Professional Clearance - Incomplete Records

Previous Accountant wants to charge for providing details of year end adjustments

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Obtained professional clearance and hand over information on new client only to discover that previous accountants had not adjusted the client's accounting system for various year end adjustments spaning a number of years affecting profit and loss account items which they had posted to their own in house system. Balance Sheet and retained reserves had been adjusted. Having requested these details on the basis that the client's system did not comply with Companies Act requireemnts on adequate records. Am now been asked to pay for this information to be provided. How should I approcah this? Does not seem right that client should have to pay.

Replies (28)

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By adam.arca
18th Nov 2020 13:10

Last time there was a thread like this, I was moaning about incoming accountants expecting the kitchen sink at no charge. Now we have a case of former accountants trying to create a ransom strip.

Basically, if the former accountant is a member of a professional body, then he hasn't a leg to stand on as he has to provide sufficient information to enable the incoming accountant to perform their duties (assuming, dependent upon body, that all fees have been paid).

So, either the former accountant produces the ptbj they created, or alternatively he provides his own, updated TB with all necessary working papers and you can create movements from there.

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Replying to adam.arca:
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By the_drookit_dug
18th Nov 2020 13:19

Would it prevent the incoming accountant from performing their duties though? Pretty sure I could get by.

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Replying to the_drookit_dug:
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By adam.arca
18th Nov 2020 13:30

the_drookit_dug wrote:

Would it prevent the incoming accountant from performing their duties though? Pretty sure I could get by.

Well, it depends, doesn't it? And we're obviously looking at this from different ends.

If the new accountant can re-create the TB from the info already handed over, then great, but that isn't always the case. Plus, depending on exactly how sophisticated the client is and how complex (in terms of volume of codes) the TB on the client's software, it might well be helpful to know how the P&L comparatives are made up.

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Replying to the_drookit_dug:
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By Paul Crowley
18th Nov 2020 13:45

Same here

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Replying to adam.arca:
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By Paul Crowley
18th Nov 2020 13:43

Incorrect
Only ICAEW has the supply everything free rules

ACCA says TB is all that is needed.
Charge for anything else OK

No idea on other bodies

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Replying to Paul Crowley:
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By adam.arca
18th Nov 2020 13:53

No, I think you're wrong there, Paul.

ICAEW require that "reasonable" handover info be provided FOC but they also allow the member to hang onto that release until they've been paid for their previous work.

ACCA insist that a TB at least be provided even where the member is owed a shedload. Once the member has been paid (if ever), they can't leave it at that but still need to provide the rest of the handover.

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Replying to adam.arca:
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By Mgdaly
20th Nov 2020 09:53

What constitutes a 'reasonable" handover. Do ICAEW publish any guidance in this respect?

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By the_drookit_dug
18th Nov 2020 13:17

It's quite common to just adjust reserves TBH - not ideal, but common practice.

What precisely have you requested? If they gave you a list of journals from their accounts prep software, would you then go back and forth seeking more clarification of what each journal relates to? I can see how the costs may start racking up for the old accountant.

If the client is happy to pay you to undertake this exercise, then that's fine - but it's not unreasonable for the previous accountant to expect to be paid too for costs they incur.

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Replying to the_drookit_dug:
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By adam.arca
18th Nov 2020 13:32

As stated above, we're coming at this from different ends. Personally, I don't see asking for a list of journals to be an unreasonable request or one that the former accountant should feel justified in charging for.

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Replying to adam.arca:
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By the_drookit_dug
18th Nov 2020 16:21

I agree, a list of journals is not an unreasonable request. And I also agree with your point that correct comparative figures can be useful for management purposes.

I do see the positive angle to this - they may be looking to put in place new reporting dashboards etc, for which comparatives are useful.

However, if the previous accountant was engaged only for annual compliance work, you can't blame them for only doing annual compliance work. Delving into prior years could quite easily end up getting dragged out, so the prior accountant should reserve the right to charge.

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Replying to the_drookit_dug:
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By adam.arca
18th Nov 2020 18:28

the_drookit_dug wrote:

However, if the previous accountant was engaged only for annual compliance work, you can't blame them for only doing annual compliance work. Delving into prior years could quite easily end up getting dragged out, so the prior accountant should reserve the right to charge.

Yes, good point, that would be my position too if I’d handled the job that way.

In that case, however, I think the outgoing accountant has to provide (and may well have done for all we know) the TB from their system so that the new accountant can at least post some accurate balancing journals to bring the client’s TB back into line even if only internally.

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Replying to adam.arca:
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By Mr_awol
19th Nov 2020 10:49

Is a list of journals reasonable?

If id lost a client i would have provided a TB and schedules of relevant b/sheet items. I wouldn't normally provide my journal listing on the basis that the incoming accountant just needs to know what was in the accounts - not how i got there.

If the accounts prepare capitalised something, the manager moved it back to P+L and then i capitalised it (unlikely but an extreme example) i might not be keen to give that information away. Even without any embarrassing stuff like that though, the client has left (in my case i like to think) a competent accountant and if the new guy needs me to hold his hand to this extent then maybe that's proof that the grass isn't always greener. I'm not here to provide free training to the local competition.

Normally we will post a closing balance journal but sometimes it slips. We don't charge for the journal and if a client left before I'd done one I would probably take the stance that whilst we ordinarily chuck this in for free for ongoing clients, it's up to the new firm to undertake this work now.

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By Ranse
18th Nov 2020 14:48

who does the bookkeeping the client or the Accountant ? if the client does their bookkeeping and give access to the accountant to prepare their accounts , its more likely the quote from the accountant would have been to prepare the accounts but not to update their system , so the accountant would have extracted client TB , make adjustments from queries and post these to their own system and email client the adjusting entries for them to update ( its up to the client to do that) , if that is the case , the out going accountant can provide you with journals and working papers for each of those years.

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Replying to Ranse:
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By Mgdaly
20th Nov 2020 09:51

Client does the bookkeeping but in this case they did did not provide the client with the details of their adjustments.

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By I'msorryIhaven'taclue
18th Nov 2020 14:49

Boil it down, and there are potentially two entirely different ways the old accountants might have approached their accounts preparation work:

1. Rely upon the client's accounting package to produce the financial statements (albeit with a few final adjustments of their [ie the accountants'] own, say for tax at the very least).
So that would necessitate maintaining the client's accounting package in tandem with the accountants' final accounts by posting [to the client's accounting software] entries for reversing journals, depreciation, accruals, corporation tax, provisions and so on.

2. Treat the client's accounting package as a bookkeeping system.
So that for me would mean extracting a transactional TB for the year, together with supporting transactional nominal ledger and other ledgers. TB fed into accountants' "ETB" - their working papers - whereupon aforementioned entries for reversing journals, depreciation etc etc are made. Any subsequent entries to client's accounting software typically limited to sales & purchase ledger write offs/ adjustments; otherwise summary journals reflecting accountants' working papers adjustments made in clients' accounting software to reserves..

For my money, both satisfy the Cos Act requirements. You might call the first "accounting", and the second "bookkeeping". And whilst it seems to me the previous accountant was by and large using the second approach, I can understand why they might want paying for converting a client's previous years' accounting software records to run in tandem with the accounts by converting retrospectively to the first approach.

I know that's not the answer you were hoping to hear, but it seems to me a case of letting sleeping dogs lie and making your own adjustments to the client's accounting software to run in tandem with the most recent year's accounts, and thereafter, to the extent that you favour.

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By the_drookit_dug
18th Nov 2020 16:26

There's also an issue of sanitising the adjusting journals. What if a less than spectacular junior member of staff pulled together the draft accounts, but the manager and partner had to make lots of correcting journals to the junior's work? You wouldn't want to start sending that kind of stuff externally.

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Replying to the_drookit_dug:
A Putey FACA
By Arthur Putey
18th Nov 2020 18:05

Sage advice is to always wear a mask when sanitising journals

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A Putey FACA
By Arthur Putey
18th Nov 2020 18:03

Lots of second guessing as to how the old accountant did it, but the fundamental is they should have at least provided the client with details at the time so they could update their ledgers, the usual method being to send an ETB and a summary of the adjustments. But even if they didn't do it at the time its a 5 minute job to provide. I always ask the client first before troubling my predecessor.

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Replying to Arthur Putey:
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By adam.arca
18th Nov 2020 18:22

Arthur Putey wrote:

Lots of second guessing as to how the old accountant did it, but the fundamental is they should have at least provided the client with details at the time so they could update their ledgers

Yes, I think we’ve all been guilty of inferring too much based on, erm, not enough really.

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By Duggimon
19th Nov 2020 09:39

I have never adjusted a client's P&L for years gone by. They have a detailed P&L in the accounts, they can do it themselves if they like. I'll sent them a journal with the balance sheet movements and a balancing entry to the P&L reserve and not a single one has ever asked for more.

I had not considered that it might be in breach of the Companies Act but now I have considered it and disagree entirely.

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Replying to Duggimon:
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By Mr_awol
19th Nov 2020 10:55

Precisely.

It is generally a complete waste of time to correct PY P+L nominals and i have hardly ever done so in c20 years, in accordance with the policy at four different firms.

I also disagree that this would breach the Companies Act.

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By JD
19th Nov 2020 11:49

Mgdaly, very gently this is pretty easy stuff to do, assuming you have received a trial balance from the previous agent. I would respectfully recommend just get it done yourselves, as I am very sure that it will take far less time than challenging the agent and posting questions about it.

Even better it will provide a good opportunity to show a bit of proactivity on your part as you start to raise a few questions around how his/her business operates.

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Replying to JD:
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By Mgdaly
20th Nov 2020 09:47

Not as simple as that. There are questions over the make up of some of the adjustments and how they impact on current year and on VAT claims.

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Replying to JD:
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By Youareatit
20th Nov 2020 10:04

[quote=JD]

as I am very sure that it will take far less time than challenging the agent and posting questions about it.

Agreed.

Also, it wouldnt go amiss for Mgdaly to actually show some appreciation for the many responses received. Most respondents have made more effort.

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By jonharris999
20th Nov 2020 12:27

Interesting debate, thanks all.

Personally I don't find the attitude of the old-accountant-in-this-story too objectionable. They might think their work is less problematic than the OP thinks it is.

The ones I have no time for are those deplorables who 1) do not reply to prof clearance letters, 2) dig their heels in about sending the simplest items eg last year's return, details of reliefs etc. They should take their pique and stick it somewhere painful.

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By Mgdaly
21st Nov 2020 11:25

Thanks for all the comments.
My own view is that the previous accountants should provide sufficient information to allow the new accountants at least to tie back the numbers in the final accounts to the clients accounting system if this information was not previously supplied to the client. This should include the P&L numbers as the new accountant may need to deal with a HMRC enquiry into CT or VAT in the future. If this information resides on a separate system of the previous accountants it does not form part of the client's books of account.
What I am still not sure about is how to encourage the previous accounts to comply with a reasonable request to provide this information!

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Replying to Mgdaly:
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By I'msorryIhaven'taclue
21st Nov 2020 14:00

For my money you laid too many of your cards on the table when you "requested these details on the basis that the client's system did not comply with Companies Act requirements on adequate records". As indicated by some of the replies in this thread, that's a contentious reason which evidently the old accountant has chosen to rebut. Hence the introduction of charges.

So how to imcentivise the old accountant to play ball? As a limited company your client is unable to issue a SAR. Maybe if you were to hang the sword of Damocles over their head - say by intimating that the information you seek is needed in readiness for a *forthcoming VAT inspection or an *anticipated CT enquiry - then the information might be forthcoming. All the more likely if you ask for it piecemeal, say one ledger at a time (any specific bad debts, then any provisions, then build to any control differences - I'm sure you get the idea).

*Needs careful wording, of course, so that you don't cross the boundary by telling porkies. As you have rightly said, you "may need to deal with a HMRC enquiry into CT or VAT in the future. And with any luck the old accountant might just infer that such enquiries are imminent.

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Replying to Mgdaly:
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By Mr_awol
22nd Nov 2020 08:05

Mgdaly wrote:

Thanks for all the comments.
My own view is that the previous accountants should provide sufficient information to allow the new accountants at least to tie back the numbers in the final accounts to the clients accounting system.

It’s your view but unlikely to be shared by many and certainly not what ‘should’ be provided.

On the occasions I lose a client I supply a pretty comprehensive pack but if the new accountant started asking how to recreate last years P+L I’d charge for it - and not at any sort of discount either.

The reason is that if new advisor wants this information it’s either:
1) because they want to copy my allocations/workings rather than decide for themselves where things go
2) because they want to ‘check’ last year in which case they are probably going to raise a load of pointless petty queries such as whether the broadband costs should be in telephone or computer costs.

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