Worried over stock value

Worried over stock value

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This is just a follow up to my bankrupt client who transferred shares in the limited company to his wife for zero value and the trustees are now pursuing the wife for the shares in order to realise a value

I did send the share valuation based on Net Asset method and goodwill based on average profits and even though my client want zero value for the shares.  I just gave what I thought was right in the circumstances.

To give some history, I started with this client two years back and only just started my practice.  It was my first client and admitted was raw and naive.  The books were totally in disarray they were paying tax on huge sales as pro-forma invoices were booked as sales but the goods were never sent to the customer.   I gradually have  put the house in order after spending a considerable amount of my own personal time.  Only now two years on the client is willing to listen

My client who became bankrupt is a maverick and is clueless with accounts and neither does he really care as his focus his sales.  His wife plays no part in the company

I suddenly realised one point on Stock after I sent the share valuation which is worrying me.  Is the valuation in the accounts correct

The company used to keep huge amounts of stock but ever since I became their client they hardly keep any stock.  Once they get a sale they purchased the goods.

When I had started the previous year accounts did not seem correct as the stock seemed far far too high.  I was then told this is the stock figure which was hardly anything so write off a huge amount of stock

I have been into the offices a number of times but have never seen any stock kept - it is noticeable as they stuff they sell is very bulky.

 It has been back of my mind how could there be such a swing from one year to another. Though the gross margin is stable year and year

It is a very small company and I know the book-keeper well (he does everything in the company) and have some trust. The owner may tell porkies but the book-keeper would't lie. He made a comment in passing that the company had a warehouse but when question further if anyone visits he said he had not been aware of anyone visiting the warehouse, no old stock has been used for sales and that he had seen no invoices from the warehouse.  I have not seen any invoices from the warehouse and would be easily spotted as there are not that many suppliers.

The stock would materially affect the valuation and my concern is that the trustees could  come after me if the accounts are deemed incorrect and there is a huge amount of stock somewhere.

The company does pay a good amount of tax each and more in previous years due to the phantom sales and doesn't try openly to avoid tax

Replies (13)

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the sea otter
By memyself-eye
26th Jan 2015 16:33

a few anomalies here

Small company - huge stock. Books in total disarray yet they have a bookkeeper? Stable margin yet stock write offs.

How do they have the cash to pay "good amounts of tax" on phantom sales?

Did the alarm bells not ring two years ago, this is so bizarre...

I suppose the first question would be who did the stock valuation.

I think you may need legal rather than accounting advice

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By cparker87
26th Jan 2015 20:46

Wash hands
Get out of there

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By johngroganjga
26th Jan 2015 21:10

I think he already is out of there. His worry is about understatements of stock in the accounts he has already prepared being laid at his door.

But assuming he had the usual disclaimers in his compilation report I fail to see how he can be blamed for his client providing him with wrong stock figures.

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By Jim100
26th Jan 2015 21:49

No I am not out yet

One of the issues was their former book-keeper had left and she was the wife of the old partner hence the accounts got rather neglected though she seemed quite incompetent too looking at the accounts.  The new book-keeper appointed had no accounting skills so exacerbated the problem plus she was given other non accounting related tasks hence book-keeping happens about once a year. At the time I needed the work having just started off and did not know what I was getting into until I delved into the accounts to my horror.

It has got better and myself and the book-keeper are tying to work out together procedures. tidying up the accounts and putting controls in place.  If the client wasn't listening or there were tax improprieties then I would plan to exit. Anyway, they end up paying more tax and penalties so its in their interest to put things right.

The stock valuation is a random figure plucked from the clients head. Having looked around the figure is plausible.  I have emails confirming the stock figure.  

The question is really on risk like John has stated say the stock figure is incorrect and what action the trustees may take against myself. I have out a few disclaimers in the report but not on the stock.   I have carried out reasonable checks and is mentioned in the management letter as well when I filed the Statutory accounts two years ago.  What other disclaimers could I state on the report ? With due respect, I don't want any lectures to get out or statement that I should not have taken on this client in the first place.  Right or wrong its done now - I have learnt from this and past mistakes will not happen again. Would appreciate any constructive advice on the stock matter - thank you.

 

 

 

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By andyjdicker
27th Jan 2015 08:24

Wouldn't worry

You are not doing an audit, the accounts are not your responsibility they are the directors.

You took the stock figures from the client on good faith, and you have emails backing that up.

I know it's natural to worry about accounts, but as long as you've done the best job you could at the time, with the information given, then thats as good as you can be expected to do. We do have limitations on our job, time, budgets, information we can get... it's not perfect sometimes, but we have to do what we can do, and stock is just one of those areas where we have to rely on information from the directors often.

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Replying to atleastisoundknowledgable...:
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By Jim100
27th Jan 2015 09:48

Thanks

andyjdicker wrote:

You are not doing an audit, the accounts are not your responsibility they are the directors.

You took the stock figures from the client on good faith, and you have emails backing that up.

I know it's natural to worry about accounts, but as long as you've done the best job you could at the time, with the information given, then thats as good as you can be expected to do. We do have limitations on our job, time, budgets, information we can get... it's not perfect sometimes, but we have to do what we can do, and stock is just one of those areas where we have to rely on information from the directors often.

Many Thanks Andy for the reassurance.  Much appreciated as its been bothering for the past few days.

 

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By johngroganjga
27th Jan 2015 10:24

I agree with Andy orovided you have the appropriate disclaimers on your compilation report, which you will have if you are using the standard one.

But for next year end ask client for a fully itemised stock sheet. If client asks why say that (a) it's a legal requirement for him to have one, and (b) without it you can't check that he's not overvaluing the stock and paying tax too early.

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By Jim100
27th Jan 2015 10:52

disclaimers

Thanks John

Sorry which standard one ?

Is there a report where I can copy the disclaimers from ?

I have sent the report to the clients lawyer but they have not sent the report as yet to the other side so thinking of quickly inserting more disclaimers.

 

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By johngroganjga
27th Jan 2015 10:56

I was referring to your report on the accounts, not your valuation report.

What compilation report do you put on your accounts then?

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By Jim100
27th Jan 2015 12:21

standard one

yes it is the standard one

Just wondered if there was any disclaimers I could state in the valuation report to give more protection.  

 

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Replying to WhichTyler:
By johngroganjga
27th Jan 2015 12:38

Disclaimer

Jim100 wrote:

Just wondered if there was any disclaimers I could state in the valuation report to give more protection.  

You should say in your valuation report that you have not audited or otherwise verified the figures on which the valuation is based.

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By User deleted
27th Jan 2015 12:25

Have you formally valued the stock?

 

if not, then there is nothing to 'disclaim'

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By Jim100
27th Jan 2015 13:03

ok

Thanks John.  Yes I will add this to the report.

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