enquiry occur.

This brings me to another point. If you don't make sure the accounts are accurate, what value are they to tue client for decision making? I know they are historic but I'm also referring to management accounts etc.

Do a good job, charge accordingly, and let's get some pride and professionalism back in accountancy!

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By Luke
01st Nov 2011 19:35

Solid balance sheet with records then analytical review of P&L

Solid balance sheet with source records then analytical review of P&L is my ususal approach.  I originally trained as an auditor and to be honest almost do a mini audit when I'm preparing accounts.  There is nothing on the balance sheet which I can't justify or back up with either calculations or having checked to source records.  Obviously with a debtors ledger for example, I do not back up all items but I do check the big ones and see whether they have been paid post year end, ask if not why not etc.

The P&L is mainly done with analytical review and looking through transactions in the obvious accounts to spot things misposted, i.e. repairs and maintenance for items that should have been capitalised, travel & subsistence to spot entertainment expenses, entertainment to check whether it is allowable or not.

I always get full bank statements and nearly always get all source records, I then find that I can answer my own questions as I go through more often than not.  It is rare though that a client does not get a list of queries to respond to, often it is a case of confirming that conclusions I have drawn from their records are correct.  Occasionally there is a decision to be made by them and I give them the options and ask for their decision.

I agree totally with I'msorryIhaven'taclue, the ultimate control account is the balance sheet.  i want to be sure that if anyone comes and questions it I can stand up and be sure I am confident with the numbers I have produced so I suspect I do tend to go over the top a little but I don't charge the client extra for that, I just sleep better at night.  The fact that I have more of a lifestyle practise though may be why I value sleep more than money!

 

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02nd Nov 2011 12:08

Monsoon wrote:

"Edit: actually, it's often those who have the messiest records (and who provide everything) who generate the most queries!"

 

Does this statement not make you wonder how many queries you would raise if you obtained all the records of your "trustworthy/unchecked" clients?

 

 

 

 

 

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By cfield
02nd Nov 2011 12:35

A tale of 2 clients

I always adopt what has been called "a common sense audit approach" with most clients, which is basically to employ general audit techniques without doing everything required by the new Auditing Standards such as planning, checklists, detailed files, etc.

Analytical Review is a key part of that process and the extent that you need to do it depends on a) the size and complexity of the business and b) the quality of the accounting records.

I've had 2 clients recently where Analytical Review played a key part but for vastly different reasons. Both were new clients but the book-keeping was worlds apart.

The first client was a cabling/electrical company where the owner got his mother to keep the books. This worried me at first but she turned out to be brilliant. She was a retired book-keeper and very old-school. She gave  me with a year-end file containing a TB, lead schedules, transaction reports, cash book analysis, everything I could possibly want.

It almost made me ashamed to charge the agreed fee as there wasn't much left for me to do other than plug in the numbers, add disclosures  and print the accounts. For that client, analytical review was a means to demonstrate some added value. It showed that I wasn't just finishing off his mother's good work. In fact, it did highlight some odd profit margins at different times of the year, which were easily explained but showed that I was on the ball. They could see that they weren't paying a large fee just for 10 minutes work.

The 2nd client was a real mess. Everything had to be done from bank statements and invoices. No reconciliation of income and payments to debtors and creditors. No expense claims. They hadn't even been doing their VAT returns.

They were website developers who outsourced most of their work to various freelancers, and the gross profit margin was working out at more than 70%. Clearly this was wrong so I had to work out the margin on each individual project based on the known details and query any which were too high or too low.

I almost drove the client mad with all the questions I asked, but it did reveal that some projects had been billed 50% up-front and only 20% of the work had been done by year end, other jobs were complete but the freelancers only invoiced well after the year end, some invoices were for work done the previous year, etc.

None of this would have been picked up if the figures had just been accepted at face value, so Analytical Review is clearly an important tool in the accounting process and not just for auditors. Apart from anything else it got the tax bill down, so it benefited the client too.

I strongly doubt that these on-line accountants who just press a button and churn out the accounts would have bothered doing all that.

Chris

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Me, an inspector and a desk!

That is the scenario I imagine pretty much every time I prepare a set of accounts. Could I, hand on heart, sit there without being embarrassed at the accounts I have prepared. I will never perform needless work in achieving that nor will I just let something ride. I want to know the answers to everything an inspector might ask BEFORE they ask.

 

 

 

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02nd Nov 2011 15:03

don't you have a contract?

Accounts prep is not bookkeeping, and nor is it checking up on the bookkeeper.  On the other hand you will probably have to look at some prime records - for example how else would you compute accruals and prepayments?  I think there are two issues to manage here - one is what your clients expect of you, and two is what your contract states you are engaged to do.  Of course, if you are a member of a professional body then the third is that you comply with their regulations.

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By Tosie
02nd Nov 2011 17:53

to Steve Holloway

your thoughts are mine  and when I ask the client the questions I always say, "this is the first question that the tax inspector will ask you "and the question is addressed to me as well as the client.

I would never do accounts without full bank statements original wage and vat records and HP agreements invoices for capital purchases.

I do a mini  audit of balance sheet items and analytical review of P & L.

I also do a "needs assessment ".to verify drawings i.e. how much is your mortgage, how many children dogs cats which school do they go to etc,

I too trained in  large practice with ridiculous marking off procedures as Ken describes. I was a long time in a small practice before I accepted  that some cash accounts will never balance.

One thing not mentioned in any of the above postings is staff fraud if we don't do a complete job and the client is being ripped off by staff where do we stand (regardless of get out clauses in engagement letters) ?

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17th Nov 2011 11:40

I am astonished!

I am astonished that anyone would take on a new client without conducting a total review of all the records asnd underlying prime documents in at least the first year to ensure that everything is in apple pie order, and if it isn't then in a second and subsequent years until I arrive at a year when everything is in order and the amount that is checked can be reduced. Surely our job is twofold - not only to ensure that the right amount of tax is paid - not too much and not too little - and that all the relevant reliefs are claimed but also to ensure that the clients is bulletproof to any HMRC enquiry.  I have had two aspect enquiries raised in the last 12 months - both of which were closed immediately after my initial response showed that the area concerned was absolutely correct.  surely that is what we are supposed  to be doing or am I being very naive

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