Small accounting practice ethics?

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I work in a small accounting practice mainly dealing with SMEs and my manager seems to take a lot of shortcuts to get accounts out.

A couple of things so far that I've disagreed with have been writing off bank differences to the P&L (i.e, bank reconciliation showed the bank was out by £2k, instead of finding the differences on the bank statement these were just put to purchases). Another thing would be classifying property as freehold instead of investment property, when we know for a fact it is investment property. This is because this is how it has 'always been done' on the accounts and the tax treatment would be the same either way in the event of a disposal. 

I understand it may be quicker to treat items in this way but I can't help but find myself wondering if this is unethical. For example, in the bank rec example, revenue is about 400k so I would say this is material and I should be accounting for this bank difference. In the property example, although it may not make a difference it is still factually incorrect and so should be updated. 

Is this just standard practice in smaller firms or should I be standing my ground? I have raised concerns before but I'm just told to not worry about it and continue. 

Thank you!

Replies (39)

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By ireallyshouldknowthisbut
29th Nov 2023 11:10

You are working for a bad firm.

Bank differences are always material.

Look for a new job with someone who isn't a cowboy or you will end be being trained to be a bad accountant.

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Replying to ireallyshouldknowthisbut:
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By OneFourOneTwo
29th Nov 2023 11:36

I thought as much, thank you for confirming my suspicions!

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Replying to ireallyshouldknowthisbut:
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By paul.benny
29th Nov 2023 11:37

+1

We've all been taught that a small difference on any reconciliation might be a large amount one way and a nearly offsetting amount the other. I might write off £2 or even £20 but £2,000 is way too much.

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Replying to paul.benny:
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By Rgab1947
04th Dec 2023 10:24

A large audit firm (Big 4) said to me they always wrote off <£20 bank differences. Per them it was not material.

Followed that rule always. But £2k? No way.

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Replying to paul.benny:
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By Paul Crowley
24th Feb 2024 01:18

Always prove one side. I always prove the sales side
Then consider materiality

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Danny Kent
By Viciuno
29th Nov 2023 11:41

Echo the above. There is literally no reason for not reconciling a bank account properly to the penny other than incompetence (especially in this day and age of computers). Any difference could be material -£2k could well be £50k taken out by the director and £48k of missing sale invoices.

I wouldn't bother standing your ground as you won't be able to change their mind (I'm assuming your currently training) and it will just create bad feelings and a possible hostile environment.

Start looking for a new job ASAP with a view to moving in Feb (doubt anyone will take on someone new in Dec/Jan). When applying though I probably wouldn't mention bad practices in your current employer as a reason for leaving - others might have a different view though.

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Replying to Viciuno:
Stepurhan
By stepurhan
29th Nov 2023 12:29

Viciuno wrote:
When applying though I probably wouldn't mention bad practices in your current employer as a reason for leaving - others might have a different view though.

I would second this, but only because it sounds like you are still in training.

You have correctly identified these issues. However, talking about specifics is tricky in an interview situation anyway (easy to appear ready to breach confidentiality). That leaves you sounding like a trainee who thinks they know better than more experienced staff, which is not an impression you want to give.

I mean, in this case it does appear that you genuinely do know better, but it's still not a good look.

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paddle steamer
By DJKL
29th Nov 2023 11:47

Do remember if FRS105 accounts IP does get carried at cost, only FRS102 will see revaluations.

Would not be happy with the bank rec diff, cannot remember last time I did not square a bank but suspect was mid 90s and I recall I had already ticked it twice. (would also be something like £29.37) The danger of writing off small differences without any checking is could be £100,000 one way and £99,970.63 the other.

With manual records the tricky bank recs (the ones that were out after ticking) tended to get solved by a 6 month rec to see if one could narrow where the difference was, if on that side of the year then did a three month and then a month by month for the other two. (of course at this juncture one found it was more than one error)

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Replying to DJKL:
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By OneFourOneTwo
29th Nov 2023 12:49

Thank you - to add to the IP point, the accounts are under FRS102. Although, there is an accounting policy included in the accounts to say that freehold property is revalued each year, as if it were investment property. But then again, there has been no revaluation adjustments since 2018 so another area where I expect due diligence has not been done for some time on this.

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Replying to OneFourOneTwo:
RLI
By lionofludesch
06th Dec 2023 08:45

OneFourOneTwo wrote:

Thank you - to add to the IP point, the accounts are under FRS102. Although, there is an accounting policy included in the accounts to say that freehold property is revalued each year, as if it were investment property. But then again, there has been no revaluation adjustments since 2018 so another area where I expect due diligence has not been done for some time on this.

Boiler plate accounting policies. Take the drafts on the software and don't bother to read them. It's the mark of a poor accountancy firm and I hate it.

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By OurPlace
29th Nov 2023 12:12

The 'small accounting practice ethics' amused me. I agree it's not great but I think the ethics are likely to be worse with more shortcuts at the larger firms!

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Replying to OurPlace:
paddle steamer
By DJKL
29th Nov 2023 12:34

Concur- one of the partners during my apprenticeship (top 20 firm at that time, now a little bit of RSM) could have been known by his regular statement, "Don't get bogged down"

Still, it could be worse, later I had a colleague at a much smaller firm whose accounts working papers for smaller traders often consisted of something like:

Stock -say £5,000
Debtors -say £8,000

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Replying to DJKL:
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By Paul Crowley
24th Feb 2024 01:22

Balance sheet figures reverse the following year so not really the same as a bank difference made up of numerous errors

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paddle steamer
By DJKL
29th Nov 2023 12:37

Sorry, cannot resist, what about in Surrey?

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Replying to DJKL:
By ireallyshouldknowthisbut
29th Nov 2023 14:55

You mean "Suwwey" surely, if doing accent related gags.

I'm here all week.

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By AndyC555
29th Nov 2023 15:35

I to have an ethical dilemma.

One of my older clients has dementia and keeps repeatedly paying the same bills, and in cash too.

So the dilemma is, do I split the money with my partners or keep it all for myself?

It's a joke, people, it's a joke!

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Replying to AndyC555:
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By Truthsayer
29th Nov 2023 17:41

Of course it's a joke. You wouldn't dream of splitting it with your partners.

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Replying to AndyC555:
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By Mr_awol
29th Nov 2023 18:35

Neither.

Split it with me - and i wont tell your partners ;)

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By Open all hours
29th Nov 2023 16:38

Ethics can vary within a practice. A four partner outfit of my acquaintance had four very different approaches to clients, accuracy, and ethics. You could learn from all of them some what to do and others what never to do.

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Replying to Open all hours:
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By Ken Howard
29th Nov 2023 19:59

Open all hours wrote:

Ethics can vary within a practice. A four partner outfit of my acquaintance had four very different approaches to clients, accuracy, and ethics. You could learn from all of them some what to do and others what never to do.

Yep, I worked in a firm like that. We had to learn how each partner wanted their clients' accounts to be prepared, and do our accs prep work accordingly. Absolutely no consistency between partners at all and very little communication between them too. It was like working for different firms at the same time. They even had their own preferences as to "how" the accounts were prepared, i.e. one partner wanted hand written working papers, the others wanted them done by computer, etc. One would want everything "ticked off" and balanced to the penny, others would be "happy" with varying degrees of sloppiness and very generous use of materiality limits!

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Replying to Ken Howard:
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By Open all hours
29th Nov 2023 22:33

That’s just how it was. I’ve often tried to think of anything they had in common and it’s been a stretch but all I’ve ever been able to come up with is that they all had awful taste or no interest in cars. Not one of them ever drove anything I would have chosen. 4 guys brought together in the car park of mediocrity.

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By Calculatorboy
29th Nov 2023 22:16

It depends on materiality , to be honest there is no reason for bank differences with bank feeds doing most of the input work, but is 2k material?

If its a decent but stuck in the mud client who pays well but wont budge on changing his systems and our reccomendations , just keep repeating your advice regarding accounting defects , after all its just a compilation report , but of course if errors are material and misleading that's different .

With regard to freehold v investment property classification , that is just accounting masturbation . I wouldn't worry about it too much . Accounting standards are usually written by academic accountants who have very little experience of the real world . Often their recommendations are implemented, enforced as required but later found to be ridiculously complex and discarded ( current cost accounting and those gearing adjustments comes to mind)

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Replying to Calculatorboy:
Danny Kent
By Viciuno
30th Nov 2023 09:57

Calculatorboy wrote:

It depends on materiality , to be honest there is no reason for bank differences with bank feeds doing most of the input work, but is 2k material?

£2k is always material in a bank rec. No mater how "big" a client is.

Literally zero reasons to accept a £2k bank difference, and I do mean that in the literal sense - zero reasons. It should never be wrong by anything like that.

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Replying to Viciuno:
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By Paul Crowley
24th Feb 2024 01:26

Completely disagree

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By Roland195
30th Nov 2023 10:24

To play Devil's Advocate, I don't especially disagree with the bank reconciliation issue depending on circumstances - if this is a client who under the terms of the engagement undertakes their own book-keeping and is supposed to provide the reconciliation and will not agree to further fees to correct, then it does not seem entirely unreasonable to me.

I also have some sympathy with the position held by Calculator although maybe in not so colourful terms. Having to essentially charge owner Managed SMES usually preparing under relaxed accounting standards for disclosures & notes that bear no impact on the parts they care about - how much tax?, How much dividend & how much for you guys telling me this?, does seem unfair (but arguably one of the costs of limited liability).

The one thing that does stand out is that you just not be exposed to such accounting ennui during your training - the partners should make an effort that they pretend to care about such issues until you have learned enough to know what is important.

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Replying to Roland195:
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By I'msorryIhaven'taclue
06th Dec 2023 09:20

Roland195 wrote:

To play Devil's Advocate, I don't especially disagree with the bank reconciliation issue depending on circumstances - if this is a client who under the terms of the engagement undertakes their own book-keeping and is supposed to provide the reconciliation and will not agree to further fees to correct, then it does not seem entirely unreasonable to me.

I'm with you on this. If their bookkeeping's a dog's breakfast and they won't shell out for a sprinkling of pixie dust to put matters right, then you've not many options. It's not clear from the OP whether the w/o £2k was a debit or a credit balance; I would always write off any difference off in the Revenue's favour - so a DR w/o to the DLA, rather than to P&L.

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By Kaylee100
30th Nov 2023 10:26

When I trained my supervisor made me find every penny in a bank reconciliation....in her view, I would only get worse so she wanted to start me off right. At times I was certain the bank statements were wrong....they weren't, of course.

One day in the office, a bank account error was actually found which was about 50k one way and almost the same the other, leading to about £200 bank difference and the junior had initially asked if he could write it off (and she had told him no).

She said she'd been a supervisor for many years and was waiting for this moment to illustrate it really can happen and we spent part of our weekly review meeting talking about it.

It's one of those pivotal moments in work one never forgets as its a point that actually extends to so much that we do in terms of our professional behaviour.

A £2k difference being written off with no attempt to check for error is not professional behaviour in my view. Look at your options and maybe find a better firm.

And well done on identifying this, exploring its affect on your own behaviour and looking to deal with it appropriately.

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By carnmores
05th Dec 2023 12:13

I disagree with many of the above comments simply because we do not have enough info. How big is this SME, what accounting softwares does it use, how often is the bank reconciled ? After establishing these i would be better placed to answer. N

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Replying to carnmores:
Stepurhan
By stepurhan
05th Dec 2023 13:15

Given someone has actually related a time when an apparently small difference was actually two large differences, what are you disagreeing with? Why do you think the things you have mentioned are relevant to investigating a bank difference?

At minimum I would prove one side is correct to prove a difference cannot be two large offset differences before even considering writing off.

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Replying to stepurhan:
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By carnmores
05th Dec 2023 14:48

Hi S, it's good to hear from you we don't hear enough these days,in answer to your questions

1) over 50 years experiece has told me that it could be 2 or 200 it depends entirely how the books are kept which is why i asked if software was used and what it might be.

2) we do not usually have unlimited time to check bank recs as the accountants could be subjected to financial constraints, maybe the manager in this case has experience of this job over many years and decided write off is the correct call.

i have other points but won't bore you with these right now

Nick

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Replying to carnmores:
Danny Kent
By Viciuno
05th Dec 2023 15:12

Doesn't really explain why you think writing off a bank difference is acceptable. It's not, not ever, in my view.

1) Experience doesn't make your crystal ball better than anyone else's - you still have no idea what the difference is; more importantly you have no idea of the actual scale of it.

2) Not really a good excuse. If the bookkeeping was being done properly the first time the issue wouldn't have arisen.

Experience is being used as an excuse for laziness, or preserving the partner's bottom line.

Pass the work onto a junior, or even better a work experience person. Wont cost much for the firm, and they get great experience ticking these off.

I don't see how anyone can prepare accounts without ensuring the bank rec is done properly.

One experience that stuck in my mind a few years ago was a contractor, difference was something like £16. We prepared drafts on basis it would be a small adjustment. whole week of transactions missing from his bank. Turns out whole week of transactions missing from his bank, sales understated, VAT understated, CIS suffered understated, CIS deductions understated. Was a mess to unpick.

Genuinely interested what your other points are though as I remain unconvinced.

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Replying to Viciuno:
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By Roland195
05th Dec 2023 15:37

Are you saying at your firm, you will reconcile all bank accounts to the penny regardless of the time and cost involved? Are the clients charged for the additional costs or absorbed by the practice?

I have encountered clients where the bank is for all intents & purposes, irreconcilable. Usually happens where there is a proprietary /specialised system that posts in batches.

In the example of quote of the £16 difference, wouldn't the omission be picked up by other work carried out - the sales reconciliation etc?

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Replying to Roland195:
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By carnmores
05th Dec 2023 16:28

thanks Roland , i tend to agree with you . is this a debate between stuckists and modernists? ;-)

i can normally tell pretty quickly if a difference is material. if i have any concerns i refer it back to the client or tell them it will cost extra.

with xero / Quicbooks and the like it is fairly easy and i use 2 ways. the one i use most is to do monthly recs as its so much easier to control and you should be able to reconcile a year in an hour or two. do not try and do it in one go its too easy to lose track

alternatively i download the bank for the period with balances and download the bank from the software and compare in excel . either solution works

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Replying to Roland195:
Stepurhan
By stepurhan
06th Dec 2023 09:06

Roland195 wrote:

Are you saying at your firm, you will reconcile all bank accounts to the penny regardless of the time and cost involved? Are the clients charged for the additional costs or absorbed by the practice?

I have encountered clients where the bank is for all intents & purposes, irreconcilable. Usually happens where there is a proprietary /specialised system that posts in batches.

In the example of quote of the £16 difference, wouldn't the omission be picked up by other work carried out - the sales reconciliation etc?

I would not spend endless time reconciling to the penny. I would, as I said, look to prove one side (bankings is usually easier for most businesses) to prove it genuinely is a small difference.

Other work won't necessarily spot a difference. Worked with a client who was not great at raising sales invoices. Some of his customers would pay on just an email contact, because they valued his skills and wanted to use them again. A sales reconciliation based on raised invoices would not pick up those missing sales.

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Replying to Viciuno:
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By carnmores
05th Dec 2023 16:37

great picture is that you on the bike or Barry Sheene?

we will have to disagree on whether to write off bank reconciliation difference for non material items.

i have stated elsewhere how to resolve and i also like the suggestion of proving one side say receipts.

experience is not an excuse for laziness thats a terrible assumption and where your argument falls apart. there are may other accounts that need reconciling and they are all pretty much as important as each other. also do you think that every general ledger account should be scrutinised for incorrect classifications?

the accounts are the responsibility of the director if you have issues put them in the letter of representation or whatever notification you use.
for the moment we only need to file BS @ CH so if the bank balance is correct

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Replying to Viciuno:
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By carnmores
05th Dec 2023 16:37

great picture is that you on the bike or Barry Sheene?

we will have to disagree on whether to write off bank reconciliation difference for non material items.

i have stated elsewhere how to resolve and i also like the suggestion of proving one side say receipts.

experience is not an excuse for laziness thats a terrible assumption and where your argument falls apart. there are may other accounts that need reconciling and they are all pretty much as important as each other. also do you think that every general ledger account should be scrutinised for incorrect classifications?

the accounts are the responsibility of the director if you have issues put them in the letter of representation or whatever notification you use.
for the moment we only need to file BS @ CH so if the bank balance is correct you are pretty much there from a reporting point of view

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Replying to carnmores:
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By OneFourOneTwo
05th Dec 2023 14:54

The company has revenue between 250k-500k. The client does their own bookkeeping but they don't perform bank recs, probably assuming that the bank feed is always correct and so this doesn't need to be done. It is only reconciled at year-end when we are supposed to do it. The software is Xero.

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Replying to OneFourOneTwo:
Pile of Stones
By Beach Accountancy
05th Dec 2023 20:29

Xero: bank feeds good, reconciliation report rubbish. I wish they'd implement a proper bank rec like Sage (excellent) or Quickbooks (OK).

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Replying to OneFourOneTwo:
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By I'msorryIhaven'taclue
06th Dec 2023 09:31

For those who like things just so, Xero has an annoying tendency to round by a penny some of the bank figures it is fed, which can mount up to a few pounds over the year.

Perhaps more relevant for you, 1412 (may I call you that for short?), some of the banks have an annoying habit of duplicating entries from one download / feed to the next, whilst omitting other entries altogether. (I can see how that might happen when I look at eg a TSB or Metrobank bank statement, where entries sometimes overlap from one paper statement to the next).

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