Errors in prior year accounts

Errors in prior year accounts

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I am preparing accounts for a new client, she provides media services through a Ltd Co.  The previous accountants never replied to my professional clearance enquiry and have never provided any handover information, TB, list of debtors, creditors etc.  No opening balances reconcile: cash does not agree to bank account, debtors not to invoice sheet, no VAT creditor and trade creditors incorrect.  

In addition I have no supporting VAT information so how do I work out the net amounts for the P&L?  So far I am effectively redoing the VAT returns.

I am way over budget already and not getting anywhere close to reconciling the opening balances.

How should I proceed?

- Get client to call previous accountants - relationship has nearly broken down and this has not worked when they chased before (waiting over 6 months already).  I have already called.

- I call the accountant's institute?  Can they help at all?

- I redo the accounts for last year and the client has to pay for this?  Should the client take some responsibility for not checking the accounts and not keeping better records of VAT declared on VAT returns etc? 

Please advise if any other suggestions.  Thanks.

Replies (25)

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By johngroganjga
23rd Jul 2014 08:36

If the accountants are regulated by a professional body complain to that body.  That should do the trick.

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Replying to Accountant A:
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By qad999
25th Jul 2014 23:18

truly stuffed if accountant not regulated

johngroganjga wrote:

If the accountants are regulated by a professional body complain to that body.  That should do the trick.

 

Good reply .. but many on here think they should be able to practice without being a member of a professional body

 

so where does that leave this client..?    the answer is yes ..... truly stuffed

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By User deleted
23rd Jul 2014 09:26

If you ...

... get the closing position right and then write off any discrepancies, then over time everything must be right, just may be not in the right years.

It is the directors responsibility to prepare accounts, so write differences to DLA and see what it look likes - tell client that your year is right and what you have done with differences, if it causes a s455 problem let the client decide what to do, it is their accounts not yours - be helpful but you are not being paid for last year unless client specifically asks (and pays for ) you to re-do.

You may find most of the discrepancies net out anyway!

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By johngroganjga
23rd Jul 2014 09:32

First things first

But until you have the breakdowns of the opening figures you don't know whether there are any errors anyway!

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By User deleted
23rd Jul 2014 09:49

Why ...

... You know what you have paid out and collected and know it relates to this year or prior, you should know what is owed and owing at year end so working out what opening debtors, creditors and bank should be is easy, sling difference to DLA, tell client this is the problem, what do you want to do?

No need to make things more complicated than you need to.

Do agree VAT is a problem though, but tell client now, VAT a mess, my fee does not include book-keeping, what do you want to do?

What book-keeping system, if any, do they use, and hiow many transactions are we talking about?

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By Matrix
23rd Jul 2014 09:53

I think there are errors

Thanks for your help.   I think the issue is two-fold, firstly not receiving any back up and secondly that the accounts do not agree to the records I already have.  Yes if I receive the info then all may become clear, but if there is one bank account and the number at year end does not agree and the debtors are out and no trade creditors or Vat creditor then they look incorrect to me.

The differences do not net away and so it means that reserves brought forward must be wrong and I am not just adding on the last year I prepared to incorrect figures (although the VAT and the CT I have calculated should be correct).

I will chase in a few weeks and then call their Institute if no success.

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Replying to Tax Dragon:
By johngroganjga
24th Jul 2014 10:55

First things first

Matrix wrote:

Thanks for your help.   I think the issue is two-fold, firstly not receiving any back up and secondly that the accounts do not agree to the records I already have.  Yes if I receive the info then all may become clear, but if there is one bank account and the number at year end does not agree and the debtors are out and no trade creditors or Vat creditor then they look incorrect to me.

The differences do not net away and so it means that reserves brought forward must be wrong and I am not just adding on the last year I prepared to incorrect figures (although the VAT and the CT I have calculated should be correct).

I will chase in a few weeks and then call their Institute if no success.

The assumption you are making that because you can't reconcile the figures in the last accounts to your client's records the accounts must be wrong may be a correct one.  But with respect without the breakdowns of the opening balances you have no idea.  It is equally possible that the records are wrong and the accounts are right.  You seem already to have spent far more time than you should have to no avail.  What I would have done is tell the client that it would not be useful or economical for me to do any work until the breakdowns of the opening balances I had requested from my predecessors had been received.  When that information was received I would then have set to work to prepare the accounts, content in the knowledge that I had all the information I needed to complete that task quickly and economically.

I would not follow OGA's suggestion.  That would involve spending yet more time preparing accounts that may well be meaningless nonsense, that you will have to spend yet further time correcting when the time comes.

It is important to do things in the right order.

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By User deleted
24th Jul 2014 10:37

I didn't say do that ...

... I said prepare an accurate P&L for your year and an accurate closing Balance Sheet.

Then you will be left with a balance that in the accumulation of any errors brought forward, That should be put to DLA.

You can then present the directors with the difference and a schedule breaking it down as appropriate, difference on opening trade creditors; difference on opening trade debtors; difference on opening PAYE; difference on opening bank balance; difference on opening VAT etc. etc.

You then need to ask the directors what they want you to do with it. If they want it to go anywhere else than DLA they must pay you to investigate it, or take action against your predecessor firm to get the information. If this creates an o/d DLA and a s455 problem the directors will likely want to take action to get it resolved.

It is not your problem and all you can report against the predecessors regulator is teh failure to reply to clearance, any issues on the accounts are between them and the client, it is not your place to get involved.

As far as re-doing last years accounts that is a waste of effort, and how do yo know the errors don't go back many years earlier?

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Replying to DavidGilligan:
By johngroganjga
24th Jul 2014 11:07

Disagree

Old Greying Accountant wrote:

It is not your problem and all you can report against the predecessors regulator is teh failure to reply to clearance, any issues on the accounts are between them and the client, it is not your place to get involved.

I disagree that the failure to respond to reasonable requests for accounting information not otherwise available is not a proper matter for a complaint to the regulatory body.

Yes you can throw the problem back at the client and wash your hands if you wish, but that will probably not enhance your relationship with your client.  The key is to keep the client in the loop throughout, so that the client knows who is responsible for the delay and for any extra time you are having to spend, but without spending time that the client will not or should not pay for.

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By User deleted
24th Jul 2014 11:15

Disagree completely ...

... the current years accounts will be right, not meaningless nonsense, the only disputed amount will be the "differences" brought forward, how they are dealt with depends on what the directors wish. Why make mountains out of molehills, my method will get the accounts and closing balances right, you then just have to worry about the inherited "difference".

The old woman approach just wastes your time and your client's money unecessarily. The liklihood of every getting the figures (which probably don't exist) is small and the prospect of late penalities, and more importantly the consequential effect of the credit rating dropping through the floor means the easiest thing is to take my pragmatic approach.

It would be useful if you could give us some idea of the figures though. are we talking 100's, 1000's or 10's of thousands?

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By johngroganjga
24th Jul 2014 11:39

But if the previous accounts are right and the clients' records wrong the effect of doing what you propose will be to reverse all last year's correcting entries through the DLA!!!!!!  If that doesn't make the accounts nonsense I don't know what does. 

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Replying to MJShone:
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By User deleted
24th Jul 2014 12:37

No ...

johngroganjga wrote:

But if the previous accounts are right and the clients' records wrong the effect of doing what you propose will be to reverse all last year's correcting entries through the DLA!!!!!!  If that doesn't make the accounts nonsense I don't know what does. 

.... that is not what I have said at all.

If your P&L is correct and your closing balances are correct you will have absorbed any adjuting entries by previous accountant, but taking a view of this I think it unlikely there were any, if they can't be bothered to reply to a clearance letter I doubt very much the would bother with getting the accounts right.

My approach, correctly applied,  would mean teh P&L is correct and so would be the Balance Sheet in total, the only two figures with any scope for adjustment would be DLA and b/f reserves, and unless the directors want to pay you to sort it out, then the adjustments stay in DLA.

If John is correct and last years account were right, then as long as your P&L is correct and your closing Blances correct DLA can be the only place for the adjustments, everything else will have washed through.

Why make a three act play out of a short story.!

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Replying to paulinleeds:
James Reeves
By James Reeves
24th Jul 2014 13:08

Three Acts

Old Greying Accountant wrote:

Why make a three act play out of a short story.!

Nothing wrong with that. It works for Peter Jackson.

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By johngroganjga
24th Jul 2014 13:17

Round in circles

But you can't get the P& L right until you know what the opening balance sheet was!

So, as I keep saying - do things in the right order.

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Replying to RedFive:
By petersaxton
26th Jul 2014 17:19

Never going to get P&L right

johngroganjga wrote:

But you can't get the P& L right until you know what the opening balance sheet was!

So, as I keep saying - do things in the right order.

You are never going to get P&L "right" because you don't know what the opening balance sheet was. You can work out what it should have been and then you can work out what the balance sheet should have been. AS OGA says, there's two balances you cannot calculate - DLA and reserves. You should use the reserves in the balance sheet and adjust the DLA. If you think the reserves were wrong then you would have to adjust the accounts for the previous year if it was material. You may be able to consider the current P&L with the previous P&L and estimate where the difference is but otherwise I would go with the DLA adjustment.

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By User deleted
24th Jul 2014 16:09

Eh ...

... course you can, rocket science it ain't - whether there are PYA's is another matter entirely.

This little song comes to mind! - sometimes you have to work with what you've got, not what you want!

I know we're accountants but sometimes you have to be pragmatic instead of pedantic.

To pick up on the WW1 centenary, if Fritz is jumping in your trench, your gun is jammed and you've dropped your bayonet - club him with the stock!

I think the OP is looking for a way forward, having done all that is reasonable to try and get things done in the right order, the time for dicking around waiting for Brigadoon is over, they need to get some accounts drafted.

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By andy.partridge
24th Jul 2014 14:04

Great song

Incidentally, I met Graham Nash last year. Was very nice to me. Great talent, massive ego, just want you want from a rock star. Better than Stills and Crosby, not as good as Young in my view.

Regarding the previous accountant's year-end adjustments. Don't they include those annoying little things that will render your current P&L wrong? Ah wait a moment, I'm belatedly seeing the light.

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By User deleted
24th Jul 2014 15:01

Ah, in that case you want ...

... the late great Mr Reed and his Velvet Underground.

Seen CS&N a couple of times, always a good show, get a couple or three hours of great music.

Exactly, if you calculate the answer is 6, it doesn't matter if it is 0 + 6, 1 + 5; 2 + 4, 3 + 3, 4 + 2, 5+ 1, or 6 + 0 - it is still 6!

 

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By Matrix
25th Jul 2014 09:07

Thanks all

Good debate.  

OGA - I think I will follow your advice but may raise all the issues with their institute (including that they have not refunded the fees they deducted by DD for this year's accounts). 

JG - thanks for giving the old accountants the benefit of the doubt but they have never replied to any queries from me or the client and I don't really see how they can get the bank account wrong in the accounts.  It would be great to have an explanation on that one.

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Replying to nodrogbir:
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By Alexdon
25th Jul 2014 10:25

Aahhh!

Matrix wrote:
 

 I don't really see how they can get the bank account wrong in the accounts.  

Innocence, I vaguely remember that!

 

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Replying to Tax Dragon:
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By sparkler
26th Jul 2014 19:07

It does happen...

Alexdon wrote:

Matrix wrote:
 

 I don't really see how they can get the bank account wrong in the accounts.  

Innocence, I vaguely remember that!

I prepared accounts a couple of years ago for a client for the first time.  I had a similar problem with opening balances. The previous accountants were actually quite helpful, but it transpired that they had ignored any transactions in the last quarter of the year, because the client had only provided them with bank statements for the first three quarters. Never did they think to ask, before preparing the accounts, whether there were any transactions in Q4 (and yes, there were!) which might make the Q4 closing balance different to the Q3 closing balance.  I too cannot understand how an accountant could prepare accounts without reference to the closing bank statement, but it certainly happens!

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By johngroganjga
26th Jul 2014 10:14

Agreed. But as the OP refers to the accountant's Institute, presumably that's not a problem here.

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By Matrix
26th Jul 2014 12:18

Institute

The previous accountants are a member of an institute, do I call them up or does the client?

Posters asked for numbers, the opening balance sheet is £30k, I make it £20k, difference on cash is £6k, diff on trade creditors £12k, diff on debtors £5k, VAT creditor prob the difference but not reconciled VAT yet as bookkeeping under par and will need more fees to resolve (thanks for making me more bullish).  Lovely client but she is not a bookkeeper and should have checked the accounts before signing and kept better records.

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Replying to lionofludesch:
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By qad999
27th Jul 2014 23:26

anyone can complain

Matrix wrote:

The previous accountants are a member of an institute, do I call them up or does the client?

Posters asked for numbers, the opening balance sheet is £30k, I make it £20k, difference on cash is £6k, diff on trade creditors £12k, diff on debtors £5k, VAT creditor prob the difference but not reconciled VAT yet as bookkeeping under par and will need more fees to resolve (thanks for making me more bullish).  Lovely client but she is not a bookkeeper and should have checked the accounts before signing and kept better records.

 

The Client can complain...

but its probably best you get a client authority  letter  so you can  complain on their behalf , and you can then at the same time  set out the queries you need answered ................ hopefully they (the rogue firm) will then be pressurised into responding so you can sort out this mess quickly

 

 

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By carnmores
26th Jul 2014 12:33

I'm with OGA on this

PL for the year based on info to hand and BS . The only tricky thing is establishing the VAT ceditor if any, presumably this is fairly easy to check . Crs Drs BANk etc should be fairly straight forward i expect client knows exactly how much they are owed etc

dont bother reconciling the opening balance for now its basically a waste of time , if you establish the ye balances most likely they will reveal themselves!

you state that you are already over budget , you cannot expect client to pay more without agreement. what you must not do is overrun and then try and charge more  later 

the accounts are the directors responsibility , you can prepare and leave out accountants' report

you can complain all you ,like but will it help you or add to your irrecoverable time

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