I’ve recently acquired a new client, small business owner managed lifestyle business.
Client year end is April 2012 is bit of a rush to get the accounts done, but on the face of it I received detailed information from the client and prompt and fairly detailed response from the outgoing accountant.
However, when checking the TB to the annual accounts for last year there were a number of differences.
1. TB included a £37k overdrawn director’s loan account – accounts didn’t. I queries this with the outgoing account and received the following response:
“The net balance of directors' loan account amounting to £23k was shown as cash in hand since we were advised that the amount was returned to the company after the year end.”
This cash was not received after the year end and the director was not aware of the need to pay these funds into the business.
2. The difference of £14k appeared in accruals in the accounts and I got this explanation:
“The £14k was a provision of director’s bonus, and therefore included in accruals.”
Suffice to say that this bonus was never paid and the client was not aware of the need to pay it. Plus the accounting entries don't work.
So I have a position where last year’s accounts are a work of fiction and the company has a significant CT liability for the overdrawn DLA for last year.
I will be advising the client that:
1. I need to amend the annual accounts and submit an amended CT600.
2. There will be a CT liability of £9.25k for last year which needs to be paid asap and probably interest and penalties.
3. Judging by draft figures for the 2012 year end the DLA will be even more overdrawn and there will be further CT to pay on this – now.
I’d appreciate comments from others on this situation and my proposed plan of action. In addition what if any action the client can take against the old accountants (whose website is ‘under construction’ and don’t appear to be a member of a professional body).