Do sole traders need to be audited?

Do sole traders need to be audited?

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I have a friend who is a sole trader, retailing clothing and other items in a specific market sector via a website and certain shows and events. She was in a partnership until 2004 at which time the partnership was legally dissolved (by the court, it all got a bit nasty) and she carried on the same trade as sole. She also does a spot of photography and journalism on the side and although i don't do her books I know she has been struggling a fair bit over the last couple of years - so much so that a couple of times she has gone into temporary employment for short spells just to keep the bills paid.

Anyway, to the point, the lease on her current home (which is also her business premises and used predominantly for storage of stock etc) is up at the end of march and the landlord will not renew because he intends to sell the property. She has found a couple of other suitable places and been filling in application forms like mad over the last couple of weeks.

#1 on the shortlist all seemed very promising, they have taken a (refundable) deposit whilst the paperwork is completed. Anyway today they have come back to her and asked for 3 years worth of accounts. She does her own books and returns and isn't brilliantly organised so she asked if they would accept her SA calculations as she has those properly filed. They said no, they want 3 years audited accounts.

Surely as a sole trader she has no need to have her accounts audited, or even for that matter done or checked by an accountant? I think they don't want her and are just being awkward, but am not sure if I have any basis for thinking this!
JoSie

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By User deleted
07th Mar 2007 08:04

Accountant's letter?
Not sure Josie if you're an accountant but if you are would they accept a letter from you (or for that matter from any accountant) stating that the SA returns have been reviewed, all look reasonable blah blah etc? Would solve the problem. Obviously if they are being awkward they'll still say no but would have thought any reasonable landlord would be happy with this.
Popular misconception that any accounts must be audited! Even small limited companies don't need an audit these days. Banks for example seem to be the worst for requesting these...
Good luck!

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By User deleted
07th Mar 2007 10:27

Thanks
So in fact she doesn't need to be audited at all?

I am not an accountant. I am a bookkeeper with my own small business doing simple accounts and tax returns and providing payroll services on a bureau basis.

I do have some letters after my name (I'm an AICM as I used to be a credit controller in a previous life and I'm also an AIMC cos I often provide my services on a consultancy rather than hands-on basis - I tell them what to do but I don't do it for them in other words) and I'm also currently studying with CIMA but only passed exams at the first level so far so a fair way to go there!

Not sure if I should get involved tbh, she is a friend rather than a client and while I am happy to help her out (and clarify points like this) would it be fraud for me to write a letter saying her accounts are true and fair? I would never claim to be something I'm not, but if I was to use the letters I'm entitled to and not tell them any more unless they asked...........

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By User deleted
07th Mar 2007 19:08

They are not called bankers for nothing!
Any references I give, being a chartered accountant, have a disclaimer and I have had no comebacks for any of my client's applications. That may be due to my clients, I do not know.

On another point raised, some years ago I had to apply for a loan to purchase my business premises and got the usual request for accounts - which had been prepared by myself. This was queried by the lender, but I merely wrote back stating that as they were quite happy to accept accounts prepared by me for my clients, they should accept my own accounts. They immediately saw sense.

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By gary_taylor
08th Mar 2007 10:15

Professional Liability
Be very careful about giving any sort of undertaking that the accounts or SA figures have been prepared, reviewed or in any other way overseen by you.

I attended a professional indemnity lecture just after the last property crash. The most significant area of claims was not tax or audit but against accountants who had given some sort of undertaking that the figures presented were reliable. I am afraid when a tenant fails to pay the rent or mortgage then the accountant seems to be the next best way of the landlord / mortgage provider of recovering his shortfall.

If you decide to give some sort of undertaking make sure you make it absolutely clear that the landlord must not rely on the accounts or SA figures as they are not designed to give the assurances he would need. Any independent accountants report on the accounts should also make it absolutely clear where the accountants responsibility lies and where it does not.

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By dennismiller
08th Mar 2007 13:40

Be assertive, they obviously have not got a clue!
You don't say who it is that is asking for the accounts but, presumably, it is a letting agency. They should know better and if they are that out of touch, then, perhaps, they should best be avoided! You also do not say if accounts have been prepared, only that your friend isn't organised, so one must assume that there are none.

However, if she has completed her SA pages then the figures must have come from somewhere. I feel that this is going down a very slippery path because.. how accurate are her figures in the SA return?

Anyway, all that aside, tell her to copy page 2 of her SA self employment pages and give those to the letting agency (or type up a nice set of accounts from them), telling them that there is no requirement to produce accounts, except as shown in the SA return, certainly no requirement to have accounts produced by an accountant and definitely no requirement for an audit which only relates to limited companies. Be assertive, they obviously have not got a clue!

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By AnonymousUser
06th Mar 2007 21:46

hmmm
Im interested in this answer as I have a friend who runs a clothing shop, not making any money yet and struggling. They are looking to re finance and the mortgage co, have asked for 3 yrs audited accounts too. 2 of those years they were sole traders and only became Ltd since April 06. I thought there wasnt a necessity to audit now unless turnover is over 5 million?

Michelle

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By geoffwolf
06th Mar 2007 22:50

ignoramusses
Many people do not understand the difference between audit and accounts compilation.

All they normally what is confirmation that accounts have been prepared or checked by a qualified accountant who at least in theory would not allow his or her name to be associated with misleading information.

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By Chris Smail
07th Mar 2007 11:01

Liability
They do not really want an audit, they want a qualified firm to put their name to the accounts. They are looking for someone to sue if she does not pay, do not get involved.

We would only give a 'correctly compiled from the underlying books and records' opinion, and then only after being absolutly sure it was true, which would involve some work and a fee if she was not an existing client.

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By AnonymousUser
07th Mar 2007 11:57

Agree with Chris entirely!
Apart from users not understanding about an "audit" (including on Dragons Den which makes me laugh), I think this whole accountants certificate thing is really stupid. The goverment, through self-assessment, has reduced the need for people to use acountants but all lenders still seem to want compliance.

I assume, like me, that other accountants out there produce there own accounts ... what do you do if someone asks for a letter / audited accounts?! Just interested.

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By dnicoll
07th Mar 2007 14:14

Varies on lender
Hi. I have found the needs of the lenders vary quite a bit here. Some will accept SA calculations. Some want a set of accounts from an accountant (and these would probably have just an accountants report rather than an audit, and so wouldn't be referred to as 'true and fair' anyway), some want a set of accounts backed up by SA calculations, and some only want accounts from accountants qualified with certain institutes (Chartered no problems, licensed AAT or Institute of Financial Accountants are also OK with most lenders). It depends on which lenders she is approaching.

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By yorsolution
07th Mar 2007 15:35

Are they being difficult or dumb?
I have had quite a few similar struggles when cleints are seeking a loan or mortgage and the building society asks for " 3 years accounts or a letter from your accountant". Some will happily accept the accounts and/or a letter prepared by us and are not bothered that we don't have ACCA, ACA etc after our name. Others have asked for the SA 303 calculations instead/as well as. (My view on this is if the government have accepted the figures that should be good enough!) . Some refuse to accept anything we offer, insisting on "certified accounts" and yes I've been asked for audited accounts for a sole trader too.

Very often it is because the employee in the building society or whereever has been told to request these and doesn't understand the position or what audited accounts actually mean. Other times it is because the organisation you're dealing with is determined to lay down their own rules and not budge.

I'd actually be inclined to advise finding someone else to deal with but if suitable properties are scarce in the area that might not be the answer.

Maybe if you print off all these responses as give a copy to your fiend she can show them to the prospective landlords & convince them that audited accounts are unreasonnable to expect in this situation.

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