Concerns about previous accountant

Concerns about previous accountant

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I have taken on a client who has had their current year accounts drafted by another accountant but have doubts over the reliability of these. Firstly, the accountant had put through dividends even though my client had not taken any money out of the company and in fact had invested his own money!  They also put through director salaries when there was no payroll scheme set up at all! I reworked the accounts and in doing so the income is double what he had reported and the profit almost 4 times the amount.

Not only did he bill them well in advance of drafting the accounts but he also had billed for the following year a few weeks ago (without having submitted the current accounts!). I helped them draft a letter to complain and ask for their money back and he sent a reply which reinforced my concerns over his professional and technical experience (it sounds like he has made a lot of the figures up).

I have two main questions:

1. Is the only way of taking it further for my client to complain to the professional governing body or can I go direct to them? 

2. I am also concerned with the b/f figures from the accounts last year (the client signed them but didn't get involved with the figures as the accountant just did them) The accounts are due soon and I am happy with my rework for the current year (apart from the b/f figures). Is it best to file the accounts (adjusting the b/fs through the P&L) or should I rework last year figures (first year of trading) first and resubmit? Anyone else been in a similar situation? I'm guessing they can't dissolve the company as it has been trading this year.

Thanks

Replies (7)

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By Tim Vane
11th Dec 2015 13:03

The client does not need to take any money out of the company for a dividend to be paid, as long as the DLAs are updated correctly.

And depending upon the level of director's salary there may also be no need for a payroll scheme. It is in any case a sensible thing to do to pay a salary prior to calculating profits, assuming that this makes sense for the director's personal tax position. The fact that you have reworked the accounts and doubled the profit is hardly to the client's advantage now, is it, unless you have corrected definite errors in the allocation of expenses?

Also, it is not unusual to bill before drafting the accounts - I would always bill in advance for small startups as it's too easy to not get paid otherwise.

Do you have evidence that the accountant made figures up, or does he just have access to more accurate records than you?

And why are you talking about dissolving the company?

I think you are going to have to give more information before we can comment further.

 

 

 

Thanks (1)
paddle steamer
By DJKL
11th Dec 2015 13:06

Depends on extent/ quantum of b/fwd  balances that need adjusted.

Would find the "flexible" dividends a little alarming, the client needs to confirm these as not up to you/previous accountant to declare dividends.

Of course notwithstanding the loan  from the director there may be good reasons why paying dividends in 2015 might be useful rather than waiting until after loans repaid, using basic rate band pre the new regime does need considered, but all you can do is advise,  the client needs to declare them. There is of course the stricture of distributable reserves to be considered.

You do not state the quantum of the salaries, are they perhaps below the NI thersholds?

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By johngroganjga
11th Dec 2015 13:16

You say you have already "re

You say you have already "re-worked" the previous accounts, so you know what the differences between your opening balance sheet and the actual opening balance sheet are.  If in doing so you have reversed dividends that were in the original accounts I wouldn't

So your first question is how to account for the difference you have found.

If it's material it's a PYA in the current year's accounts.  Otherwise you just lose it in this year's profit.

Your next question, if you have a PYA, is how to treat it for CT purposes. My preference is to treat it as taxable in the current year but some prefer to amend last year's CT return and re-submit.

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RLI
By lionofludesch
11th Dec 2015 13:30

Big

It would have to be a big difference for med to rework and resubmit the previous year accounts.

I'm not saying I'd never do it but it would need to be extraordinary rather than exceptional.

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By pauld
11th Dec 2015 13:33

Agree with Tim


The salary and dividends may have been clever tax planning on behalf of the client and the client may not fully understand this. It may be that no PAYE Scheme required if salary under the LEL and no cash needs to be withdrawn if dividend credited to DLA.  Now you have increased the profit  x 4, are you sure of your facts?

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By Emmamay106
11th Dec 2015 15:08

Firstly thank you for the replies.

The directors loan account was not showing an amount due to the client re the salaries and the client did not extract cash out of the company so I am not sure how these salaries could be correct.

I wouldn't say I doubled the profits- even with the salary added back, there would still be a £15k higher profit that I calculated- mainly because the previous accountant hadn't recognised all the sales. I've done a full bank rec so happy with my figures but agree the salary could be added back- however the reason I didn't was that the director was partly employed elsewhere during this period so had already utilised his personal allowance and was well into BR band...therefore surely there would be no tax benefit in including a salary?

There were definite errors- rent/rates not prepaid, no calculation of cost of sales based on stock values held etc.

My understanding is that dividends should be board minuted and a certificate issued at the time and you cannot backdate. The dividends were showing as illegal dividends (i.e. greater than reserves) in the first set of draft accounts he gave them- don't even know how he got to that one.

I agree that billing in advance is fine but surely wait until you have submitted and signed off the previous accounts- that is just my opinion though.

I spoke about dissolving the company as it seems the prior year is in a mess and the outcome will result in a higher profit figure e.g. there are trade creditor/accruals balances which will need to be flushed through the P&L this year. I didn't know if there was a way of just starting fresh from this year and dissolving the company. 

PS the client gave me the same records that he got but apparently he didn't ask any questions..not even to see the rental invoice and determine that they had paid a deposit- this is why they asked me to take a look!

 

 

 

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By Tim Vane
11th Dec 2015 15:32

Thanks for the extra info. It sounds like you have everything in hand and that you are doing the right things. I suggest filing current year with a PYA as mentioned above and making sure the tax is corrected in the current year. The client will probably have to write off the money paid to the previous accountant and put it down to experience. Hopefully he will appreciate you all the more if you have managed to sort out the mess efficiently. Don't be afraid to bill the client suitably for all your work.

 

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