Client's cousin rejected prior year adjustments

Client's cousin rejected prior year adjustments

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I have just taken on a new client.  Having checked last year accounts filed noticed a number of errors which I have passed as prior year adjustments in the comparatives for the latest accounts. 

However, the managing director cousin had filed the accounts last year albeit in a rush as companies house were threatening to strike off the company. His cousin is a qualified accountant

The managing director has total faith in his cousin and has asked him to vet the accounts that I have put together. While this is rather annoying the cousin has said not to pass the errors in 2011 but 2012 which is even more annoying. 

The 2012 accounts will become distorted due to the errors and provide a misleading picture for next year as well.

I don't want to fall out with the director as there is a lot of follow on work expected which I need but nor do I want to produce misleading accounts.  Any advice would be appreciated.

Replies (12)

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By paulwakefield1
06th Aug 2013 08:15

Does the cousin have a point?

I can imagine it is extremely irritating but may he have a point or is he just trying to support the MD?

a) Are the amounts material?

b) Are the errors fundamental? i.e. destroy the true and fair view

c) Do they arise from a change in accounting policy?

If the answer to a) is no or b) and c) are no, then they shouldn't be treated as a PYA.

My apologies if the words grandmother, eggs and suck leap to your mind.

 

 

 

 

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Replying to I'msorryIhaven'taclue:
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By Jim100
06th Aug 2013 11:59

fundamental error

paulwakefield1 wrote:

I can imagine it is extremely irritating but may he have a point or is he just trying to support the MD?

a) Are the amounts material?

b) Are the errors fundamental? i.e. destroy the true and fair view

c) Do they arise from a change in accounting policy?

If the answer to a) is no or b) and c) are no, then they shouldn't be treated as a PYA.

My apologies if the words grandmother, eggs and suck leap to your mind.

 

 

 

 

 

It is indeed a fundamental error the sales had been overstated by 400k and Purchases around 300K. Errors accumulated over the past four years.  Total Turnover in 2011 was around 2m

I hate the fact my work is being checked by abother accountant as if the client doesn't have faith in my ability.

 

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Replying to DJKL:
Out of my mind
By runningmate
06th Aug 2013 14:07

Fundamental error?

Jim100 wrote:

It is indeed a fundamental error the sales had been overstated by 400k and Purchases around 300K. Errors accumulated over the past four years.  Total Turnover in 2011 was around 2m

If you are saying last year's sales of £2m were overstated by £400k (or 20%) then that is material IMHO.

However if this accumulated over 4 years and last year's sales of £2m were overstated by only £100k then that is not material IMHO.

Personally I am not convinced that a PYA is the best option - certainly it is not the only option.

RM

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By User deleted
06th Aug 2013 10:42

The errors ...

... should be adjusted in the current year. At the end of the day what matters is that the closing 2012 Balance Sheet is true and fair.

There is nothing to stop you amend the MI so you have a consistent set of data to work from, but the filed accounts should not be changed except in exceptional circumstances. Assuming they are only abbreviated accounts filed anyway it is hardly a big deal.

Get 2012 year end right and concentrate on the future, the past is another country as they say.

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Replying to lionofludesch:
By johngroganjga
06th Aug 2013 10:46

PYA or not

Old Greying Accountant wrote:

... should be adjusted in the current year. At the end of the day what matters is that the closing 2012 Balance Sheet is true and fair.

There is nothing to stop you amend the MI so you have a consistent set of data to work from, but the filed accounts should not be changed except in exceptional circumstances. Assuming they are only abbreviated accounts filed anyway it is hardly a big deal.

Get 2012 year end right and concentrate on the future, the past is another country as they say.

I think you have misread the question.  It is common ground that the corrections will be made in the 2012 accounts.  No-one has suggested otherwise.  The question is whether the adjustments should be a PYA in the 2012 accounts or just hidden in the 2012 figures. 

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By User deleted
06th Aug 2013 11:03

Probably ...

... should be getting on with VAT Returns!

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By User deleted
06th Aug 2013 11:57

Client's cousin

I would ask the question why, if the cousin is a qualified accountant, are they not preparing the accounts, you state they filed at companies House so why are they not doing the whole job ?  As I read your question, your client is the company and director deals, not the cousin.  You need to get tough or walk away.

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Replying to Ruddles:
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By Jim100
06th Aug 2013 12:46

lives far away

Mathswizard wrote:

I would ask the question why, if the cousin is a qualified accountant, are they not preparing the accounts, you state they filed at companies House so why are they not doing the whole job ?  As I read your question, your client is the company and director deals, not the cousin.  You need to get tough or walk away.

 

cousin lives far away and has his own job.  They need someone local to sort out the book-keeping mess.

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By WhichTyler
06th Aug 2013 12:52

First: Go for a walk. Then: Be professional

... then write a letter to the director, giving your professional opinion why the accounts should be presented in the way you propose (including the reference to the background principles/standards/whatever). You could also explain what you think the real world effect of doing so will be (probably minimal). 

If his cousin comes up with a reason that you hadn't thought of, fair enough. It is more likely that the cousin will say 'he's technically right, but I wouldn't bother'. If he insists on following his cousin's advice, then, with regret, but maintaining your professional standards, walk away.

Anything else will be more grief in future & sleepless nights

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By neileg
06th Aug 2013 13:09

Excuse me

What does it matter what the cousin says? A PYA does not amend the 2011 accounts, it simply restates the 2011 as comparatives to the 2012 accounts. OK it should lead to a revision of the CT return.

Having said that, you seem to have a net effect of a £100k overstatement of profits which may be increased or decreased by other errors you allude to. In my mind, that does not make a fundamental impact on the PY figures although it is significant, does it really matter in a way that couldn't be dealt with in a note to the accounts?

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Replying to Glassback:
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By Jim100
06th Aug 2013 14:16

Errors over 4 years.

neileg wrote:

What does it matter what the cousin says? A PYA does not amend the 2011 accounts, it simply restates the 2011 as comparatives to the 2012 accounts. OK it should lead to a revision of the CT return.

Having said that, you seem to have a net effect of a £100k overstatement of profits which may be increased or decreased by other errors you allude to. In my mind, that does not make a fundamental impact on the PY figures although it is significant, does it really matter in a way that couldn't be dealt with in a note to the accounts?

Sorry the errors accumulated over four years relate to the overstating of Sales and Purchases of 400K and 300K respectively.  On a 2K turnover it is fundamental (t(it is subjective I know) though arguably these errors over 4 years may not make indicate a fundamental error.  Reluctant to hide errors in the 2012 accounts as the 2012 accounts will become misleading.

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By neileg
06th Aug 2013 14:55

Where?

Where in the published abbreviated accounts will this show?

Your management accounts that you share with the bank etc, show whatever is fair and reasonable. You're going to have to give a full explanation to HMRC anyway. So who is seeing misleading accounts?

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