New client – incorrect accounts for 5 years

Kanatkins

I’m after some advice from someone with a bit more experience than me.
I recently visited a prospective new customer in view of doing there accounts for this year only to find that they the book keeper had been producing the accounts for the last 5 years. There are no trial balances and the capital account do not even balance – he said he didn’t know they had to!! There are obvious mistakes such as mortgage payments being deducted as a revenue expense and also as an interest expense.
The business is local to me and I know numerous people involved so, although I will probably decide not to accept this work, I would like to me able to offer some advice.
I believe the accounts need to be reconstructed properly for these past years, which will be sostly, have tax implication and I know they will be unhappy with this.

My question is, do they have any other option. It is a business owned by its members.

Look forward to any replies

T.C.

Are they a limited company or a simple partnership? I had a similar situation, but I was called in when the tax man realised the errors. I did re-do as much of the accounts as possible but had limited paperwork.
You could just start afresh in theory though and leave the past as the past - a difficult decision.

Kanatkins

thanks for your reply. Its a social club owned by the members, so all decisions have to go through the committee. If starting afresh, the incorrect tax returns would still need to be dealt with wouldn't they?

groundy

If it is a social club owned fully by members then there would be no tax implications for the errors that you have mentioned. However, the profit of the business would obviously be misstated and it is very surprising that no member has challenged the accounts at the AGM in the last 5 years.

I know the social clubs I deal with are very quick to pick up on any strange looking amounts.

Kanatkins

they pay tax on there profits so why would there not be tax implications?

groundy

A social club owned and ran by its members does not pay corporation tax on its profits. Only on profits accumulated from functions to non members is tax payable, however these are usually that negligable that most clubs don't seperate them.