Share this content
0
1377

Why are most clients accounting records wrong?

Didn't find your answer?

Search AccountingWEB

By wrong, I mean materially wrong and not your micro business with no accounts staff, I'm talking abuout an SME with either a full time "accountant" ( I know that term is used quite loosely) or accounts/bookkeeping staff.

When we get a TB from a client, the first thing we check is the bank rec and then the other main control accounts i.e. trade debtors, creditors, VAT, Wages, payroll taxes and fixed asset register. I've realised that in most cases where clients maintain their own records, the accounts are invariably wrong. So is this an indictment on us as their accountant that we need to educate the clients more or is it par for the course and that the inhouse accountant is focused on the more operational side  of the business (e.g. forecasting, budgeting) and that's what they are depending on us for and that's the service they expect? But at the same time it makes me wonder that if you have an inhouse accountant and the basic controls are wrong then how reliable can any of the other information be that you are gleaning from those accounts?

Replies (16)

Please login or register to join the discussion.

avatar
By Trannysister
09th Aug 2019 12:47

First lesson: Trust nobody.
Second lesson: Trust nothing you see.

Thanks (2)
Replying to Trannysister:
Quack
By Constantly Confused
12th Aug 2019 08:56

Trannysister wrote:

First lesson: Trust nobody.
Second lesson: Trust nothing you see.

Per Ben Aaronovitch, follow the ABCs of policing:
Assume nothing,
Believe nothing,
Check everything.

Thanks (1)
avatar
By Robert Hurn
09th Aug 2019 14:15

Where the business owners have no accounting/bookkeeping experience they at the mercy of their “bookkeeper” unless we advise them that things are incorrect and making decisions of the data, they hold is dangerous. We normally get a response from the bookkeeper “I have always done it that way”. We offer half day training sessions to bookkeepers as if they can’ get things right it makes the year-end work easier and is, of course, of benefit to the business owners.
A good way forward we have found is to say to the business owner, we would like to get your bookkeeper in for a free half-day training session to go over one or two areas to ensure that the management information you use is more reliable.

Thanks (2)
avatar
By bernard michael
09th Aug 2019 14:42

Makes for a nice living doesn't it ?

Thanks (2)
Flag of the Soviet Union
By thevaliant
09th Aug 2019 15:41

Some clients have a perverse relationship with their bookkeeper. We have one who KNOWS their bookkeeper is rubbish, but perhaps a 'better the devil you know' attitude has seen them not only never be fired, but when they sold up and left the country for two years, upon returning and setting up a new venture, 'headhunted' this bookkeeper to come back to them.

The real difficulty is usually the fee. "Everything is perfect, you'll barely need to do anything." when it clearly isn't, and clearly never improves.

Have another client who thinks reconciling the bank means ticking the items on sage that match the bank statement. And that's it. Items on sage not on the bank are ignored, as are items on the bank not on sage. Afterall, they don't reconcile, so can't be part of the bank rec.

Thanks (2)
Replying to thevaliant:
avatar
By 2003bluecat
09th Aug 2019 16:55

thevaliant wrote:
Have another client who thinks reconciling the bank means ticking the items on sage that match the bank statement. And that's it. Items on sage not on the bank are ignored, as are items on the bank not on sage. Afterall, they don't reconcile, so can't be part of the bank rec.

That's a new one. Amazing.

Thanks (0)
Replying to 2003bluecat:
Caroline
By accountantccole
09th Aug 2019 17:03

I used to have one like that, swore blind the bank was reconciled. I arrive and there is a £50k difference. "Oh I didn't think I needed to record drawings/ salary"
Never actually checked the running total

Thanks (0)
Replying to thevaliant:
avatar
By PERMON
09th Aug 2019 18:36

thevaliant wrote:

Have another client who thinks reconciling the bank means ticking the items on sage that match the bank statement. And that's it. Items on sage not on the bank are ignored, as are items on the bank not on sage. Afterall, they don't reconcile, so can't be part of the bank rec.

In my experience a lot of the commercial book-keeping software encourages this lack of understanding in that they focus purely on the ticking process and getting the "reconciled" balance to agree to the last entry on bank statement number "N".

I'm showing my age now but another pet peeve of mine is the "open item system" on ledger accounts. Yes it definitely can be useful to know which invoices have not been paid but all the time spent "allocating" payments against invoices can be completely wasted - much better to reconcile the closing balance on the supplier statement to one's own ledger - if the balance agrees the allocating becomes almost "irrelevant".

Thanks (1)
Jennifer Adams
By Jennifer Adams
09th Aug 2019 17:09

Hands up any of you who recognise this coming from a client "you wont have to do much- it all balances... Sage has balanced it!"
Then you find a Suspense account of £5K+.
I have lost money, time and patience reworking accounts and telling clients bookkeepers where they have gone wrong so I dont anymore.
I only take on clients where my firm does everything - I cant stand the grief anymore... I'm getting too old and grumpy.

Thanks (6)
avatar
By Mr_awol
12th Aug 2019 08:35

This is a problem with our profession - gloating or belittling others every time we find an error.

Often our clients have internal 'accounts staff' with little or no formal training, and a mixed role since there generally isn't enough work in the finance dept of smaller clients to fill a whole working week. So they might also be responsible for general admin, reception, packing, or random other tasks.

They produce a half decent set of bookkeeping records which we top and tail or turn into a set of accounts. Sometimes we can pretty much import it and print it of with minimal changes. Sometimes we have to re-allocate £75k out of 'office expenses' and into rent/rates/utilities/repairs/mortgage payments/etc. That shouldn't be a surprise to anyone really and certainly doesn't justify an OP as pompous as this, IMHO

Thanks (2)
Replying to Mr_awol:
Hallerud at Easter
By DJKL
12th Aug 2019 10:01

Reallocation is fine, I can live with that without too much grumbling if the bank etc is square, but having to start with a lengthy bank rec and then work through SLCA and PLCA, vat control etc can be tiring, tedious and can give rise to curses under one's breath.

However it is not just smaller clients who give us this, at least with smaller clients there tend to be fewer transactions, in the mid 1980s the firm I was with audited the distributors of a particular brand of cars, with dealerships up and down the country. Our office covered about 12 of these in the local environs (Glasgow) with the other UK offices covering the rest, each dealership was one company owned 51% by the London based parent and each dealership had thousands of bank transactions.

These were recorded on a bank transactions printout produced by the dealership software which had been developed by the car company (great software for the sales guys, awful for accounts) and it was used by all the dealerships; this was not very friendly being single column with both sides of the bank listed in the same column, the slowest type to check.

Notwithstanding each dealership had an in house accountant one of those we visited had a bank account that was not reconcilled, it was out by over £100k and my unenviable task during the two week audit (team of two but an extra was brought in when the bank job was discovered) was to spend days trying to find all the differences, a chore that rankled as the dealership accountant was being paid multiples of my then paltry salary as an apprentice.

Hundreds of green and white pages of dot matrix printout and performing monthly bank recs by hand is not good fun.

Thanks (0)
avatar
By landscaper
12th Aug 2019 11:45

Ah - my favourite subject - bank recs!
When I joined my present company (and the one before that) not one single bank rec had ever been carried out - but the auditors hadn't mentioned it to my predecessor nor flagged it up in any way or the external accountants who came in at that time to prepare quarterly management accounts

Thanks (0)
Replying to landscaper:
Flag of the Soviet Union
By thevaliant
12th Aug 2019 22:09

Well, if the bank statement balance isn't materially different to the closing nominal balance, I assume you can live with it as auditors (!)

(In all seriousness, its the only area of the audit I don't 'apply' materiality - if the bank obviously doesn't reconcile, the audit stops there; the client and partner are alerted and the question of 'what should we do' is raised)

Thanks (1)
avatar
By Watbooks
13th Aug 2019 08:36

Having worked in practice I can understand the OP but now as an outsourced in-house accountant for several businesses rarely does a year go by without the external accountant making unnecessary or incorrect changes at y/e, even when I give them full working papers.

So whilst I am more focused on the operational side, the CA is often only thinking about year end reporting, at the expense of how the business is actually run during the year.

Thanks (0)
Replying to Watbooks:
avatar
By Tickers
28th Aug 2019 16:15

Watbooks wrote:

Having worked in practice I can understand the OP but now as an outsourced in-house accountant for several businesses rarely does a year go by without the external accountant making unnecessary or incorrect changes at y/e, even when I give them full working papers.

So whilst I am more focused on the operational side, the CA is often only thinking about year end reporting, at the expense of how the business is actually run during the year.

That's because the accountant probably feels they need to justify the fee.

Thanks (0)
avatar
By LostinSuspense
14th Aug 2019 16:40

when a trainee in Practice I came across a client where the 'accountant' (they weren't, more an administrator given data entry duties) input some information on Sage and then noted down some information in a separate book.

This sounded really dodgy, but they would always give us the full information when we did the accounts (as far as I was aware), and happy to disclose everything but wouldn't put everything into their software.

I also had a reputation for wiping out profit. I would go to do the accounts and manage to find all the errors (P&L items posted to Balance Sheet for example) that would slash clients' profits.

Thanks (0)
Share this content