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Client needs mortgage but wants to inflate profit

How to handle this situation

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We have a client who is a builder Ltd  (one director) and have just prepared  1st year provisional accounts.  Profits 25K and Directors loan account overdrawn by 35K.   He had sent the work in progress and stock figures which seemed sensible.

Now he is apply for a mortgage his mortgage adviser has stated that Director Loan account should not be overdrawn and that dividends should not exceed disrubutable profits.  Though I am waiting to hear what dividends have been formally declared in the year. 

Bascically he wants to increase the profits.  The issue now is that he is stating the WIP and stock figures provided where incorrect and that should be nearly double.  Clearly this is wrong but how to handle it as would not want to produce accounts that do not show a true and fair view.

 

 

 

 

Replies (16)

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By Matrix
20th Sep 2019 12:37

What are provisional accounts?

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Replying to Matrix:
By johngroganjga
20th Sep 2019 12:39

Presumably what the rest of us call “draft”accounts.

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Replying to johngroganjga:
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By Matrix
20th Sep 2019 12:45

Ok but I don’t see how you can prepare any accounts if you don’t know the dividends. I also don’t see how you can retrospectively change the overdrawn DLA.

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Replying to Matrix:
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By Mr_awol
20th Sep 2019 15:33

At a push, where the directors prepare dividend minutes themselves, but haven't provided them to the accountant, it is possible. Of course, most of us would try and get the answers before sending out drafts, but if a client is dragging their feet and ive got WIP a couple of months old, with just this one item to resolve, I would proibably send out the drafts with the DLA overdrawn and bill the full job - since it is likely that the only remaining actions will be Dr Dividends, Cr DLA and reprint.

I admit, though, this would be in a very limited number of cases. Most clients who are organised enough to do their own dividend paperwork are also capable of pinging a summary/copies over by email.

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By paul.benny
20th Sep 2019 12:41

Do you have any detailed listings for either version of the stock or WIP?

How has the director identified the errors (other than because they gave a profit he found inconvenient)?

What does your professional integrity tell you to do?

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Replying to paul.benny:
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By Mr_awol
20th Sep 2019 15:37

In honesty id be more concerned about the backing of the 'new' figures - although it would be very good to see what's changed.

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Replying to paul.benny:
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By JimLittle
23rd Sep 2019 14:09

No, we haven't as the WIP seemed reasonable based on post balance but perhaps we should have.

We will stand by the figures in the accounts unless he can provide the dividends minutes/vouchers though the challenge for myself and most other accountants when were the dividend vouchers actually produced ? We will not change the WIP.

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By johngroganjga
20th Sep 2019 12:42

I’d ask to see the workings for his first and second attempts and question him very closely on the differences, and whether the valuation bases are or not compliant with the company’s accounting policy.

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Hitch photo
By Kevin Kavanagh
20th Sep 2019 12:56

What about post balance sheet events: they may throw some light on the reasonableness of the closing figures? As for verifying the 'dividends' paid during the year, good luck with that. Honestly, this isn't a particularly unusual scenario. You must hold to your professional standards; and if that means walking away so be it. You certainly don't want to go anywhere near something which might turn out to be mortgage fraud.

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Replying to Kevkava:
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By JimLittle
23rd Sep 2019 13:39

Yes the WIP seem what I expected having looked at the following month's Sales figures.

No, I won't change the figure just for him to secure a mortgage.

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By WhichTyler
20th Sep 2019 13:01

Given the time that's passed, can he prove the WIP by reference to payments received after yearend?

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mushroom
By Magic Mushroom
20th Sep 2019 13:46

A common scenario with a simple answer, tell him to find another accountant. He is asking you to risk losing your livelihood and potentially your freedom for the sake of a fee of a few hundred pounds.
You are probably obliged to file a report under money laundering regulations too.

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By SWAccountant
20th Sep 2019 14:23

He is right though - dividends shouldn't exceed distributable reserves.

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By bernard michael
20th Sep 2019 14:47

Say good bye unless he can justify the "improved" figures

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By SouthCoastAcc
20th Sep 2019 16:09

Tell him to fine another mortgage company

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Replying to SouthCoastAcc:
Hallerud at Easter
By DJKL
23rd Sep 2019 15:50

SouthCoastAcc wrote:

Tell him to fine another mortgage company

Thought PPI compo was now over/finito/ yesterday's news?

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