"Why we're going out to tender for new auditors"

Chatting with a business contact this morning he told me why he feels compelled to go out to tender for new auditors. Bear in mind that he is a VERY experienced FD and has been in post at this multi-million pound business for 4 years. The auditors in question are a top ten firm and have been in post for 5 years.

I share below the points my friend made:

Our current auditors said they’d staff the audit with local [north London] staff; in fact the manager and staff are based in Birmingham.

We don’t know what they’re doing half the time. They ask for random invoices and have told me lies.

They do interim work during the final visit and disrupt us at our busiest time of year.

My finance team are close to resigning due to the attitude of the audit staff.

My number 2, who has been in post for 8 years, cannot understand why the auditors are so uncommunicative and disruptive in their approach.

We agreed timetables for respective actions to avoid being charged for cost overruns. When the auditors miss their deadlines and cause delays they then report US to the audit partner if our next stage is behind the original schedule.

We know they underbid for the work originally and have been constantly trying to push the fees up each year, which we have resisted as the group structure has been simplified.  We agreed a small excess for cost-overruns last year. There won’t be any this year.

I know the auditors have to be independent but ultimately we need to work together to ensure the financial accounts are right. This firm (other than the partner) takes a more ‘them and us’ approach than any firm I’ve ever worked with before.

We’ll go out to tender again and we’ll have to let them re-tender but there’s almost no prospect of them being reappointed.

If I didn’t know better I might think that the FD has something to hide and that the auditors are just doing their job properly and objectively. And maybe that’s how some audit partners excuse themselves when they lose a re-tender – as is bound to happen here.

I understand that over the years there have been NO major audit issues or disagreements re figures or presentational adjustments. The audit partner has been objective, professional and helpful. He’s been firm when he needed to be – but this has not caused any serious disagreements or issues.

Lessons?

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“Why we’re going out to tender for new auditors”

Chatting with a business contact this morning he told me why he feels compelled to go out to tender for new auditors. Bear in mind that he is a VERY experienced FD and has been in post at this multi-million pound business for 4 years. The auditors in question are a top ten firm and have been in post for 5 years.

I share below the points my friend made:

Our current auditors said they’d staff the audit with local [north London] staff; in fact the manager and staff are based in Birmingham.

We don’t know what they’re doing half the time. They ask for random invoices and have told me lies.

They do interim work during the final visit and disrupt us at our busiest time of year.

My finance team are close to resigning due to the attitude of the audit staff.

My number 2, who has been in post for 8 years, cannot understand why the auditors are so uncommunicative and disruptive in their approach.

We agreed timetables for respective actions to avoid being charged for cost overruns. When the auditors miss their deadlines and cause delays they then report US to the audit partner if our next stage is behind the original schedule.

We know they underbid for the work originally and have been constantly trying to push the fees up each year, which we have resisted as the group structure has been simplified.  We agreed a small excess for cost-overruns last year. There won’t be any this year.

I know the auditors have to be independent but ultimately we need to work together to ensure the financial accounts are right. This firm (other than the partner) takes a more ‘them and us’ approach than any firm I’ve ever worked with before.

We’ll go out to tender again and we’ll have to let them re-tender but there’s almost no prospect of them being reappointed.

If I didn’t know better I might think that the FD has something to hide and that the auditors are just doing their job properly and objectively. And maybe that’s how some audit partners excuse themselves when they lose a re-tender – as is bound to happen here.

I understand that over the years there have been NO major audit issues or disagreements re figures or presentational adjustments. The audit partner has been objective, professional and helpful. He’s been firm when he needed to be – but this has not caused any serious disagreements or issues.

Lessons?

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How to boost the tax capability of a general practice

Every now and then I hear about general practice firms of accountants which have determined that they want to provide a higher level of tax service to their existing clients. This is often the case in more forward thinking practices where the partners recognise that they are limited in their own abilities and that they need someone else to check out their files for tax planning opportunities, to put tax advice in writing and to attend meetings with clients to provide a more tax focused service.

Provide tax schemes?
Boosting the firm’s tax capability can be a worthy objective although sometimes it’s a euphemism for offering tax schemes and products. I addressed this issue in a recent blog post: Selling tax schemes is NOT a route to riches.  If the partners do not understand this they WILL be disappointed.

Tax manager
Some firms recruit a tax ‘manager’ in the hope that he or she will fill the gap. And if the firm is lucky this may well happen. I always wonder however in such cases – How do the partners know that the tax specialist’s advice is correct? If there is no one else in the firm with the requisite expertise, this is a big risk, especially with a relatively inexperienced tax ‘manager’. Often they may feel under pressure to impress their new partners – especially if the carrot of ‘partnership’ depends on the partners’ perception of their performance. Again I addressed this in a recent post: Confidence is good – but not if it’s naive or deceitful.

If the new recruit causes a problem – which will often only become apparent down the line – either the partners will have to bear the loss or their PI policy will suffer a claim.

New recruits are also an expensive option. Over and above the recruitment costs and induction time it can be a while before they start to pay their way.

Merge with or takeover a tax only practice
I was asked my views about this possibility recently. I suspect it’s a dream that will rarely be realised. Tax only practices are generally set up specifically to avoid the distractions of providing accounting and auditing type services. Why would a successful tax practice want to merge with a general practice firm of accountants?

If such a merger or takeover occurs the tax specialists are likely to want to reduce the risks to the practice of general practice partners providing tax advice without it first being ‘checked’. This will often give rise to conflicts as the general practice partners are not used to having their advice double checked or to being constrained as to what they can advise on.

Merge or takeover a one-man band tax specialist
This idea suffers from much the same downsides as have already been mentioned. It can be worse however as there is the added risk of the individual retiring, dying, going sick or leaving shortly afterwards. Although such risks may be considered small the prospect of one of these may have been the prime motivation for the tax specialist agreeing to the deal.

The partnership will want to limit the upfront costs of recruiting a tax partner by requiring that the new person has a following. However very few tax specialists with a following would feel comfortable taking their clients into an environment that has not previously provided clients with specialist tax advice.

If the tax specialist or partner does join the firm their focus will be on their existing clients. What will motivate the specialist to make time to explore opportunities to provide tax advice to the firm’s existing clients?

Tax contractor support
In my view this is the best solution – at least as a first step towards building in-house tax expertise.

It will often be easy to identify someone who has the requisite expertise and is available to help out on a part-time basis. They remain self employed and provide their services to the firm on a contract basis, perhaps one day a week for a few months.  This option is also more cost effective for the general practice firm as they bear no employment related costs. In the event that any problems arise the relationship can be terminated quite quickly and any claims made will be against the contractors’ PI policy.

It may be that more then one such specialist can be identified – perhaps one to focus on IHT issues, one on VAT and one on corporate tax matters. (There are many other such topics too of course).

Multiple adviser tax support
Whichever route a firm follows they should appreciate that, these days, hardly any tax adviser can cover off and advise on all tax matters. If you have just one or two in-house  senior tax specialists, you should expect them to want to seek confirmation or support from a third-party ever now and then.

Tax Advice Network
This supportive network provides over 2,500 accountants with access to dozens of  vetted independent specialist tax advisers across the UK.  These tax advisers are categorised by their areas of expertise and location.

You can contact any of them for specific,  general or tax contractor support as described above.  And yes, as implied above, much of the time these independent tax advisers are providing second opinions and support to the tax specialist managers and partners in firms, as well as to general practice partners.

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Ever been tempted to be "too helpful"?

During my talks on “How to avoid professional negligence claims (or worse)” I explain that sometimes the cause is wanting to be ‘too helpful’. In such cases the accountant unwittingly oversteps the mark due and renders themselves liable to prosecution – which is clearly worse than being subject to a negligence claim.

I was reminded of this when I saw a report of a case about an (unqualified) accountant from South Tyneside who was jailed for his part in a £2.24m loan scam.  Paul Robertson provided forged documents from his South Shields offices to mortgage broker Martin Watson. Mr Watson used this documentation to falsify over 20 application forms he submitted for unsuspecting clients. The loans in question amounted to around £2m and generated substantial commissions for Mr Watson.

Mr Robertson apparently asked his staff to produce pay slips and P60s for Mr Watson’s clients. When Mr Robertson heard that the police were investigating, he told staff they should deny ever having done this.

The report references the Judge’s acknowledgment that Mr Robertson had played a lesser role in the fraud and had been running his business successfully despite having no formal qualifications.  Apparently the judge told him: “You say you were fearful of your co-accused, but you did have a choice to refuse his requests for false documentation.”

I wonder how often accountants do what they can to help a client only to find that they have started down a slippery slope?

I have written a 10,000 word ebook drawn from my talk on How to avoid professional negligence claims, containing tips and risk management advice for accountants in practice. You can buy the book or download a summary for free here>>>

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Ever been tempted to be “too helpful”?

During my talks on “How to avoid professional negligence claims (or worse)” I explain that sometimes the cause is wanting to be ‘too helpful’. In such cases the accountant unwittingly oversteps the mark due and renders themselves liable to prosecution – which is clearly worse than being subject to a negligence claim.

I was reminded of this when I saw a report of a case about an (unqualified) accountant from South Tyneside who was jailed for his part in a £2.24m loan scam.  Paul Robertson provided forged documents from his South Shields offices to mortgage broker Martin Watson. Mr Watson used this documentation to falsify over 20 application forms he submitted for unsuspecting clients. The loans in question amounted to around £2m and generated substantial commissions for Mr Watson.

Mr Robertson apparently asked his staff to produce pay slips and P60s for Mr Watson’s clients. When Mr Robertson heard that the police were investigating, he told staff they should deny ever having done this.

The report references the Judge’s acknowledgment that Mr Robertson had played a lesser role in the fraud and had been running his business successfully despite having no formal qualifications.  Apparently the judge told him: “You say you were fearful of your co-accused, but you did have a choice to refuse his requests for false documentation.”

I wonder how often accountants do what they can to help a client only to find that they have started down a slippery slope?

I have written a 10,000 word ebook drawn from my talk on How to avoid professional negligence claims, containing tips and risk management advice for accountants in practice. You can buy the book or download a summary for free here>>>

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What impact does new software have on staff costs?

The increased use of accounting and tax software has had an unexpected impact on at least one accountancy firm. And I suspect there are others in the same position.

The firm had assumed that they would reduce staff costs through increased use of junior staff.  The partners anticipated that using more sophisticated tax software would allow them to reduce salary costs as it would require less able and qualified staff than previously. In practice the firm has less need of unskilled staff. The software itself takes the drudgery out of the work and enables staff to focus more on value added and advisory services for clients.

Staff numbers are down – as one might expect. But staff costs are up as the firm is able to make better use of more qualified staff.

What’s been your experience?

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