You are never going to understand every working of your clients straight away without some explanation, but approaching the client staff in a way that encourages their cooperation is a skill that you learn through experience.
Every client and their staff members are different, so adapting your approach to gain their trust/cooperation with the minimum of fuss can take time.
The approach I took during my time in audit was to always try not to come across as challenging them, suggesting they had made a mistake etc as people can find this threatening and clam up/become defensive and aggressive, which doesn’t help resolve any problems. I found that focusing much more on them helping you to understand something was a much more fruitful way forward. There is a time and a place to challenge a client and to stand your ground. Fortunately I only had to take a more combative approach after being unable to diffuse a situation with a senior member of a client’s staff once in my 3 years of audit. I was actually congratulated by the audit partner (who overheard everything) for standing my ground and the issue they were trying to intimidate me away from was eventually included in the management letter and taken very seriously. Needless to say this staff member was far more cooperative the next time we met!
Where possible, I found speaking face to face (or at least on the phone) much better than exchanging emails. If you misunderstand some workings, then it is likely all your questions will be wrong and the time spent perfectly crafting your email with numbered points and key areas highlighted will have been a big waste of time.
Timing is another thing to get right as previous posters have mentioned. I wouldn’t necessarily collate all your queries and then hit them in one go for every client. I would (or your audit senior should prior to starting the audit) agree with the client an approach that is best for the client/department/staff you are working with. It may be that Mr/Mrs X cannot be disturbed on Thursdays as they are busy processing payroll that day etc. Some may prefer to have all queries collated and maybe meet twice a day to go through things. Others (like myself now I work in industry) prefer my auditors to come to me with queries as soon as they have them (I think answering one query usually seems to clear up other questions as well, rather than a simple misunderstanding growing like a snowball rolling down a hill if left unaddressed!).
One final observation though. You do say you worry about speaking to staff as they have their own jobs to do. Dealing with their auditors is part of their jobs, so although I wouldn’t say this to them in my own mind I have little sympathy for them being ‘too busy’ so long as I know I have been very accommodating to their schedule as described above.
He could of course charge whatever he wants for materials and make a profit on them from you, but if this is not in line with what you agreed with him then there should be no issue pointing this out to him (politely) to see what he says.
It may of course be a simple error that he has taken the gross figure he paid for materials, stuck it on his invoice and then added VAT on the total. I know my plumber did this before and I pointed out his error (the error being the invoice was not inline with my quote)along with some other errors (he was newly VAT registered and had got his invoices in a muddle). He corrected his invoice, apologised and was thankful for the help.
Look out for similar scams if you register a patent or a trademark.
I have received half a dozen letters for each trademark that we have registered, all claiming to be from organisations such as ‘European Trademark Registrations Office’ or ‘National Library of Trademarks’. They all come in an official looking format, with some government style emblem on them. But when you start to read the detail something doesn’t add up about the language. Finally, buried in the small print you will find that it isn’t actually an invoice, is optional, and basically just means they list you on their website as having a trademark (if they even do that).
One of the organisations was even offering to be listed in their CD-ROM that they distributed annually. A CD-ROM!!! Have they been pulling this scam for that long!?
Often the charges are ridiculous as well, I am sure the ones I filed away safely in the shredding bin were asking for €600-€700 annually.
I agree, but I decided to steer clear of the right audit approach to such a company as the OP doesn't mention audit or suggest they are an auditor, just someone who works in practice who is pondering what norm is like in a high transaction business.
They may well be an auditor and be trying to understand a client's business, perhaps the OP would like to offer a little context?
The short answer is yes, in excel. They still need to provide a breakdown of the closing position.
Now for the long answer! I think you need to first understand what type of transactions are being posted to the account in the first place. There will be a logic behind the postings going to these accounts, and understanding that logic is the first step.
Having previously worked as both an auditor and then in a multinational broadcasting company I have seen both the frustration as an auditor in trying to understand the year end position, but equally the frustration in broadcasting of trying to get the auditor (so someone solely from a practice background) to understand the process used on such accounts where there are thousands of transactions each month, and many such accounts.
With SAP as the accounts system, we did maintain balance sheet reconciliations in excel. We would have the opening (detailed) position, download the transactions for the month, eliminate the transactions that reverse, close, or however they are resolved for the given type of transaction, and present a closing position. The nominal accounts we reconciled would often include transactions across up to 60 business units/companies, various project codes, cost centres etc and with narrative in any language you can think of, so you must have sufficient data there to be able to sort and collate the transactions as necessary so it can begin to make some sense. Once you have dissected the information into manageable sections, you begin to see that there is some logic to the release of deferred license revenue in line with the airplay of the Spanish language version of a TV series or accruing satellite broadcast fees per program, per series, per licensee, per territory.
One point to note is that in such businesses, contrary to some of the comments above, it might not be the accountant who calculates an accrual and posts it as part of their month end process. The Accountant may simply be keeping track (the process I have described above) as the postings may all be system generated, whether by the accounts system itself or by linking to other off the shelf or proprietary systems designed for the specific business circumstances (such as monitoring the airplay of licensed content mentioned above and recognising the relevant portion of income). Of course they still need to tell the system to ‘Run Process’ at the appropriate time, but all calculation may be taken out of their hands. The volumes involved require this to be an automated process; you're not just picking up your latest electric bill, reading the meter and accruing for units used.
What is very different in large transaction volume business is the sheer number of finance staff you need to manage it all. Reconciling bank accounts alone took 1 person 6 days and the wider finance team in the UK included 60 people (I am now in a business with only 4 UK based).
This all also invariably requires a higher level of ability within excel than I ever had to use as an auditor (function writing, pivot tables, Macros etc) and a hefty amount of google translate! This may all seem a bit daunting, but you get used to it.
If a company were to simply show the movement with no proper analysis of the balances, I would be concerned. Through experience I can say if a proper system has not been in place or has not been followed, it is a nightmare to sort out with such high transaction volumes!
I left and joined a smaller business as FC in the end as I wanted to see the big picture, not spend 80% of my time looking at one small section of the balance sheet.
It could matter as it could hit the client’s cash flow for a couple of months depending on how frequently they prepare VAT returns, and whether the amount of VAT is a lot in relation to the size of the client, but otherwise I would agree with mrme89.
All good practical stuff. I will ask the farmer to dig out his contract with them.
In terms of the cash flow aspect, yes the farmer did suggest this to the tenant so that there was no impact on their cash flow, but they still weren't very open to the idea.
Speaking to the farmer again, he thinks the tenants reluctance is because they are worried that a larger than usual claim on the tenants VAT return would draw the attention of HMRC. I think the tenant has had a VAT inspection before and does not want the attention again, and this is why they aren't being too helpful.
Fingers crossed the contracts say exclusive of VAT.
yes I agree with you, the customer must comply for us to invoice zero rate. But I want to do all I can to be clear with them about what we actually need. I can give them the list HMRC sets out, but it would be great to say 'we need forms XYZ from your haulier' so that I and they know what we are actually looking for.
As I say, this is new to us so I am wondering what is the usual practice for businesses who regularly trade like this and whether there are some standard documents that are used to satisfy HMRC requirements.
My answers
It comes with time.
You are never going to understand every working of your clients straight away without some explanation, but approaching the client staff in a way that encourages their cooperation is a skill that you learn through experience.
Every client and their staff members are different, so adapting your approach to gain their trust/cooperation with the minimum of fuss can take time.
The approach I took during my time in audit was to always try not to come across as challenging them, suggesting they had made a mistake etc as people can find this threatening and clam up/become defensive and aggressive, which doesn’t help resolve any problems. I found that focusing much more on them helping you to understand something was a much more fruitful way forward. There is a time and a place to challenge a client and to stand your ground. Fortunately I only had to take a more combative approach after being unable to diffuse a situation with a senior member of a client’s staff once in my 3 years of audit. I was actually congratulated by the audit partner (who overheard everything) for standing my ground and the issue they were trying to intimidate me away from was eventually included in the management letter and taken very seriously. Needless to say this staff member was far more cooperative the next time we met!
Where possible, I found speaking face to face (or at least on the phone) much better than exchanging emails. If you misunderstand some workings, then it is likely all your questions will be wrong and the time spent perfectly crafting your email with numbered points and key areas highlighted will have been a big waste of time.
Timing is another thing to get right as previous posters have mentioned. I wouldn’t necessarily collate all your queries and then hit them in one go for every client. I would (or your audit senior should prior to starting the audit) agree with the client an approach that is best for the client/department/staff you are working with. It may be that Mr/Mrs X cannot be disturbed on Thursdays as they are busy processing payroll that day etc. Some may prefer to have all queries collated and maybe meet twice a day to go through things. Others (like myself now I work in industry) prefer my auditors to come to me with queries as soon as they have them (I think answering one query usually seems to clear up other questions as well, rather than a simple misunderstanding growing like a snowball rolling down a hill if left unaddressed!).
One final observation though. You do say you worry about speaking to staff as they have their own jobs to do. Dealing with their auditors is part of their jobs, so although I wouldn’t say this to them in my own mind I have little sympathy for them being ‘too busy’ so long as I know I have been very accommodating to their schedule as described above.
Stick with it, it will get easier!
Ask him about it.
He could of course charge whatever he wants for materials and make a profit on them from you, but if this is not in line with what you agreed with him then there should be no issue pointing this out to him (politely) to see what he says.
It may of course be a simple error that he has taken the gross figure he paid for materials, stuck it on his invoice and then added VAT on the total. I know my plumber did this before and I pointed out his error (the error being the invoice was not inline with my quote)along with some other errors (he was newly VAT registered and had got his invoices in a muddle). He corrected his invoice, apologised and was thankful for the help.
Look out for similar scams if you register a patent or a trademark.
I have received half a dozen letters for each trademark that we have registered, all claiming to be from organisations such as ‘European Trademark Registrations Office’ or ‘National Library of Trademarks’. They all come in an official looking format, with some government style emblem on them. But when you start to read the detail something doesn’t add up about the language. Finally, buried in the small print you will find that it isn’t actually an invoice, is optional, and basically just means they list you on their website as having a trademark (if they even do that).
One of the organisations was even offering to be listed in their CD-ROM that they distributed annually. A CD-ROM!!! Have they been pulling this scam for that long!?
Often the charges are ridiculous as well, I am sure the ones I filed away safely in the shredding bin were asking for €600-€700 annually.
I agree, but I decided to
I agree, but I decided to steer clear of the right audit approach to such a company as the OP doesn't mention audit or suggest they are an auditor, just someone who works in practice who is pondering what norm is like in a high transaction business.
They may well be an auditor and be trying to understand a client's business, perhaps the OP would like to offer a little context?
The short answer is yes, in excel. They still need to provide a breakdown of the closing position.
Now for the long answer! I think you need to first understand what type of transactions are being posted to the account in the first place. There will be a logic behind the postings going to these accounts, and understanding that logic is the first step.
Having previously worked as both an auditor and then in a multinational broadcasting company I have seen both the frustration as an auditor in trying to understand the year end position, but equally the frustration in broadcasting of trying to get the auditor (so someone solely from a practice background) to understand the process used on such accounts where there are thousands of transactions each month, and many such accounts.
With SAP as the accounts system, we did maintain balance sheet reconciliations in excel. We would have the opening (detailed) position, download the transactions for the month, eliminate the transactions that reverse, close, or however they are resolved for the given type of transaction, and present a closing position. The nominal accounts we reconciled would often include transactions across up to 60 business units/companies, various project codes, cost centres etc and with narrative in any language you can think of, so you must have sufficient data there to be able to sort and collate the transactions as necessary so it can begin to make some sense. Once you have dissected the information into manageable sections, you begin to see that there is some logic to the release of deferred license revenue in line with the airplay of the Spanish language version of a TV series or accruing satellite broadcast fees per program, per series, per licensee, per territory.
One point to note is that in such businesses, contrary to some of the comments above, it might not be the accountant who calculates an accrual and posts it as part of their month end process. The Accountant may simply be keeping track (the process I have described above) as the postings may all be system generated, whether by the accounts system itself or by linking to other off the shelf or proprietary systems designed for the specific business circumstances (such as monitoring the airplay of licensed content mentioned above and recognising the relevant portion of income). Of course they still need to tell the system to ‘Run Process’ at the appropriate time, but all calculation may be taken out of their hands. The volumes involved require this to be an automated process; you're not just picking up your latest electric bill, reading the meter and accruing for units used.
What is very different in large transaction volume business is the sheer number of finance staff you need to manage it all. Reconciling bank accounts alone took 1 person 6 days and the wider finance team in the UK included 60 people (I am now in a business with only 4 UK based).
This all also invariably requires a higher level of ability within excel than I ever had to use as an auditor (function writing, pivot tables, Macros etc) and a hefty amount of google translate! This may all seem a bit daunting, but you get used to it.
If a company were to simply show the movement with no proper analysis of the balances, I would be concerned. Through experience I can say if a proper system has not been in place or has not been followed, it is a nightmare to sort out with such high transaction volumes!
I left and joined a smaller business as FC in the end as I wanted to see the big picture, not spend 80% of my time looking at one small section of the balance sheet.
It could matter as it could hit the client’s cash flow for a couple of months depending on how frequently they prepare VAT returns, and whether the amount of VAT is a lot in relation to the size of the client, but otherwise I would agree with mrme89.
Thanks for the responses.
All good practical stuff. I will ask the farmer to dig out his contract with them.
In terms of the cash flow aspect, yes the farmer did suggest this to the tenant so that there was no impact on their cash flow, but they still weren't very open to the idea.
Speaking to the farmer again, he thinks the tenants reluctance is because they are worried that a larger than usual claim on the tenants VAT return would draw the attention of HMRC. I think the tenant has had a VAT inspection before and does not want the attention again, and this is why they aren't being too helpful.
Fingers crossed the contracts say exclusive of VAT.
Thanks again.
Thanks Les,
yes I agree with you, the customer must comply for us to invoice zero rate. But I want to do all I can to be clear with them about what we actually need. I can give them the list HMRC sets out, but it would be great to say 'we need forms XYZ from your haulier' so that I and they know what we are actually looking for.
As I say, this is new to us so I am wondering what is the usual practice for businesses who regularly trade like this and whether there are some standard documents that are used to satisfy HMRC requirements.
Thanks again.
@ Euan @ Onicholson
Thanks for the help. This is what we suspected to be correct but needed some reassurance. A nice easy solution to tick this off my 'to do' list.
Thanks all!, have a great week.
D
Thanks for the thoughts.
Plenty of food for thought there and the situation has an added level of complication now which I can't go into, but the input above is appreciated.
All the best.