Former Accountants have screwed up

Former Accountants have screwed up

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I am just about to take over a client as their old accountant has made a very bad job at the book-keeping. In fact someone needs to sort it out as a lot of incorrect entries have been made as well as many old items on the ledgers. I also fear the statutory accounts were incorrect and therefore the corporation tax.

I have told them that they have paid for the service so the old accountant needs to sort it out. However they do not have any faith or confidence in them. It will take months to sort it out and they cannot afford to pay me to deal with the backlog.

The old accountants just seem strange how do they deal with matters and furthermore they had filed the statutory accounts at companies house not the abbreviated ones. No idea why as its only a small company less than 100K turnover.

The Client wants me to take up the matter with the old accountant. Not sure I want to get involved.

I said to the client they they should list all the errors on the books, have a meeting with them and seek compensation for the mess up and then let me try to clear it up. They do not want the old accountants near their books as they do not know what they are doing. Also mentioned to raise the matter with their accountancy body if there is no satisfactory compensation.

Another problem I cannot seek professional clearance until the matter is resolved between them and my client which may take a while

Any other advice would be appreciated.

Replies (20)

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By bernard michael
08th Aug 2014 09:01

My advice - harsh though it sounds

 

1.If the client can't pay for the extra work don't do it?

 

2. Don't get involved in attacking the old accountant particularly if they are members of a regulated body

 

3. Tell the client to see a solicitor and take their advice.

 

4.Tell the client you will only carry on with their work when the outstanding matters have been resolved

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By FCExtraordinaire
08th Aug 2014 09:09

Its not up to you

The client needs to sort out the issues with the old accountant, however they want to do it.

Work on the basis that you can only carry on with the work when you have professional clearance. 

 

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By sqwint
08th Aug 2014 09:51

Echo of the other accountants sentiments

Agreed, its easy to be emotionally involved in these type of cases, but the reality is that it will suck a huge amount of time for little reward. Hopefully the old accountant will have some professional liability insurance, which will make the path easier for the client to formalise the complaint.

Mark

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By I'msorryIhaven'taclue
08th Aug 2014 10:06

Materiality?

The old accountant will no doubt argue theat the errors do not materially affect the true and fair state of the accounts; especially when they are netted off against one another.

I remember an ex-lecturer, a former Big 4 auditor, telling us that when his firm prepared accounts for and audited the steel works they thought they were doing well if they could get the sales and purchase ledgers to balance to within £5m each.

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Replying to Tim Vane:
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By User deleted
08th Aug 2014 10:24

Netted off

I'msorryIhaven'taclue wrote:

The old accountant will no doubt argue theat the errors do not materially affect the true and fair state of the accounts; especially when they are netted off against one another.

 

Netted off against one another?

Do you know what the adjustments are?

Are you the ex-accountant?

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Replying to mr. mischief:
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By I'msorryIhaven'taclue
08th Aug 2014 11:23

Don't be a Banana, Man

BananaMan wrote:

I'msorryIhaven'taclue wrote:

The old accountant will no doubt argue theat the errors do not materially affect the true and fair state of the accounts; especially when they are netted off against one another.

 

Netted off against one another?

Do you know what the adjustments are?

Are you the ex-accountant?

Yes, netted off; and no, I'm not the previous accountant. That's rather an offensive implication, especially for someone whose half bananas :)

Using my former Big 4 / Lecturer example, if the sales ledger had say a £4m writte off that had the affect of decreasing sales, whilst the purchase ledger had a £4m write off that increased sales, then that was ok in his book. They netted off.

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Replying to Jennifer Adams:
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By User deleted
08th Aug 2014 11:41

More than half!

I'msorryIhaven'taclue wrote:

Yes, netted off; and no, I'm not the previous accountant. That's rather an offensive implication, especially for someone whose half bananas :)

Using my former Big 4 / Lecturer example, if the sales ledger had say a £4m writte off that had the affect of decreasing sales, whilst the purchase ledger had a £4m write off that increased sales, then that was ok in his book. They netted off.

 

I'm more than half bananas! ;)

 

I was only surmising as I couldn't see any mention of the 'errors' potentially netting off and naturally (and obviously also mistakenly) assumed you had more information than the other contributors

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Replying to Tim Vane:
paddle steamer
By DJKL
08th Aug 2014 11:38

The fact that they did not!!!!!

I'msorryIhaven'taclue wrote:

The old accountant will no doubt argue theat the errors do not materially affect the true and fair state of the accounts; especially when they are netted off against one another.

I remember an ex-lecturer, a former Big 4 auditor, telling us that when his firm prepared accounts for and audited the steel works they thought they were doing well if they could get the sales and purchase ledgers to balance to within £5m each.

 

Whether material or not material ,what does the non reconciliation of the ledgers say about the entity's internal controls and how much additional substantive testing would be required to give confidence?

For an entity where £5 million was not material to not have reconciled sales and purchase ledgers is shocking.

Netting of significant "unknown" differences is a slippery path IMHO (I once worked with someone whose idea of accounts preparation was to guess debtors, creditors and stock, and wrote of all inconvenient differences against one another (vat/paye/net wages/ bank/cash etc, source did not matter))

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By Euan MacLennan
08th Aug 2014 10:26

Professional enquiry

You have heard only one side of the story.  If you are "just about to take over a client", you must send a professional enquiry letter to the old accountant to ask if there are any circumstances of which you should be aware before deciding to accept the appointment.  If he replies in writing that there are no such circumstances, you could try following up with a 'phone call to ask him off the record about the client.  His reply may dissuade you from taking on the prospective client.

If you decide to act, ask the old accountant for the usual hand-over information - TB, analyses of fixed assets, debtors and creditors, tax computations, etc. at the last year-end and start from that.  Get your first year's closing balances correct and write off the differences in the year.

Also, you say "furthermore they had filed the statutory accounts at companies house not the abbreviated ones. No idea why as its only a small company less than 100K turnover."  It is not a crime to file the full statutory accounts.  Perhaps, the client said that he wanted the P&L filed for credit rating reasons.

I don't understand your advice "I said to the client they they should list all the errors on the books, have a meeting with them and seek compensation for the mess up".  If the client is competent to find the errors in the books, why wasn't he doing the book-keeping in the first place?  Or perhaps he was - badly - and is blaming the old accountant for failing to sort out his mistakes.  In any event, what loss has the client suffered for which he could claim compensation?

I agree that whatever you do, don't get involved as a negotiator between the client and the old accountant.

 

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Replying to lionofludesch:
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By Jim100
08th Aug 2014 11:06

professional clearance will take too long

Euan MacLennan wrote:

You have heard only one side of the story.  If you are "just about to take over a client", you must send a professional enquiry letter to the old accountant to ask if there are any circumstances of which you should be aware before deciding to accept the appointment.  If he replies in writing that there are no such circumstances, you could try following up with a 'phone call to ask him off the record about the client.  His reply may dissuade you from taking on the prospective client.

If you decide to act, ask the old accountant for the usual hand-over information - TB, analyses of fixed assets, debtors and creditors, tax computations, etc. at the last year-end and start from that.  Get your first year's closing balances correct and write off the differences in the year.

Also, you say "furthermore they had filed the statutory accounts at companies house not the abbreviated ones. No idea why as its only a small company less than 100K turnover."  It is not a crime to file the full statutory accounts.  Perhaps, the client said that he wanted the P&L filed for credit rating reasons.

I don't understand your advice "I said to the client they they should list all the errors on the books, have a meeting with them and seek compensation for the mess up".  If the client is competent to find the errors in the books, why wasn't he doing the book-keeping in the first place?  Or perhaps he was - badly - and is blaming the old accountant for failing to sort out his mistakes.  In any event, what loss has the client suffered for which he could claim compensation?

I agree that whatever you do, don't get involved as a negotiator between the client and the old accountant.

 

Rightly or wrongly I have been liaising with the client and have seen their books and asked them to check a few things out - we both have spotted various errors.  They are about to sign the engagement letter next week.

They are in a pickle they don't want to tell the old accountant yet they are moving until they have investigated everything thoroughly and put a case towards them.  The only thing the client want me to do at this stage is the payroll

The professional clearance why I understand the significance(and implications) just takes too long to get reply/information from the old accountants (if they reply it at all). However, I do not want to risk losing this client and will not undertake any significant work until a reply is received which may take a while as once they investigated, they will have a meeting with the old accountant and then they will give me permission to request professional clearance.   I know these accountants have not communicated with the client at all on anything and cant see them replying to me.  I know I will then have to threaten them but already we are behind with the work. 

I agree there are two sides to every story and perhaps the accountant will come back later then I will need to make decision rather I carry out the engagement or not.  Tell me if I do not carry out or will ?

They did not ask them to file full statutory accounts

 

 

 

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Replying to accountright:
Stepurhan
By stepurhan
08th Aug 2014 11:26

Alarm bells

Jim100 wrote:
Rightly or wrongly I have been liaising with the client and have seen their books and asked them to check a few things out - we both have spotted various errors.  They are about to sign the engagement letter next week

They are in a pickle they don't want to tell the old accountant yet they are moving until they have investigated everything thoroughly and put a case towards them.  The only thing the client want me to do at this stage is the payroll

The professional clearance why I understand the significance(and implications) just takes too long to get reply/information from the old accountants (if they reply it at all). However, I do not want to risk losing this client and will not undertake any significant work until a reply is received which may take a while as once they investigated, they will have a meeting with the old accountant and then they will give me permission to request professional clearance.   I know these accountants have not communicated with the client at all on anything and cant see them replying to me.  I know I will then have to threaten them but already we are behind with the work.

So you have done work with a client without a signed engagement letter. You have failed to ask for professional clearance, despite the fact this is required by all accounting institutes and is best practice in any case. Your prediction that it will be a waste of time, based on nothing more than the reports of someone you just met, is the most feeble justifications for not doing this. Worse than that, the work you are doing is directly to assist someone you have just met in bringing a case against their current agent. Does nothing about that strike you as ethically dubious activity?

But the real question is, why is the new client so reluctant to deal with things? You say that work is already behind, and yet they are willing to let it get even further behind for a pretty flimsy reason. As others have said, you only have your clients word that the book-keeping issues are the accountant's fault. The fact that they are unwilling to get you set up properly, but more than willing to take your help in sticking it to their current adviser, is a danger sign.

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Replying to leshoward:
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By Jim100
08th Aug 2014 18:19

clean slate

stepurhan wrote:

Jim100 wrote:
Rightly or wrongly I have been liaising with the client and have seen their books and asked them to check a few things out - we both have spotted various errors.  They are about to sign the engagement letter next week

They are in a pickle they don't want to tell the old accountant yet they are moving until they have investigated everything thoroughly and put a case towards them.  The only thing the client want me to do at this stage is the payroll

The professional clearance why I understand the significance(and implications) just takes too long to get reply/information from the old accountants (if they reply it at all). However, I do not want to risk losing this client and will not undertake any significant work until a reply is received which may take a while as once they investigated, they will have a meeting with the old accountant and then they will give me permission to request professional clearance.   I know these accountants have not communicated with the client at all on anything and cant see them replying to me.  I know I will then have to threaten them but already we are behind with the work.

So you have done work with a client without a signed engagement letter. You have failed to ask for professional clearance, despite the fact this is required by all accounting institutes and is best practice in any case. Your prediction that it will be a waste of time, based on nothing more than the reports of someone you just met, is the most feeble justifications for not doing this. Worse than that, the work you are doing is directly to assist someone you have just met in bringing a case against their current agent. Does nothing about that strike you as ethically dubious activity?

But the real question is, why is the new client so reluctant to deal with things? You say that work is already behind, and yet they are willing to let it get even further behind for a pretty flimsy reason. As others have said, you only have your clients word that the book-keeping issues are the accountant's fault. The fact that they are unwilling to get you set up properly, but more than willing to take your help in sticking it to their current adviser, is a danger sign.

With due respect you make it out that I have created a enormous crime.  I think my error of judgement was perhaps being too keen trying to help so that I would become their accountant

I will obviously ask the professional clearance when the time is right and will not undertake any further work until professional clearance is acquired.I have not even register as their agent yet

 Perhaps I have cut corners and not gone strictly by the book - however If I do not feel anything is right at any stage or get a adverse reply from the old accountants I shall disengage.  Based on my own observations these accountants have not communicated with the client as they have posted too many wrong entries and some control accounts have enormous balances when they should be near to zero.  

I don't think the client has done anything wrong apart from being naive and trusting.  At the end of the day I want to start from a clean slate either the old accountants sort it out which they have been very well paid too otherwise provide compensation to the client so they can get someone whoever to sort it out. They don't want to "stick it" to their accountant - all they want is clean books .  They don't have the technical ability to understand accounts and all I am doing is stating what is wrong in their books so it can get rectified

Unfortunately, I seem to come across on a regular basis clients who have messed up or someone else messed up. I see it as a challenge to get them on the right path and have been successful at this.  If they are hiding money and not paying taxes then I will walk away.  However, again perhaps an indictment on society I regularly come across people that try to hide something or the other some blatant some not.

You know I am in quandary on the one hand I am trying to gain clients and provide a living then on the other hand is the moral debate and upholding standard to the tee.  

 

 

 

 

 

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By carnmores
08th Aug 2014 11:12

Euan there are very few musts in life
And best avoided it all possible, if not regulated should is more pertinent. PS wasn't it wonderful to see Alex out smarted by the wily old AD, I seem to remember he bailed out the RBS when in Portugal as they had 20 minutes before the ATMS were going to shut down. AD can rightfully claim to have saved the banking system that GB had so endangered. My next job will be as a revisionist!

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By ireallyshouldknowthisbut
08th Aug 2014 11:18

.

none of this is your problem. It is your new client's.

If they cant pay you to fix it up (the old accountant will wash their hands pronto) don't take the appointment. 

The reality is they will huff and puff and then cough up if they want it done properly. 

We have taken on all sorts of crap in the past, you just get on with it.  Often a "fix up" will buy you some goodwill for the client if its only an hour or two, or a judicious balancing item to at least get the opening balance sheet right.  You just have to get the client to sign off on what you have done. When presented with (a) I can spend 10 hours sorting this out and refiling your old accounts or (b) I can stick in a £3,000 balancing item to your directors loan account and it all goes away, most will chose (b).

If HMRC ever come sniffing around, you are covered, it was your clients decision and you have it in writing and signed off. 

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By bernard michael
08th Aug 2014 11:25

I do not want to risk losing this client 

Why - when all you are getting is current trouble and possible future grief

Walk away now whilst you are not further involved

 

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By I'msorryIhaven'taclue
08th Aug 2014 16:20

Top Banana

That's ok, you may be a little green but at least you're not too yellow to have a go :)

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By User deleted
08th Aug 2014 17:03

The past, as they say ...

... is another country - they do things differently there.

Not your problem, prepare accounts for your year, get the closing Balance Sheet right, any cummulative errors will wash through, write them off to DLA if a debit, P&L if a credit.

It is then up to the client to decide what to do, if your fees are more than the additional tax  due they may leave it at that.

(The only two figures you cannot accurately ascertain at the end of your year are reserves and DLA).

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By tonyh
08th Aug 2014 18:58

No accountant is perfect

I have to admit that over the years I have made mistakes in preparing accounts. I also believe that it is very easy to find fault with other accountants work.Reading your posting I find it hard to understand how you can know that the accounts are materially wrong. Just because there are errors in the book-keeping does not mean that the accounts are wrong. Maybe the accountant corrected the errors when preparing the accounts.

What does this potential client have in mind for compensation ? How can he know that he has suffered a loss without somebody redoing all the work.I have heard of clients claiming against accountants for penalties and interest charge but  have never heard of  compensation.

I suspect that you have a difficult client and I would do as others have suggested send a professional clearance letter and get on with this years accounts.

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Replying to neanderthal:
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By Jim100
08th Aug 2014 22:53

agree

tonyh wrote:

I have to admit that over the years I have made mistakes in preparing accounts. I also believe that it is very easy to find fault with other accountants work.Reading your posting I find it hard to understand how you can know that the accounts are materially wrong. Just because there are errors in the book-keeping does not mean that the accounts are wrong. Maybe the accountant corrected the errors when preparing the accounts.

What does this potential client have in mind for compensation ? How can he know that he has suffered a loss without somebody redoing all the work.I have heard of clients claiming against accountants for penalties and interest charge but  have never heard of  compensation.

I suspect that you have a difficult client and I would do as others have suggested send a professional clearance letter and get on with this years accounts.

I agree I am going to send the professional clearance letter this week and then after their response continue with the work. the backlog the client can deal with. Possibly the accounts may have been corrected but not sure how since according to the client they rarely saw them

Probably used the wrong terminology in compensation but they should refund any fees for the some of the book-keeping since someone else needs to tidy the books and carry out the book-keeping for some of the months they have failed to carry out.

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By I'msorryIhaven'taclue
08th Aug 2014 23:57

Professional Etiquette?

Aww, just when I was warming to you Jim; you go and put up a post like that!

A short while ago I was treated to a side seat in a High Court battle. The solicitors, as well as the barristers, who were involved on both sides had a good deal of professional respect for one another. Of course they made their individual mistakes mistakes: in any legal cases there has to be a winner and a loser. A major clerical foul up by our side's solicitor meant expert evidence that had cost a six figure sum was ruled inadmissable. By luck and good fortune, we had the sharper barrister and so came out on top nontheless.

Nobody cried foul! Nobody chided the losing side. Nobody would have dreamed of approaching the losing side's plaintiff and pointing out how his legal team might have made a better fist of it (ie by pointing out that they cocked it up!). THAT IMHO ILLUSTRATES A PRINCIPAL REASON WHY THE LEGAL PROFESSION IS HELD IN HIGH PUBLIC ESTEEM (WHEREAS THE ACCOUNTANCY PROFESSION ISN'T).

So, behave yourself! Try to adopt the good manners and etiquette of the legal profession. Stop trying to prove to your new client what a dandy accountant you are by running down the previous accountants. Dragging them through the mud does nothing to enhance the general perception of the accountancy profession. As some of the respected old hands have told you, any inaccuracies will likely come out in the wash. If not, are the accounts materially wrong, and sufficiently so for you to want to beat your chest over it at the expense and possible embarrassment of a fellow accountant?

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