It doesn’t happen very often, but it can be devastating to a small business when it does. Tax examinations, penalties, ruined credit, and bankruptcy are the possible results when a business owner hires an incompetent accountant.
Accountants are consistently rated as the most trusted financial professional, with only 7% of respondents in a 2018 Gallup poll having a low or very low opinion of their honesty and ethics. Accountants do best for small businesses.
However, we occasionally receive a phone call from a distressed business owner who says their accountant caused significant problems. The business owner is usually being audited or sued, or they had no idea they were broke. We have learned from these calls that business owners need to be aware of warning signs that their accountants might not be who they appear to be.
If it’s too good to be true accountants for small businesses. A young married couple hired some sharp-dressed men who spoke at their church and claimed to be certified public accountants. The speakers asserted “secret IRS information” that would allow church members to write off their Sunday best clothing, meals with the family, and other personal expenses as business deductions.
Even after showing the couple the IRS code and several articles contradicting the accountants, they still believed the “secret information” line. The IRS actively pursues “tax scams” like these. If they identify an accountant who is not following the rules, the IRS can examine the returns of all of their clients.
Don’t worry about it. A terrified foreign doctor and his wife said their so-called “licensed accountant” told them they did not need to record the rental income and expenses for 14 rental properties on their taxes because they had “losses anyway.”
The accountant threatened that if they went to someone else, he would report them to the government, and the government would take away everything they own. The client was audited by the state of Queensland when tenants claimed the renter’s credit. Making things overly complicated. A potential client who leased equipment had eight different limited liability companies formed by his accountant. I assumed it was done as some misguided attempt at asset protection.
Instead, I learned the accountant didn’t know how to prepare a balance sheet, and every time a Proprietary Limited Company or Private Proprietary Company would reach a dollar amount of assets that required a balance sheet, he had the client open a new Proprietary Limited Company or Private Proprietary Company. The accountant was also able to charge for eight different Proprietary Limited Company or Private Proprietary Company tax returns.
Complete control
A business owner did not know his Certified Practicing Accountant (CPA) had lost his license years ago for stealing from clients. He convinced the owner to hire him full-time “at a discounted rate.” According to the owner, the accountant with the revoked license never took a vacation, but he also never reconciled the bank accounts and was not able to finish tax returns or financial statements.
The CPA would become belligerent if the owner attempted to consult with other professionals. The owner also thought it was “funny” the accountant would “run” to be the first to open the bank statements. We discovered the accountant had been embezzling for years. By the time the client found out, he was on the verge of bankruptcy.
Besides the fact that these business owners hired bad accountants, what all of them had in common was that their CPA was not actually licensed by the state. The clients expressed shock when a simple search at the Australian competition and consumer commission (ACCC) website search.https://www.accc.gov.au/ did not list their accountant or report their accountant had lost their license.
Many bookkeepers refer to themselves as accountants. There are advertisements that anyone can become a QuickBooks ProAdvisor in as little as two weeks. Bookkeepers process and record the day-to-day financial activities of a business. Only CPAs are allowed to provide attestation services, which are independent reviews of financial reports with conclusions (the CPA’s opinion) about the reliability of the data. There is no report a bookkeeper can legally produce that can provide those assurances.
This is not to say that all non-CPAs are unqualified. I have worked with very skilled bookkeepers and thoughtful tax preparers over the years who were excellent at their jobs. If a client needs an individual tax return prepared or help with small business bookkeeping, I will often refer to them.
Whether or not your accountant is a CPA, there are some measures you can take to protect yourself. Ask your accountant to put in writing any tax positions and to cite the IRS code or tax court cases supporting their position. Seek a second opinion if you are unsure. Learn about internal controls you can implement at your company (including mandated vacations) to prevent theft. Make a checklist of documents (like unopened bank statements) and reports that you will regularly require to review yourself, and do not be intimidated to ask questions.
Remember, you are the client, and it is your business and your net worth that are on the line. You would not allow an unlicensed doctor to perform surgery, and you would not hire an attorney who was disbarred to represent you in court. The first step is to know if your accountant is certified.
Why is certification necessary for Accountants for small businesses
The accounting profession has at the heart of its ethical standards the notion of serving the public interest. However, little or no effort is put into holding it to account by politicians who fail to ask the professional bodies and the largest firms in the land how they satisfy that requirement.
No periodic inquiry or hearing is conducted by the Commonwealth Parliament, for example, to quiz the professional accounting bodies or the major accounting firms about how they enforce the public interest in their day-to-day work.
It is left largely to self-regulation, but whether self-regulation is sufficient in the context of the accounting world merits further consideration following evidence given before a New South Wales Parliament committee hearing by a former KPMG partner, Brendan Lyon, about his resignation from the firm when he was pressured to modify to suit a client’s wishes the contents of a consulting report.
The need for accountants to be certified is becoming more and more important in Australia. The number of accountants with an Australian Certified Practicing Accountant (ACPA) designation has increased by 23% in the last 5 years. The Australian Financial Review’s annual Financial Services Survey found that the majority of the accountants surveyed were members of a professional accounting body. The Australian Accounting Standards Board (AASB) has taken a number of steps to raise the standards of accountants in Australia. The AASB is an independent body established by the Australian Government to set accounting standards for financial reporting and performance measurement in Australia. They publish standards and guidance on accounting and financial reporting and administer a voluntary national standard on the recognition of intangible assets. The AASB aims to provide assurance that the application of these standards and guidance will produce uniformity and consistency in financial reporting and performance measurement. The need for accountants to be certified is becoming more and more important in Australia because the AASB is making sure that there is consistency in financial reporting and performance measurement. The number of accountants with an ACPA designation has increased by 23% in the last 5 years, which means that there are more accountants who are certified and following the guidelines set by the AASB.
An accounting firm based in Melbourne, Australia, is taking steps to identify the most necessary qualities a tax advisor must have on behalf of their community. The firm believes that having the right tax advisor can legally reduce and eliminate taxes.
To any working individual, taxes are an inevitable part of life. It is worth noting there are plenty of strategies that advisors can implement to legally reduce and eliminate taxes. Entrepreneurs, business owners, and investors may have an upper hand when it comes to taxes as well, as tax law provides many incentives for these specific categories. There are some qualities that anyone should expect in a tax advisor, however. The first is having an advisor who uses a specific system to reduce taxes.
A knowledgeable tax advisor will know that at least 90% of pages of tax laws are dedicated to helping citizens reduce their taxes. This means that rather than claiming the standard deductions, they will have the knowledge and tools to help create and implement strategies that permanently reduce or eliminate taxes — and help their clients maintain their long-term wealth. An advisor who is skilled in this approach will analyze a client’s business or portfolio to create a custom tax strategy, as opposed to simply handling the client’s return files.
Another great trait in an advisor is if they are not overly wary of the Australian Taxation Office (ATO). Audits are never ideal, but they do happen, and the advisors at EW Partners are always ready to take them on for their clients. During an audit, a client should feel confident in leaving all ATO communication to their advisor. One can even ask for examples of how they have handled audits in the past to have a better understanding of how the advisor works. A good advisor will also make it a point to educate clients about the tax laws in Victoria. Rather than only guiding a client to make the best decisions, good advisors will take it upon themselves to teach their clients the law so that they understand everything to do with the process. A great advisor will know that there are business and investment decisions that can and will impact a client’s tax burden. A client having more knowledge to make smart decisions means a decrease in their taxes, a more successful business and, in the end, benefits an advisor as well as they have more work to do.
Finally, a good advisor will want to know everything about their client. In order to be able to create the most effective strategy, an advisor must know the ins and outs of a client’s business. For those who wonder why their personal life may play a role in the taxes from their business, it is worth noting that the two actually go hand in hand. Factors such as a client’s relationship with their family, their investments and more can all play a part in their ultimate tax strategy. When going to an advisor for accounting and tax advice, they must make sure that advisor knows all the important and seemingly mundane details of their life too.
Many bookkeepers refer to themselves as accountants. There are advertisements that anyone can become a QuickBooks ProAdvisor in as little as two weeks. Bookkeepers process and record the day-to-day financial activities of a business. Only Certified Professional Accountants are allowed to provide attestation services, which are independent reviews of financial reports with conclusions (the CPA’s opinion) about the reliability of the data. There is no report a bookkeeper can legally produce that can provide those assurances.
A review of the published reports from the CA State Board of Accountancy suggests that very few CPAs require disciplinary action. It makes sense that if an individual went through all of those years of study, a rigorous exam, and working long hours for someone else for little pay, they would be unlikely to risk their license by doing something inappropriate or careless.
This is not to say that all non-CPAs are unqualified. I have worked with very skilled bookkeepers and thoughtful tax Accountants over the years who were excellent at their jobs. If a client needs an individual tax return prepared or help with small business bookkeeping, I will often refer to them.
Whether or not your accountant is a CPA, there are some measures you can take to protect yourself. Ask your accountant to put in writing any tax positions and to cite the IRS code or tax court cases supporting their position. Seek a second opinion if you are unsure. Learn about internal controls you can implement at your company (including mandated vacations) to prevent theft. Make a checklist of documents (like unopened bank statements) and reports that you will regularly require to review yourself, and do not be intimidated to ask questions.
Remember, you are the client, and it is your business and your net worth that is on the line. You would not allow an unlicensed doctor to perform surgery, and you would not hire an attorney who was disbarred to represent you in court. The first step is to know if your accountant is certified.
Leave A Comment