No debtors

No debtors

Didn't find your answer?

I have just taken over a client from another accountant, who has been preparing the accounts for several years.  I have seen  the accounts for the last few years and there have never been any debtors included in the accounts.  There should have been a figure of several £000 each year.  Last year it would have run into 5 figures, so not insignificant.

If it was just one year, I would amend and sort out with HMRC, but this could be a can of worms and I want to make sure we adopt the best approach.

There is another item which I believe has been incorrectly treated in the accounts every year as well, although the previous accountant disagrees.   Without going into detail, I am struggling to accept his treatment, although it has saved the client a significant amount of tax.  To be frank, it looks like the previous accountant did what he did without working it through properly (especially given his total failure to recognise any debtors) and is now backtracking to justify his treatment - there was a long silence (weeks) when I queried it before he came up with his response.  My treatment requires much more tedious calculation than the "easy" option he adopted.

His treatment could be correct in certain isolated cases, but I do not agree that this is one of them.

I would welcome any comments on how others would proceed in this situation.  Client is not aware of the debtors issue yet as I had not spotted it to start with, but is aware of point 2 and has agreed that the previous accountant's argument is thin to say the least.

Any helpful comments or moral support for a lonely sole practitioner would be appreciated!

Replies (5)

Please login or register to join the discussion.

the sea otter
By memyself-eye
10th May 2013 20:23

What is point 2?

Not debtors presumably?

Thanks (0)
By johngroganjga
10th May 2013 20:33

If you include closing debtors correctly in your accounts you will have corrected the problem cumulatively, so don't worry about it. Can't comment on the other point unless you share what it is.

Thanks (0)
Time for change
By Time for change
11th May 2013 08:09

Yes, completely agree with John -

include closing debtors at the end of your first accounting date and, effectively, you'll have corrected the situation, at that point. However, if you review the accounts and, can reflect on (a few) previous years, from what you've said, I imagine your first period will appear "distorted", possibly to say the least.

If I were you, I would see what the situation actually is and, if its clear that your first period of involvement is fairly much out of kilter then, given that situation, I would be making the appropriate comments in the white space on the client's tax return. After all, all you will have done, is remedied the position. Obviously, I would keep the client fully informed, in all of this.

A point also worth noting: often in these cases, I find that trade or other creditors have also been omitted.

I've taken over work from what I regarded as "big fish" accountants in my locality, only to find that the very basics of accounting principles had been ignored. But, what do I know?

Thanks (0)
avatar
By taxhound
11th May 2013 09:59

timing

Thanks for your replies.  I am aware that I can straighten out the debtors issue at the end of the next period, and it is just a timing issue, but obviously tax will be paid late - so effectively, HMRC should have had extra tax several years ago.  I can't believe HMRC would be happy with the situation if they realise what has happened though.

I don't think there is a problem with creditors.

The other issue is more than a timing issue - it is to do with capital v revenue and is my main concern.

Thanks (0)
By johngroganjga
11th May 2013 16:41

HMRC will have very little to gain from not accepting the fait accompli when you complete and submit your accounts with a brief white space explanation.

Thanks (0)