Accounts compliance checks and risk assessments

Accounts compliance checks and risk assessments

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With the advent of iXBRL, we've been exploring the possibility of running risk assessments and detailed compliance checks on accounts before they get submitted to HMRC alongside the CT600 form.

The government gateway and HMRC's own validation checks only look at around 21 very rudimentary items. What interests us here at AccountingWEB.co.uk is the scope for expanding those checks to pick up the sorts of things that will make the accounts more likely to be subject to an enquiry (eg turnover/profit up/down more than 20% on previous year, associated companies mentioned in related party disclosure note, but not adjusted in CT profit limits etc etc).

Steve Collings has highlighted some of these points in his financial reporting problems articles. But what are the tests you think are most important before submitting a set of accounts?

Look forward to hearing your suggestions, and if you're interested in the underlying project and where it may go, come and let us know your thoughts in the AccountingWEB feedback discussion group.

Replies (3)

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By arnold28
30th Jun 2011 12:58

Why go to the trouble?

I am not sure why we would want to undertake such an exercise. IXBRL has already used up a lot of our time and resources. I would like to rely on my software to flag any problems. As long as HMRC accept our submitions I am happy to get on with the next job.

If profit is up or down 20% this is likely to generate an enquiry even if I do tag it correctly. The time to query the figures in the accounts is during the audit not at the submission stage!

 

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By hiu612
30th Jun 2011 13:39

IDEA

HMRC have, for years, been using IDEA software to electronically interrogate data during enquiries to enable them to identify potential problem areas. Thats why they will usually at least request the business records in electronic format at the outset of an enquiry. It is possible for accountants to buy IDEA licences and so undertake similar exercises, and there is undoubtedly some value in doing this in certain circumstances.

iXBRL seems to offer HMRC an extension to this approach, automatically interrogating data as it is received, letting them shortcut straight to the 'risky' cases and allowing a focussing of effort and resources into cases with higher liklihood of recompense. Hopefully it will be possible, in time, for practitioners to acquire that software also, as it would certainly be an interesting additional tool to have at our disposal.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
01st Jul 2011 16:00

A few suggestions for starters

Here are some of the ideas I've picked up in the past few days. I've fielded a few jibes that it wasn't worth the effort and might have ruffled a few feathers among accountants and investigations specialist who hold things like this close to their chests, but have also had enough positive comments to make me think that a collaborative, community-driven project could save people a lot of drudgery and leave them free to concentrate on risk assessments and client advice that really sets them apart. Do let us know whether you seen any point in the concept and the basic approach that we're adopting.

HMRC investigation targets Were turnover figures for current and previous year close to the VAT registration threshold (£73,000)? Have all company profits been paid out as dividends? (IR35 danger sign) Director's Loan Account <£5,000; significant change from previous year; have different DLAs been "netted off"? P&L and basic accounting checks Do the accounts add up? Need a basket of logical checks to ensure that they are correct and have been prepared in compliance with GAAPSignificant increase in legal and professional fees? (Could be related to capital expenditure and not allowable as a revenue expense; could even link this to a check on tangible asset value increase)Finance costs as a percentage of corporate debt Stock Presence of large WiP (?% of balance sheet value?) in their accounts Has “stock is valued at the lower of cost and net realisable value" boilerplate been used in error? Valuation method should be stated Balance sheet Does the balance sheet total exceed £3.26m - or tunover £6.5m where a company is claiming small companies CT rate? Does it balance? Surprisingly common error Goodwill - (% balance sheet value?? % change since previous year)

Am I pointing in the right directions - and what would you add to the list?

 

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