We've taken on a new client, and looking at the previous set of annual accounts prepared for the company, the amount due for Corporation Tax for that year was not included. We we usually include the amount calculated when forming accounts, so for this year for this company we would include Corporation Tax due for the previous year, and for the year we're forming accounts for now, to bring up to date.
Including two lots of Tax in this years accounts will however bump up Expenditure and impact profits which the client will not be expecting.
In this case, I'm considering continuing along the same vane as the previous accountant, and including only costs actually paid during the year.
Any comment / advice appreciated.
Replies (19)
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Wouldn't you adjust the comparative year to introduce the accrual that should have been present?
You can present the accounts in any way the relevant accounting standards permit.
That’s what I’d do if I was forming the accounts ….
"In this case, I'm considering continuing along the same vane as the previous accountant, and including only costs actually paid during the year."
Although you omitted the question-mark (and btw it's vein not vane), the answer is NO ... assuming that the accrual basis is otherwise being used in the accounts.
Is it material? - PYA might be appropriate
If not, just add it to current year charge in the P&L.
I wouldn't not accrue it, just because the old accountant didn't or forgot
Is the real problem that the retained earnings are inadequate for 'dividends' drawn?
Merely asking this question indicates that you are probably not regulated by one of the accounting bodies
Ignoring the tax due makes the accounts knowingly misleading, the accounts are relied upon by lenders and for businesses that give credit. The accounts are in the public domain
I would be astounded if any member of my staff suggested ignoring the known liability
You might want to review whether doing accounts on a cash basis for unincorporated entities is actually doing them any favours, afraid my default position would always be accounts prepared on the accruals basis.
Really cannot understand how anyone preparing accounts is unversed with accruals basis accounting.
The only cash basis stuff I deal with are small charity accounts
Cash basis has just so many ways of going wrong and losing personal allowances, loss reliefs, tax efficiency on capital allowances, loan interest........ad nauseum.
BUT accruals accounting takes more time than just looking at the bank
Blimey, this post certainly makes the case for regulating accountants. I'm not regulated but at least I was properly trained and part-qualified.
People tend to learn from criticism, that is why trainee CAs in my day received criticism/feedback , in the long term it makes them better accountants.
Or to put it another way ... "Negative comment is neither helpful nor appropriate" is itself inaccurate - as it is an effective way to help others (so long as the others are receptive to learning and not overly sensitive).
And sometimes the severity of what needs to be corrected has to begin with the injunction to "Stop"!
EDIT: crossed with OP's response ... pleased to hear about ongoing learning (always a good thing), but where's the "bias"?