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Do you cross check client workings with source?

Does anyone else cross check client workings against source documents before preparing tax return

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Hi

As the tax season is in full swing, we had a potential client come to our office with a summary of his income and expenses (totals only).

We asked for bank statements and source documents to cross check his workings but he said that he had always given summary to his previous accountant for self assessment preparation.

We had to turn him down as we normally like to cross check the client figures to reassure ourselves.

The potential client did comment that he was not asking us to do audit (which is true) of his data and just wanted us to file his tax return (not huge sums).

What do you normally do?

Yes, we are not auditors but we should store some of the source documents in file for future reference. right?

Thanks for your support in advance guys.

 

Replies (42)

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By johngroganjga
04th Dec 2019 10:12

Unless he is asking you to check his figures, and prepared to pay you for doing so, what you were proposing to do was unnecessary. If the figures were wrong it would have been his problem not yours, and it is therefore his call entirely, and not yours, whether he wants you to give him comfort before submitting them, or whether he is happy to take the risk himself.

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Replying to johngroganjga:
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By Amanacca
04th Dec 2019 10:57

Thanks John.

Are we being too strict in this area?

I know its their call but if we don't double check then in our workings we will only say as per client's calculations.

This was the first client for us with no source documents readily available.

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Replying to Amanacca:
By johngroganjga
04th Dec 2019 11:12

Yes I think you are being too strict.

What is wrong with your workings saying "as per client's calculations" when that is what it is.

As other have said, and I agree, you might want to query things that look wrong on the face of them. But to proceed on the basis that everything your client gives you must be wrong until you have proved that it is not, and that he must pay you to spend time proving it, is not in my opinion the right approach, and seems to have lost you a client on this occasion.

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By bernard michael
04th Dec 2019 10:20

I query anything that looks obviously wrong

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Replying to bernard michael:
By Red Leader
04th Dec 2019 10:26

bernard michael wrote:

I query anything that looks obviously wrong

I agree, it's on a case by case basis. There are some areas that clients often get wrong, e.g. State pension x12 not x13. or if the client's total are round figures.
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By SBB
04th Dec 2019 10:21

I like to check income and expenses against bank statements/receipts when preparing accounts/Tax Return for a client.
Surely there is an AML risk if no records are seen?

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Replying to SBB:
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By Amanacca
04th Dec 2019 11:02

Yes, we do the same for AML reasons.

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Replying to SBB:
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By Joe Alderson
04th Dec 2019 11:24

I wouldn't say there is any greater risk when preparing a tax return for a client. You are only looking for suspicious activity where AML is concerned, most tax returns are fairly standard, salary, dividends, pensions, rental income, residence etc. You might get more complex stuff depending on your client base like seafarers deduction but if you know your client base and the types of revenue and reliefs you are most likely to come across well then you should be able to spot something out of place.

If anything, I raise more queries from not having source docs than otherwise but overall I believe we save a lot of time via disclaimers and not waiting for/forcing clients to send us copies of all their paperwork. The bigger risk is filing an incorrect return, but it's the obligation of the tax payer to ensure their return is correct and as long as you make them aware of that I don't have an issue.

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By Joe Alderson
04th Dec 2019 10:39

If I have access to the source documents then I will always check them, but if a client doesn't provide them I just put add a brief disclaimer when I send a copy of the completed return back to them for their approval.

If we spot anything that appears out of place or like it could be wrong then we always query that, otherwise we're happy to use the info the clients provide.

We do ask for the source documents as standard, but I wouldn't turn a client down if they didn't want to provide them.

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By Amanacca
04th Dec 2019 11:01

Thanks everyone.

I have learnt a lot today.

We have always spent time in preparing our workings etc.

Does this mean we are being too strict for no reason?

I know if large sums or unusual figures are involved then we will need to see some documents but normally is it acceptable if a client brings a piece of paper with income and expenses totalled separately and says this is my information, will you prepare tax return from that?

I am just surprised how much complication we have possibly added to our systems.

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Replying to Amanacca:
Hallerud at Easter
By DJKL
04th Dec 2019 11:39

If they brought you in books with multiple lever arches of invoices, would you check them all?

If they kept their records on software would you vouch all expenses?

I appreciate there is a difference between single entry and double entry systems regarding confidence re completeness (albeit the extra confidence from double entry can be an illusion), but a reconciled bank and lists to controls of debtors and creditors at least gives some confidence that single entry lacks, but at the end of the day you are auditing neither, even if you were you really could not check completeness anyway (remember the old , I think type six audit reports), so all you are arguing here is degrees of lack of assurance.

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Replying to Amanacca:
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By jvenegas16
17th Dec 2019 11:03

Who is the ultimate person responsible for what has been submitted on the Tax Return? And who approves the Tax Return before submission? The taxpayer, and it is not just me saying that, HMRC has also said it.
On the other hand, when we prepare Tax Returns from records provided, the client as a taxpayer, has the right to challenge and to decide whether to approve the Tax Return or not. Many approve the Tax Return blindly. The taxpayer could also ask you how you reach to those figures and the supporting information for that.
I do agree with the risk of AML.

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By JDBENJAMIN
04th Dec 2019 11:22

This is an area where you just have to make a judgement based on your knowledge of the client. I will usually accept client's figures unless there is a reason to think they are wrong. I've been approached a few times over the years by people saying their previous accountant was happy to accept their figures, even though one glance told me they were fraudulent. In such cases I have said I will only accept appointment if they show me how they got to those figures. I never hear from them again!

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RLI
By lionofludesch
04th Dec 2019 11:30

I need to know that what I submit has at least some basis in fact.

For that reason, I wouldn't accept "execution only" instructions.

It's my choice.

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Replying to lionofludesch:
By SteLacca
04th Dec 2019 14:02

lionofludesch wrote:

For that reason, I wouldn't accept "execution only" instructions.

I would have once agreed, but MTDfVAT has brought us several "execution only" VAT Returns, and I suspect MTDfIT will have a similar effect.

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Replying to SteLacca:
RLI
By lionofludesch
06th Dec 2019 12:09

SteLacca wrote:

I would have once agreed, but MTDfVAT has brought us several "execution only" VAT Returns, and I suspect MTDfIT will have a similar effect.

I don't need that sort of risk, to be honest.

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By penelope pitstop
04th Dec 2019 12:57

Always use a disclaimer when client refuses/does not provide source documents.

For one client, I always put in the following disclaimer when I send him his tax return and accounts:

"Once again, I have not seen any of your bank statements and neither have I seen any invoices raised or receipts for sales to your customers so I am totally reliant on the accuracy of your turnover figures and timing of income and expenditure as shown on the monthly expenses sheets and summary schedule supplied by you."

That said, I have a gut feeling that his figures are honest and accurate. He does however provide expense receipts/expense invoices.

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Replying to penelope pitstop:
Hallerud at Easter
By DJKL
04th Dec 2019 13:18

Even when I did receive say the purchase invoices re the vat return completion I would have a little disclaimer snippet stating I did not check everything.

With one of my bigger partnerships (circa 6-7 ring binders of purchase invoices a year) I did not check all invoices re their returns where the client had done the initial analysis, I only checked the ones where he say might have more likely got confused, like the zero rated and acquisitions or imports from outwith the EU , I would not check all the smaller standard rated invoices one by one.

In effect ensure bank squared including correcting Amex charge deductions/omitted payments, check cash account looked reasonable, analysis of the above mentioned re the purchase invoices plus any large/unusual invoices- in effect cast an eye down the sheets and flick through the invoice files for the quarter re the rest.

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By SXGuy
04th Dec 2019 13:57

The figures would be based on information and explanations supplied by the client. If all he's asking for is to file a tr on his behalf then I see no issue. Like others have said its down to him if it's wrong your merely acting as a submission service.

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By ireallyshouldknowthisbut
04th Dec 2019 15:46

I always want to see the detail myself down to transactional level, not just totals.

I don't check it back to invoices etc, but I wouldn't accept a client coming in saying "me rent is £10,000, and my costs are £500, one tax return please" as invariable its bull.

You need to know how they got to the totals to do anything other copy numbers into a tax return at which point there is little point paying us to do it.

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By atleastisoundknowledgable...
04th Dec 2019 22:17

I normally ask them to provide an Excel analysing their income & expenses (we provide a template). However, I would take their figures in whatever format they were presented, which would include just totals.
My T&Cs and LoE clearly state ‘from information & explanations provided by you’ so I have no problem being a file-only service for SATRs. It gets the job done quickly, easily and profitably (for the record, profit isn’t the sole driver here).

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By Matrix
04th Dec 2019 22:58

No since we don’t do bookkeeping or accept paper copies if we can help it.

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By Tim Vane
05th Dec 2019 04:02

Ask yourself why the client is looking for a new accountant. If it smells bad don’t eat it.

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By CW2012
05th Dec 2019 09:52

His figures not yours, you're not a bloodhound but if it looks suspicious dont deal with it. Cover yourself in an engagement letter laying out client responsibilities and your own. It looks a bit questionable though when the client walked away after being asked for a bit more depth.

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Replying to CW2012:
RLI
By lionofludesch
05th Dec 2019 10:08

Client didn't walk away, he was sent away.

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Replying to lionofludesch:
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By Amanacca
05th Dec 2019 11:20

lionofludesch wrote:

Client didn't walk away, he was sent away.

haha. Yes, he was sent away.

Well thanks everyone, I realise that I am a bit strict one here. I know that non of us will accept any work when it seems completely fishy. I have learnt a lot from all of you :)

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By Red Leader
05th Dec 2019 12:35

To sum up then: "it's a judgement call."

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By David Gordon FCCA
06th Dec 2019 11:58

You really need to ask?

If the guy won't give you the bank statements make him an ex-client as fast as you can.

Think about it, from your practice self-preservation point of view.
Would you wish to to tell HMRC that you prepared accounts without seeing the bank account, because the client refused to cough up?
This is inviting HMRC into your practice to review your clients.

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Replying to David Gordon FCCA:
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By Roland195
06th Dec 2019 12:20

I did not take from the OPs question that he had been engaged to prepare accounts but to complete a SA Tax Return based on the information supplied. If the turnover is small enough for the 3 line account and no balance sheet, then the scope of this engagement is not unreasonable and I can see no reason whatsoever that the OP would have to defend that position to HMRC or anyone else.

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Replying to David Gordon FCCA:
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By Roland195
06th Dec 2019 12:20

I did not take from the OPs question that he had been engaged to prepare accounts but to complete a SA Tax Return based on the information supplied. If the turnover is small enough for the 3 line account and no balance sheet, then the scope of this engagement is not unreasonable and I can see no reason whatsoever that the OP would have to defend that position to HMRC or anyone else.

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Replying to Roland195:
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By Roland195
06th Dec 2019 12:22

Just realised I have probably declared open season on all us cowboys who dispense with full financial statements in favour of Income and Expenditure Accounts where the situation warrants.

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Replying to Roland195:
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By atleastisoundknowledgable...
19th Dec 2019 09:50

Most of our tax returns are Director/shareholders, but of the s/e returns we do, I would say roughly 2/3 get I&E accounts, 1/3 just the SATR. None get full accounts with B/S.

If something stood out as unusual (admittedly subjective) we’d question it.

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By brumsub
06th Dec 2019 14:46

I think for the first year and a new client, I would want to see the clients’ records and how they obtained their figures in order to gain an understanding of the business as far as possible, irrespective of size.

If you are happy with was produced by them for the first year with you, there is no reason not to accept subsequent workings. Otherwise, I would decline the appointment.

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By jon_griffey
07th Dec 2019 11:32

Its worth having a look at the PCRT.

https://www.tax.org.uk/sites/default/files/A_Tax_Filings_helpsheet_1_Mar...

In particular this bit: -

"Where acting as a tax agent, a member is not required to audit the figures in the books and records provided or verify information provided by a client or by a third party. However, a member should take care not to be associated with the presentation of facts they know or believe to be incorrect or misleading, not to assert tax positions in a tax filing which they consider to have no sustainable basis."

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By busacrun
07th Dec 2019 14:15

we would check the underlying paperwork before submitting - we are putting our name to the tax return so need to know its right - you can bet your life that if the return is picked up for review because the figures don't work that the client will blame you, regardless of if its their mistake....why take the risk

you've done the right thing turning them away

we had a similar thing recently - CIS labour only subcontractor provided an A5 handwritten note stating income and tax stopped .....only thing was CIS deductions per their note were 41%!! needless to say they wouldn't provide anything further and we happily waved goodbye

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By David Gordon FCCA
08th Dec 2019 14:05

Sorry friends,
I apologise for not being clear about this.
The issue is not whether we examine bank accounts and other source documents.
Clearly we all enjoy sundry clients for whom we prepare returns and other statements without examining bank documents or other stuff. Also, we all load the returns or accounts with disclaimers. Fair enough.
The issue is, this person "Refused" his accountant access to the bank account.The word is "Refused".
I may not use a client's original documents but I expect, absolutely, that the client is prepared to offer them to me if needs be. This because if the client is so willing, I know I am reasonably "Safe".
If he or she is not prepared to so offer, then:
a)
He or she does not trust me in my professional capacity to maintain confidence,or
b)
He or she has something to hide.

In either case I believe I cannot safely properly act as his or her agent vis a vis HMRC.

Another of my true stories
My friend's client got jumped on by the Inland Revenue, remember them?
Afterwards my very annoyed friend asked him what had he done?
The guy told my friend that he had taken the money in cash.
Then what? asked my friend.
I put it in the **** account for safe keeping! The fellow replied.

?'Nuff said?

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By David Gordon FCCA
18th Dec 2019 11:40

Dear Jvenegas16
In an ideal world you are correct but;
If some idiot gawping at his mobile walks straight out into the road, in front of your oncoming car, without looking and unfortunately you hit him.
a)
There may be contributory negligence, and you are not to blame, but
b)
If unfortunately the idiot does this on a zebra crossing then, in law, you take the blame. This even if there was no way you might avoid him.

You are correct in law, nevertheless HMRC may well use such a case to hang their coats in your practice cloakroom.

Real Life can be such a b****r.
Season's greetings.

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Replying to David Gordon FCCA:
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By jvenegas16
18th Dec 2019 16:10

Thanks, David Gordon. Very illustrative and very true too.

Season's greetings

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By skypotentialuk
19th Dec 2019 07:47

Are we being too strict in this area?

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By David Gordon FCCA
20th Dec 2019 11:02

Dear Sky etc
It is not a question of being "Too strict"
I enjoyed an enormous privilege during my training.
This was, I trained at a time when, in the City of London and elsewhere, deals and agreements for £millions(1960s' money)were done and honoured on a handshake. Persons similar to ourselves took enormous pride in "My word is my bond".

Unfortunately a large part of this has been replaced by "The computer says". I really appreciate that I no longer have to add up 52 line analysis sheets by hand, or mess with Tipp-ex. I do not appreciate that for many otherwise intelligent persons "The computer says" has replaced brain exercise.

Even in 2019 rather than 1969, to sleep soundly in our beds at night, our profession has to be based on trust between client and accountant. If the client does not trust you,
either
You are not conducting your affairs in a constructive manner
or
The client is a ??, you choose a suitable word.

Your choice, your risk.

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Mark Lee 2017
By Mark Lee
20th Dec 2019 16:23

It takes longer to check than not to check.
There is no legal obligation on you to check. I'm not even convinced it's best practice.
As is clear from the replies here, many accountants do not check.
I would expect fees to reflect the different approaches.
What value does your client perceive they are getting from your checks? This is not the same question as what value do you think client gets.

This client, like so many others, is scared to file a return directly or doesn't trust themselves to get it right, or doesn't want to spend the time trying to do it.

If they can find someone to file the return on their behalf without having to pay them to check it, I'll bet that's what they'll do.

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By David Gordon FCCA
22nd Dec 2019 12:58

Dear Bookmarklee
I do try to make the point, but clearly I am not there yet!

It is not a question of checking or not checking, and or fees or no fees.

It is simply, if for any reason I require client's financial information, I am comfortable in the knowledge that the client will supply it, grudgingly perhaps, but he or she will supply the information. This is the element of professional trust necessary to the peaceful pursuit of my profession.

Similar to, when necessity sends me to my dentist's chair I trust her to cause me the least possible pain, and then for me to feel better afterwards, apart from the bill for which there is not any anesthetic.

I ask a season relevant question.
When you sit down to festive dinner and you think about people, does it not make you feel good inside, that you believe these people trust you?

Season's greetings.

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