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New client, awful quality from outgoing accountant

Have just taken on a new small limited company client.
On handover, old accountant has included expensive personal car as a company asset and a personal bank account as a company one.
My confidence in the rest of the numbers as such that I want to tell the client the previous year's accounts will need to be done again from scratch. Not a great start to what I hope will be an enduring relationship.
When have you said, 'Last year's accounts will have to be redone' or alternatively, do you think I am over-reacting?


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29th Oct 2011 19:53

Just carry on

As far as the car goes, as long as the tax treatment is correct there's not technically a problem.  Similarly, if a personal account is being used for company purposes I have on some occasions seen them included.

Going forward you're probably going to want to extract both of them from the accounts.  Just explain to the client why you're doing this (they'll certainly understand your reasoning, particularly given the company car tax.)

Don't bother going back - just get it right going forward, and let the client know why.  For practical and cost purposes it's your best option, and you still come out of it looking good.


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30th Oct 2011 10:05

just get it right going forward

That is the best thing to do.

BUT, if you are having to adjust opening balances etc to get them right, explain what you have had to do to your client. If it really is in a terrible state, give him the option of paying for you to redo the accounts or just getting the opening balances right.

(And you know which he will choose, don't you?!)

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30th Oct 2011 11:35

More laid back than me

Thanks, guys, but let's look a bit more at this:

1. The car - big asset, beefs up balance sheet, no benefit in kind, no class 1a NIC, no personal tax, but capital allowance claimed

2. Personal bank account - disguises overdrawn director's account, no benefit in kind, no class 1a nic, no personal tax, no s455 CT

Ignoring the numbers conveniently means ignoring their implications. Now what do you do?


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30th Oct 2011 12:33

So now you tell us....

It's not that we're more laid back than you, it's that you just didn't bother giving us that information to begin with.  Both our responses were correct, given what you'd told us.

We're not mind-readers, you know.

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30th Oct 2011 13:00


Sorry, there was no intention to mislead you but it's not about being a mind-reader. You will understand that I could have accepted the previous accountant's opening balances and moved on, but decided to investigate further which has subsequently led me to uncover these matters that do not add up.

My question is still valid - what is the tipping point at which you say the whole lot needs to be re-done? I don't necessarily mean for my new client, but for yours? Have you done it?

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30th Oct 2011 13:45



Your initial post had me thinking:

1) Putting the car in the company is not 'wrong' but may well have been unwise because of the tax consequences in terms of benefit-in-kind, Class 1A NIC, etc.  It did have me wondering whether input VAT had been recovered on the purchase of it!

2) If the bank account 'really' is the business bank account of the company, but it happens to have been opened in the director's name then maybe just get the bank to change the name on the account and carry on as before.

Now you are saying rather more than that.

I think you need to enquire about the use, garaging, etc of the car and advise the client if tax has been underpaid in the past.  If it has then you need the client to instruct you to put it right (or he gets sacked & probably a SOCA report).

With regard to the bank account - are the vast bulk of the transactions for the business or does the account have the family supermarket bills going through?  If it can be sensibly described as the business bank account then transfer it to the company name (but advise the director that this means the balance in it belongs to the company - not him).

If it is really a personal bank account then, again, the client needs to instruct you to put things right IMHO.

This is all to do with getting the tax right, rather than getting the accounts right.  If past accounts have been wrong, but there are no tax consequences then who cares?  I recently saw a set of abbreviated accounts from Companies House.  They included the P & L A/c (in full detail, rent, phone charges, everything) and (although creditors were shown as nil) between the share capital and the retained profit was a chunky figure for "Cash introduced by director".  But do I care? No.


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31st Oct 2011 09:45



I have redone a complete set along similar lines [it was the first year in any case], but the client was keen to do it right and accepted that the previous accountant was a cowboy.  They wanted to go after the former accountant for costs, but I advised (and I think it was correct) that the time/effort/cost of explaining to even the small claims court what was wrong would vastly exceed the cost of my doing them.  We did in the end make an initial claim for costs, but this was ignored amid some counter claims for breach of contract (!) of all things and I put my foot down and said to stop throwing good money after bad.

In the end all I did was report to trading standards who told me informally they were "aware" of the accountant in question. But they still trade so fat lot of good that did.

I have also taken on several which seem to contain dodgy balance sheet items, balancing figures the work which appeared to be complete fabrications having given the client the option to (a) redo the prior year or (b) get the closing balance sheet right, which means the P&L is essentially a balancing item.

A final option is to completely restate the opening balance sheet, and prepare the P&L and closing balance sheet as best you can. This might be the one to go for if they wont pay for the lot to be redone. Again just spell out what this means in laymans terms, ie the prior year is wrong, this year is right but we are waving a big flag saying "look here" to HMRC.

Just spell out the options, try to remember it wasn't you who made a mess of the prior year.



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31st Oct 2011 10:14


@Ireallyshouldknow. That was very helpful.

@davidwinch. David, I am quite happy that this is not a SOCA issue at present and the client is anxious that I sort things out but without wasting their money in the process. I am interested in your proposition that the personal (savings) account might be treated as a company bank account. This strikes me as wrong on many levels unless there is a contemporaneous resolution in place stating that the money is held in trust. Am I right, wrong or just prissy?


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31st Oct 2011 10:56

Substance over form?


You are no doubt correct in saying that a personal bank account should not appear in the company balance sheet.

I was being pragmatic in suggesting that if the bank account was a 'company' bank account in all but name then perhaps it could be treated as a company bank account in the company's financial statements and the account name could be changed to regularise the position.

The alternative is to re-write the financial statements with all the 'bank' transactions going through the director's current account.  Who would thank you for that?


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31st Oct 2011 11:41


Hello David, I am all for pragmatism so long as the tax effect is neutral or trivial

davidwinch wrote:


You are no doubt correct in saying that a personal bank account should not appear in the company balance sheet.

I was being pragmatic in suggesting that if the bank account was a 'company' bank account in all but name then perhaps it could be treated as a company bank account in the company's financial statements and the account name could be changed to regularise the position.

The alternative is to re-write the financial statements with all the 'bank' transactions going through the director's current account.  Who would thank you for that?


I think in this case, and maybe this case is typical, I don't know, but by treating the personal account as a company account they have disguised what would otherwise be an overdrawn director's account (by debiting bank, crediting director's account) which would have given rise to a P11D benefit in kind for a beneficial loan and a s455 corporation tax deposit. There were certainly substantial profits in the company to avoid this by declaring a dividend, but high rate tax would have been payable on it. 

I am not looking for brownie points from the client (I suspect the old accountants were), but I think the tipping point to redo the accounts has been reached. However, I am still interested to hear contrary views and any other first-hand experiences. Thanks again. 

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31st Oct 2011 12:13

I have changed my opinion on this about 3 times over the week end. A problem you have with the Bank account is not knowing how the asset went into the accounts and subsequent treatment. I assume only money going into Private account is transfer from 'company account' What is being paid from private account is it Co expenses or personal which have presumably gone to DCA.. I dont think I would redo old accounts (have they been submitted yet obviously you wouldnt want to submit)

I would draw a line and fix it up now. The history of the DCA will tell you a lot about whats going on and how creative the previous accountants have been.

I have seen a personal property put into the accounts to beef up balance sheet and clear DCA with loan and income produced by asset left out. In my experience non of this is done with out client knowing what is happening. Do you think the Client wants it corrected and does he fit in with you high ethics?


Good luck with this  

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01st Nov 2011 11:48

Horse & Cart

Hi Andy - I've been through this, or similar on a number of occasions and the best route I found was to go back to the previous accountant with the key issues & problems and ask them for their views and, eventually, to put right anything that was incorrect.  In this way, the client ends up paying nothing and you don't waste your time.

The last time I did this was over the incorrect declaration of dividends, in the accounts and personal tax returns as well as failure to declare BIKs and the previous accountant corrected everything.  The time before that it transpired that the accountant was not capable of preparing Ltd Company accounts and knew little about BIKs and so agreed a sum of money with the client to cover my fees to prepare & submit amending accounts, CT return and P11Ds.

Obviously it helps if the previous accountant is a member of a reg body because, as happened in my first example, he was a little evasive at the start but was soon convinced by his body that he he would be wise to put things right rather than face disciplinary procedures.

If what you have discovered and what your client has told you is correct then the previous accountant has acted incorrectly and, if it was me, I'd want to know and want the opportunity to put it right.

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01st Nov 2011 12:37

Thanks Paul for the positive spin

That's a great idea to give the old accountant a chance to rectify rather than grumbling about the position I'm in. And you are right. I too would want to be given the chance to correct matters if the position was reversed.

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01st Nov 2011 13:49

To re-do or not to re-do - that is the question

I have inherited some frankly shocking sets of accounts from qualified accountnats in the past and have re-done them. In one instance my re-worked set bore no resemblance to the inherited set but unfortunately the impact on the ralted tax liability was minimal. On another occasion, having failed a number of times to get a breakdown of the opening balances from the previous accountant I was invited to review their working papers! Although this didn't help in the end, it was a real eye-opener and did explain why they were having truoble giving me a breakdown of their figures! One of the many problems as I see it is that the client is often unwilling to pay twice for the same set of accounts/tax return, especially if the tax bill goes up even if the re-worked accounts/tax return would stand up to an HMRC enquiry!

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01st Nov 2011 15:04

Bank accont

What David says is absolutely correct.

I would just add that as far as I am aware there is not a legal requirement to have a bank account in the Ltd Cos name.  A good idea though.

One of my ex-clients could not get a business bank account because his personal affairs were in a mess.  But getting a "self-employed" new personal account and debit card was simple (well done to the bank - same one in each).  I suspect more of us will see this as the banks get fussier.


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01st Nov 2011 15:37

Good idea?

pauljohnston wrote:

I would just add that as far as I am aware there is not a legal requirement to have a bank account in the Ltd Cos name.  A good idea though.

Actually Paul, you make it sound like it's a bad idea to have a company bank account. If there is no company bank account it seems unclear as to what funds have been appropriated by a director (if only a bank account in the personal name of a director is held) and what funds are still held in the company. I am sure many directors would prefer this arrangement ;)

In this particular case there is a company bank account and the cash was transferred from it to a personal account. Surely this is a completely different scenario to the business that doesn't have a company bank account but does have a personal account used solely for the purpose?

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01st Nov 2011 15:51


I think you misinterpreted my comment.  I was suggesting that have a Ltd Co bank account was a good idea.

I suspect your post wont be the last on poor company accounts.  I recentlly downloaded some abbv accounts that did not add up!


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18th Nov 2011 15:36

What about Companies House accounts?

Notwithstanding statutory accounts for the Members, where abbreviated accounts have already been submitted to CH and opening balances need to be restated, would you (or previous accountant if they are fixing it) in any case need to submit amending accounts to CH? a) because the originals are wrong and b) the comparatives in next years accounts won't tie in.

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18th Nov 2011 16:25

PS. All done

Thanks to all contributors.

Inherited accounts had more holes than Swiss cheese. Main areas of concern pointed out and client agreed to having the accounts redone. Despite the risks associated with this, client feels less exposed. 

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18th Nov 2011 16:43

Been there, did this..................

Accounts as prepared by the previous "advisor" were a complete horlix.

We wrote to them pointing out the errors and advised them that our client was going to be making a claim against them or their PI Policy to cover the cost of the accounts being re-prepared and the costs of HMRC penalties or interest, not the tax due as that was a matter of fact, but the claim would include any losses as a result of bad advice.

Result - they agreed and honoured the cost of all our fees to put the matter right - we never found out if they or their PI insurers paid as monies came from them but client was happy, we were happy - win win!

THis of course asumes he has PI cover........................ 

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