I would really appreciate any advice from the experienced members on this forum.
I've recently taken over the accounts of a small private ltd company. I'm preparing the accounts for 2013. While checking the accounts for 2012 which was prepared by the previous accountant I could see some errors, these being -
1. Bank Balance overstated by £2,700 in the Balance Sheet.
2. A wrong accrual entry made for £600 when the amount concerned here was actually paid off in 2012 itself so there was no need to do any accrual for this amount.
3. An unexplained figure of £371 in the Director's Loan Account.
These errors are having an impact on the 2013 accounts and I'm especially concerned about points 1 and 2 above, don't understand what to do and what should be the right way of correcting them?
Any advice of suggestion will be highly appreciated.
Did the bookkeeper have access to the bank account? That one sounds strange I know but I've had it myself where a client genuinely could not get hold of the statements for a closed account in time.
A £2.7k overstatement of bank is an indication of a £2.7k understatement somewhere else. Have you tracked where the money should be rather than where the accounts say that it is? I recently had somethig smilar and it turned out to be a PayPal account which at the end of the day is another bank account.
The misapplication of the accrual could be evidence of a bit of earnings management or, it could be a completely innocent mistake. Was the £600 accountants fee's? Have they been paid early or was the amount for an identical amount in the prior period?
Was the £371 also in the prior years accounts? Have you checked for use of home as office and Mileage reimbursements?
All questions and no answers sorry but just wanted for you to consider those ideas to see whether any of them are applicable.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks for your prompt reply. I'm not sure whether the previous accountant used the bank statements to verify her figure. I only have a worksheet forwarded by the previous accountant which only has the total expenses for the year. This has led me to believe that the previous accountant only did the accounts at the end of the year, compiling all the information.
Do you then suggest that I go back and ask for the 2012 bank statement and verify the expenses totals and match them off against the entries in the bank statement. Perhaps that might give me the clue as to where the difference could be.
Now if I manage to find out the reason for the difference after checking the bank statement, how do I deal with it. Is it ok to pass an entry in 2013 for something related to 2012? Will HMRC query this?
Regarding £600, it doesn't seem to be accountant's fees as it has been accounted for in the P/L statement. It looks like salary drawn by the client but this entry is WRONG because the last month's salary in 2012 was in fact drawn in that same month, it was not that it was paid in the next month meaning paid in the next financial year. Also the total salaries in the P/L should have been shown as £7200 (£600*12) but she has shown £6,600 (600*11) and shown the remaining £600 under Accrual.
Should I just reverse this accrual against payroll expenses by means of a journal entry in 2013?
Regarding £371 there is no clue to what it is, client also does not know anything.
