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How would you fix this?

A new client has been doing their own accounting for 8 years and it is all wrong

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A new ltd co client has done their own accounting for the last 11 years, the last 8 being in Xero. 

A few problems:

1. Balance sheet in Xero does not match Companies House filings at year ends and he has no reconciliations. 

2. Client has added personal bank feeds into Xero as well as ltd co feeds. Part reconciled the personal account into Xero but stopped 4 years ago.

3. Conversion balance entered 8 years ago is only partly complete and does not balance so the Xero balance sheet is wrong. 

Essentially what has been reported is fiction or maybe not but Xero certainly is. Any advice on how to fix this would be appreciated. Although I have quoted a healthy hourly rate for this work, I don't want to have to go back 11 years and fix it. 

 

Replies (11)

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By Roland195
13th May 2021 09:37

Has the client actually requested that you "fix" this? The usual approach would be to correct going forward & make sure your terms of engagement reflect this.

Thanks (4)
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By Peter Anderson
13th May 2021 09:40

Presumably you have quoted for work going forward not to correct the past. I suggest advising client the past is incorrect and a brief idea of what is wrong, whether it is material, the likely implications, the cost to correct (a piece of string may be needed).

Then, use figures from the last accounts filed at Companies House as correct starting point for this year and go forwards from there.

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Replying to Peter Anderson:
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By bernard michael
14th May 2021 11:43

Peter Anderson wrote:

Presumably you have quoted for work going forward not to correct the past. I suggest advising client the past is incorrect and a brief idea of what is wrong, whether it is material, the likely implications, the cost to correct (a piece of string may be needed).

Then, use figures from the last accounts filed at Companies House as correct starting point for this year and go forwards from there.


Should he put in the comparative figures if he knows they're wrong?
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By Chris Maslin
13th May 2021 10:06

You need to try to get the carried forward balance sheet correct, forget about the past. Get the bank to agree, hopefully the client has a good idea of what debtors/creditors there are, make the accounts figures for those tally. Equally for any possible fixed assets.

See what overall difference you end up with, and decide how you'll go about dealing with it. Perhaps through the P&L, perhaps DLA.

Make clear you don't accept responsibility for any queries into historic figures, and if further work is required on that, you'd need to charge extra fees.

Thanks (1)
A Putey FACA
By Arthur Putey
13th May 2021 17:46

He should switch to QuickBooks at once, it will sort all his taxes without him having to go anywhere near an accountant (or your money back).

Seriously, I would suggest going back as to the end of the HMRC enquiry window, work the P&L forward from there and see where that takes me. Reserves will be a guess, then there is the matter of what has gone on his SA100s. I don't disagree entirely with what others say about just picking up from last year's CH BS but if you go back a further year the comparatives are yours as it were.

Thanks (4)
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By Eddystone
13th May 2021 19:04

Agree with Chris Maslin and Roland 195 here, wouldn't stir up earlier years unless it becomes necessary upon an HMRC enquiry. Just make quite sure what you do is correct for the client in the future.

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By Paul Crowley
13th May 2021 19:15

My concern would be tax as that is real money
Corporation tax
Dividends and personal tax
VAT
S455 loans
p11ds
4 year logic check

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By JD
13th May 2021 19:51

Having identified the problem, I would suggest obtaining client instruction to rework/correct. If they are not prepared to put right then that tells you all you need to know about the client, cease to act and SARs report.

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@enanen
By enanen
14th May 2021 11:43

Bin. You do not have time.

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By David Gordon FCCA
14th May 2021 14:26

Not your problem
Just make sure that your letter of engagement clearly sets out that your interest is from
date of letter. That you have/take no responsibility for anything prior.

Just make sure your balance sheet is correct.

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Morph
By kevinringer
14th May 2021 17:37

I'd tell the client that ordinarily I'd be obtaining reconciled information from the former accountant, or sometimes the client. But because there is no reconciled information it will be necessary to at least attempt to get a foothold on the opening balances and that is going to involve a lot of extra time and cost. Also, if mixed up personal transactions in the company then potentially costly tax. Try and give some indication of cost of your time and get some payment up front, or monthly instalments. There's no point you sweating over this if the new client can't/won't pay you. I'd be ethically obliged to advise client they need to check the accuracy of their previous returns and correct if necessary. If they refuse then I'd have to consider whether to act at all.

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