A potential new client in residential property development is convinced that in arriving at year end profits (perhaps 12 or 15 sales per year) his current accountant has never adjusted and deducted the original cost and development costs of unsold properties in arriving at year end profit.
Obviously this would appear to ignore the principal of matching costs with income.
Could I be missing something here that is legal?
Thanks for any comments
P K
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Replies (3)
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It may be staring you in the face
There could be a very simple answer to whether there is a problem or not. If you look at the balance sheet and there is no WIP/Closing stock Then there is a problem.
Equally if you can get the clients records of stock/wip (assuming that he has a computer system) as at the last finalised accounts it will possibly show you whether costs have been capitalised or not
However as before this is somethign that needs urgent attention now that it has been aired.
regards
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http://www.wamstaxltd.com
Anything lost in the translation?
On the surface of it, no, you are not missing anything. Costs related to unsold properties need to be excluded from the P&L and if they weren't, there are some serious problems.
However, I would confirm that your client's understanding of the situation is correct. Is is possible that the client's accounting system allocates costs directly to a balance sheet code and costs associated with properties that are sold are then released to P&L? If this is the case, while the accountant may not have adjusted for the costs of unsold properties, they wouldn't have to as they are already treated correctly on the balance sheet.
Is it possible that something has been lost in translation either between the potential client and his previous accountant or you.
Determine the outcome speedily
This is one situation that you must determine quickly - as if tax has been unpaid - then while your client may have been badly advised or innocent in the past if there is any undue delay in notifying HMRC about the rror and any potential unpaid duties he may well be seen as negligent because of the delay
get in touch with your predecessor and determine the matter quickly
regards and hope this helps
[email protected]
http://www.wamstaxltd.com