Unit 11, 61 Flynn St, Wembley, WA, 6014
08 9242 2085 ots@otsmanagement.com.au
Advice from Outside the Square

What Happens Behind The Scenes When We Prepare Your Accounts?

What Happens Behind The Scenes When We Prepare Your Accounts?

So what happens behind the scenes when we prepare your accounts?

So far as you know, we collect your books, data file and information, disappear for a week or so, then bother you by sending you a list of questions, disappear for a while again, and then send you your accounts and tax return with a bill attached.

Well a lot happens behind the scenes, some of which explains some of the things we ask from you, and some of which will explain why we stand by the process and finished product. We thought it would be useful for you to walk with us through the process.

We have learned over the years that the annual accounts and tax returns, despite the necessity for it, is probably the most lowly valued part of our relationship as your accountants. It’s just something that has to be done. So, we try to lessen the impact of the whole process for you.

One of the most irritating things of the process is the constant questions that come from your accountants, right? You give them the books then they send you an email with 2 or 3 questions. You answer them, then they ask for a clarification on your reply. Then they ask for a copy of this or that. Then a few days go by and again, another email.

From experience, we know it can be really irritating. That’s why we try to get information gathering out of the way at the beginning.

We will send you a checklist, based on what we know of your information from the past, to start the ball rolling. We time this checklist based on when you normally like to send in your information, and in it we nominate a time for you to have it ready. If you are really thorough, and give us all the information we ask for, including those general “anything else” items on the checklist, then we are much less likely to send you an ongoing stream of queries as we go through your work and find we need more information.

There are other advantages if you follow the checklists and provide all the information.

There is a cost in opening and closing files. You will know yourself that if you have a project and you start it, then put it to one side, then re-start it, then put it aside, then re-start again, it actually takes you longer than if you did it in one go. For the detective-like work that it takes to go through figures, these delays caused by incomplete information means that we have to re-acquaint ourselves with the file, remember where we got to, and so on. Having all the information at the start makes it cheaper for you.

That’s also why we negotiate a start date when the information is available – that way we set time aside to do a go-to-woe operation.

Once we get your information in (complete I hope!) we register it in-house and the Directors review the information and prep[are a briefing memo for the accountants highlighting any changes from previous years and how to handle certain transactions that you have briefed us about. Our administration staff then scan important information and copy your data file to our system (so that we have a record to substantiate things to the Tax Office if necessary later).

Once we get your complete information, our queries are reduced to at most, only one set.

We then follow a systematic and documented step by step procedure which we have developed from years of experience. In this way all out staff whether onsite or working from home, follow one standard procedure so that the Directors can intervene at any time and know exactly what has been done and what is next to be done. Having documented procedures, and, in the process of the work creating a work papers file that supports almost every entry and certainly every important transaction, allows us to maintain quality control, “prove” assumptions and transactions, and be able to stand up to scrutiny from the Tax Office or others.

That’s why we don’t just print a report from your MYOB file and fill in the tax return. While you may be absolutely certain you have coded everything to the right code, our procedures and work papers establish the fact of the coding, in support of you in any case in the future.

Our procedures will always start with either completing or checking the bank reconciliation. Why?

Because that is the basis of double-entry accounts. You may not know it when you enter a bank payment and code it, but your MYOB or Xero or Quickbooks program follows accounting rules set up over 500 years ago! We need to check that these rules have been followed so that we can rely on the rest of the information that your software tells us.

Have you heard of the computer-geek phrase Garbage-In-Garbage-Out? We first make sure that what went in is not garbage so that we can rely on the rest. And the best way to do that is to check that the bank balances in the accounts – after adjusting for outstanding and unpresented payments and deposits – balance with the independently generated bank statement.

Once we are sure your software has captured every bank entry we can go on.

Our procedures then take us through a series of work that proves the information. Broadly speaking, we check your codes from a common sense point of view (not a 100% audit!), we make non-cash adjustments such as debtors and creditors, depreciation, write offs and write ups, or where for example you paid for some business expense privately and we have to show it in the business with a corresponding amount owed back to you.

We also make adjustments for tax transactions like Division 7A loans, grossing up rents and dividends, checking inter-company loans balances in each company, and watching out for topical tax issues.

We do this section by section, taking assets, liabilities, then income and expenditure. In doing this we build up the documentary supporting work papers mentioned earlier.

Finally, we calculate the tax liability, and at this time do some tax planning to see what is the effect of your tax bill if we did different things in the accounts such as declaring a dividend and so on. Once satisfied we have found the most tax efficient way of dealing with the profit, we prepare the tax returns.

This is not just filling in the blanks! You will have seen how complicated tax returns are – so when we do “fill in the blanks” we make sure that our work papers refer to specific pages in the file as backup.

Then the Directors do a quality review of the completed file and consider final questions before we sign off.

So there’s some insight into how we do our work. All accountants should do it this way because we have found over the years that this process is:-

  • the most efficient and hence cost-efficient as well;
  • accesses QA processes so that we are reasonably clear of the accuracy and quality of information;
  • creates documentation to satisfy Tax Office queries;
  • takes the shortest time.

For clients, we hope this explains what happens behind the scenes so that as we contact you from time to time, you can imagine which stage we are at. For readers who are not clients, if you like this process of efficiency, why don’t you get in touch with us for an obligation-free first meeting to see how we can help you? Click on the Contact Us tab on our website at www.otsmanagement.com.au

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