I have just taken over a partnership where the previous accountant seems to have had a vivid imagination. Apart from a few basic errors like making up the bank rec, a huge credit card bill which does not exist etc I have noticed there is some freehold property in the accounts which does not belong to the partnership. It belongs to one of the partners as an individual. It's been in the accounts for years so it's not an option to go back and correct each year. Can anyone tell me how I can remove it from the balance sheet? Thanks
Without knowing the full story it is difficult to say for sure but it is possible for a partner to introduce assets (including property) for the use of the partnership, and remain the owner.
It is normally done to allow some entrepreneur relief on disposal.
If it is on the balance sheet, though, there must be, or has been in the past a liability value to match, otherwise it would not balance. Possibly in the partners current account, or capital account, which may have been nibble away at over the years? Although I believe that transfer of ownership has to be properly conveyed.
If you can find the first BS it appeared on, you might be able to work out, the corresponding credit.
I'm afraid I don't have any more information than I have given. The previous accountant has not replied to my letters and doesn't answer his phone. They think he's done a runner. They can't find copies of accounts going back further than a couple of years and the property is on all of them. They have no idea about it as they always left everything financial to their previous accountant. Any ideas?
Is the credit card in a personal name but used for the business? Has the client confirmed there is no balance to that effect, anywhere, ever? Can he supply previous year records for you to have a nosey?
If he uses the property in the partnership, and its in the accounts, you are going to have to do some calculations for it, and see whether removing it from the accounts is the best thing for the client.
To be fair, the accountant couldn't have just plucked the property out of thin air. A discussion must have been made with your client, and so if they are passing the buck to the accountant, about such a significant matter in their affairs, I would proceed with caution.
-- Edited by FoxAccountancyServices on Friday 16th of May 2014 02:12:44 PM
The client owns the property but it belongs to him not the partnership. Yes it is a personal credit card and I've seen the statements, there's nothing on them. There was also an entry on the balance sheet that said the client was owed £40k in VAT at the end of the year for which I can also find no evidence. It's not pretty. I'm not surprised the previous accountant is not answering my questions...
I don't think that the client is telling you everything.
As mentioned by Bill above there may be legitimate tax reasons for the property being on the books.
Some clients do not understand the implications of things that they have agreed to with the accountant even though they give the accountant the indication that they do.
If the accountant will not talk to you it may be because you are not approaching them in the correct way.
Did you send them an ettiquette letter before taking over the client?
Did you receive a reply to your ettiquette letter?
Was the incumbent even informed that they were no longer the accountant?
Has the client given the previous accountant permission to talk to you?
It may be neccessary to involve an accountant to look at the books of the partnership in order to decipher what actually transpired with this property as, as indicated by Michelle, an accountant wouldn't simply make the property up.
My money would actually be on the issue being with the client rather than the accountant until proven otherwise.
I appreciate that the client may truly believe something to be the case and when they do it is very easy to believe their side of things but as I say, you need to find out the reality from the previous accountant and if they are not responding to your questions it may be because they are not allowed to because such would breach ethical covenants of confidentiality.
Hope that helps,
Shaun.
__________________
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.
I do think the client is telling me as much as they know, they just don't know very much because they have always relied on the accountant to do everything. They couldn't get hold of their accountant when their tax returns were due (having paid him all year in advance) hence they called me in desperation. He has not replied to my courtesy letter, his offices are no longer occupied and he doesn't answer his mobile phone. The clients did manage to talk to him once and did let him know I would be taking over and contacting him but since then none of us have managed to get hold of him.
He hasn't made the property up, it exists, it just doesn't belong to the partnership. Just as the house they rent out doesn't belong in the clients sole trader building services accounts.
The previous accountant does not appear to belong to an accounting professional body.
Morning Princess! Possibly your title is a little misleading, hun... "non existent property in the accounts" sounds like it doesn't exist at all... but it does, its just not a partnership property.
Consider this
"He hasn't made the property up, it exists, it just doesn't belong to the partnership. Just as the house they rent out doesn't belong in the clients sole trader building services accounts."
So, are there two properties??
The rented house - you say "they" rent it. That sounds like the partners rent it as a partnership?
Please clarify -
Are there two properties?
If so, whose name is each property in?
Is one rented property, owned by the two partners?
Its possible the house, you are originally speaking of, was initially bought for renovation and resale (perhaps they were intending to trade in houses), and then they decided to rent. It could be that it appeared as closing stock in earlier accounts, if it were to be renovated and resold (I have seen building service companies intend to do this - and the accountant deals with it appropriately, and then the clients change their mind due to housing market slump, and they decide to rent it). The accountant may have moved it to the balance sheet, in year one or afterwards, once it was decided to be rented.
I agree with Shaun that the client is not telling you everything - maybe that's unintentional, but he will have discussed these things at the time with the accountant. He clearly passed some information to the accountant, for the accountant to be able to know the property value (or that it existed) and the accountant will (presumably) have asked questions. If the client doesn't know what's happened its probable he has, at the time, explained things to the accountant in such a way that has been misleading.
Of course, I cannot say who is really at fault here. I have seen some shocking work by accountants, and I have also seen clients cause a lot of confusion, to me, and to previous accountants.
I would get completion invoices for both properties (or one, as the case may be), find out how they were paid for, and get the partners together and ask exactly what was going on at the time, and what they said to the accountant. Query why this house was even brought to the accountant's attention, if it were nothing to do with the partnership?
Also, do you know anything about this accountant? Can you find out anything about them? Qualifications? (what's made you think they are a member of anywhere?) Did they sell on their fees? Are they retired? Sick? Have they moved offices? Its possible the lack of communication is for a reason, though I admit its more likely they are just burying their head in the sand.. but you never know.
You will find a way through the muddle, hun. These things have a funny way of all becoming clear when you just keep chipping away.
Hope I have helped some!!
-- Edited by FoxAccountancyServices on Saturday 17th of May 2014 12:14:07 PM
