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What do you do, when you take on a new client company to find that the balance sheet items don't reconcile ?

What do you do, when you take on a new client...

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The VAT & PAYE creditors are each overstated by £2K and £1k.  The turnover is about £70k. The previous accountant has retired and is not answering questions, and had been doing the book-keeping. All I can think of doing is making journals to sales and payroll costs. 

Does anyone have any other recommendations?

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Me!
By nigelburge
26th Apr 2010 09:42

What else can you do in this situation?

apart from making sure that the opening balances are correct. Unfortunately, this is a not uncommon occurance and trying to find out why these figures are wrong is usually a complete waste of time and effort.

Just make sure that you keep your client fully informed in writing about what is wrong, how you are going to put it right and its possible consequences.

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By Anonymous
26th Apr 2010 09:54

Is the client the route of the problem

I agree with the last response, this is not uncommon, and it is not just unqualified accountants that finsih such sloppy work, i have seen this type of thing form what are considered good local qualified practices.

The answer lies in 2 further questions:

1) What practice produced the accounts?

2) Whay price did they charge for the accounts?

3) How do the directors come accross?

I raise these 3 questions because, in my experience, 9 out of 10 times the answer lies in questions 2 and 3. Rather then producing the right set of accounts, the practice will fudge the accounts to meet the clients cost expectations. It is the same as making 4 legged tables but only using 3 legs. 9 out of 10 times the table will stand perfect, even with weight on it, however 1 in every 10 will fall if the weight is put in the wrong place.

Its a shame that the professional institutes are not taking this more seriously. The profession also wonders why HMRC are prusueing the now legislation for wrongful doing for agents.

Many small company directors do not care about accounts and accounting treatment, they are only concerned about costs and tax. This has to change.

What i do in this circumstance is speak with the directors and advise them that there will be a surcharge for the accounts and explain why, then i correct the opening balances. Be aware however becuase more likely than not, the client will leave and go with a similar accountancy practice to which it has just left, due to the fact that the diretcors think you are too expensive.

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By ShirleyM
26th Apr 2010 11:45

Dont make assumptions

How do you know the VAT & PAYE is overstated, unless you have full information from the recent, and previous years?

We have clients that have prepared their own VAT incorrectly (ie. omitted cash sales transactions from VAT Returns), we adjust the VAT creditor to show the true & correct value, which will not be the amount shown on the last VAT Return. The client is informed and given details of the VAT corrections needed for the next return.

This is a difficult situation if the former accountant is not being helpful, but I would check further with the client to see if the VAT & PAYE were discussed and I would be reluctant to change the creditors without full approval and acceptance of the consequences by the client.

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By Chris Smail
26th Apr 2010 13:59

Agreed

My first assumption is that you have looked at after date payments but the previous accountant is aware of accumulated underpayments which the client has failed to correct.

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By Anonymous
26th Apr 2010 14:23

This might be the case..

for the VAT, but there seems to be no additional PAYE liability that the client is aware of, and there has been no correspondence from hMRC to imply it. 

She did her own VAT calculations, the accountant was aware of them but never suggested any amendments.  The company has been trading for a number of years so checking for where the difference may have occured is impractical. 

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By ShirleyM
26th Apr 2010 15:29

Doesn't sound right to me

I am confused. The client was doing the VAT, but the accountant did the bookkeeping! Sounds unlikely, but is possible, I suppose.

To play safe I would follow nigelburge's advice and correct the figures but make detailed notes and get something in writing from the client to show they have been fully informed of the problem, and the possible consequences of adjusting these figures.

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By Chris Smail
26th Apr 2010 18:09

Agreed

This is the clients problem, not yours.

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By Anonymous
26th Apr 2010 20:32

need history

When did client last have a vat audit ?

If the differences are due to vat errors not being corrected and  a vat audit comes along the client will have to pay

the outstanding vat for whcih you have removed the provision.

I suspect that the paye diff is due to wrong treatment of on line filing incentives.

 

 

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By Richard Willis
27th Apr 2010 09:01

I did some work for a freind

who was quite convinced that the VAT was up to date as she regularly 'paid what they asked for'!  It transpired that she was paying the estimated default demands which were under by a factor of ten.  Needless to say the company was bust.

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By ShirleyM
27th Apr 2010 09:20

Clients are not always very knowledgeable

We had one client try to claim input VAT on a VAT payment to HMCE!

The PAYE may be overstated due to the client paying PAYE/NI from a source other than the business account, and they haven't recorded the payment in the bookkeeping. If it appears there are underpayments we leave the amount outstanding and query this with the client at draft account stage. As everyone on AWeb will know, client records are frequently inaccurate or lacking in detail.

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By mark southgate
28th Apr 2010 12:30

VAT Creditor

Is the VAT on a Cash Basis?  Have you taken into account the VAT on debtors and creditors?

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By Anonymous
28th Apr 2010 14:53

Incorrect opening creditors for VAT and PAYE

I would not be too hasty in writing off apparently overstaed creditors for VAT or PAYE as there may be reasons that are not clear from the information that you have access to. In relation to VAT it may have been the case that the total differences between recorded output tax and input tax over the years has exceeded the amounts declared on the VAT return and paid over to HMRC. With the PAYE it may be the case that PAYE has been provided on a Directors bonus which has been ommitted from a P35 and P14 and thus not been paid over to HMRC. I would carry forward the additional creditors until you have been able to ascertain that no provisions have been made in the past for items like those I have suggested. Checking with the directors personal returns may help on the bonus front. If a future VAT compliance visit does not throw up a problem ,the VAT creditor can be written off.

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