Now that we are through tax season, I have some thoughts about bookkeeper interactions with their client’s CPAs/tax preparers.
This alliance is a natural partnership, as we work for the same client and have interconnected roles. However, I find myself wishing that more CPAs worked in collaboration with their client’s bookkeepers.
I often run across CPA firms who just want to burn and churn a tax return, and are unresponsive to bookkeeper’s questions. I can only assume the reason is to keep costs down, but in my opinion, this does not best serve their client’s needs.
What Kinds of Questions Do Bookkeepers Have for CPAs?
Here are some typical interactions I may have with a CPA/CPA firm/tax preparer, and some of the less than stellar responses I have encountered:
1. Are the books Cash or Accrual?
When I ask my clients, they often don’t know, and they don’t provide me copies of their tax returns. So I have to ask the CPA.
The answer to this question is particularly important if I have inherited a QuickBooks (QB) file for which cleanup needs to be done to the Accounts Payable and/or Accounts Receivable reports.
If I need to clear out years-old uncollectible invoices, the method I use will differ if the books are Cash vs. Accrual, as Cash books cannot have Bad Debt Expense, while Accrual books can. For one client’s file, they have invoices with small open balances, many of which are over five years old.
First of all, I’m amazed that the CPA firm has never cleared out these balances, particularly in light of the fact that the firm’s own bookkeeper was doing the books until I stepped in. Many of these invoices include sales tax collected, which in California is paid on the Accrual Basis.
In order for each invoice to be eligible for a partial sales tax refund, the invoices will have to be reviewed individually to see if the balance due is for non-taxable labor, or for taxable parts. I emailed the CPA three times over the past year to inquire how he wants to address this cleanup, but he never responds. He just can’t be bothered.
I find this frustrating and unproductive. This leads me to believe the books are Cash Basis, which is why he doesn’t care about open A/R, but I’d like the client to have a clean A/R report with real current balances, not one showing five year-old invoices with balances the business owner has to ignore.
2. What is the capitalization threshold?
I’d like to know if the CPA wants me to expense that new piece of equipment, or add it to the Balance Sheet as a fixed asset. Some CPAs want all purchases posted to the P&L, and they’ll decide what to move to the Balance Sheet at tax prep time.
That being said, some CPAs just want Excel reports from the bookkeeper and not access to the actual data file, so they never look at the expense detail. In those cases, how would they know that an $800 piece of equipment is ‘hidden’ in Office Expense?
If I don’t post the expense to the Balance Sheet, the CPA won’t know there is a decision to be made. For these CPAs, I go the extra mile of exporting the Office Expense Detail Report to Excel, so they can eyeball the individual purchases. Best Practice is for the CPA to just inform me, “expense any purchase under $xxx” and then this exercise is eliminated.
3. How to handle erroneous prior period expenses?
Again, when I take on a new client, I often find the old bookkeeper just skipped transactions during the bank reconciliation which weren’t on the statement, and left them in the Checking or Credit Card register.
For example, this month I reviewed a file for which sales tax had two payments per month for four months in 2017. The prior bookkeeper cleared one check/payment each month, but left the duplicate checks and never voided or reversed them during the account reconciliation process.
The books were closed and the tax return prepared, but the Balance Sheet is inaccurate for the Business Checking account (balance understated by the amount of four erroneous/duplicate checks which were never deleted or voided) and for Sales Tax Payable (balance understated due to four duplicate payments).
Now I will initiate a discussion regarding how the CPA wants to get rid of the duplicates in this calendar year. Note: This is another instance where the CPA never looked at the QB file for tax prep; he relied upon exported reports.
4. Year-end adjusting entries
I’d like to make the books match the tax return as much as possible. Many CPAs work their magic on the tax return, but neglect to inform the bookkeeper of AJEs to add to the books to make them match the tax return.
I find that many CPAs don’t want to spend the time to send over AJEs for Cash Basis books and that most tax returns on the Cash Basis don’t have a Balance Sheet. In my mind, though, that does not mean the books should carry forward with an inaccurate Balance Sheet. So, I constantly have to pester many CPAs to send me adjusting entries, which they don’t like to seem to spend time doing.
While many CPAs play well in the sandbox with the bookkeepers who prepare the data from which they are creating a tax return, some CPAs are unresponsive to the bookkeeping collaborator’s questions and concerns.
In the best of all possible worlds, the tax preparer and bookkeeper will work as a team to provide a clean set of financials to their shared client. Those are the CPAs with whom I prefer to work!
We would love to hear your thoughts on this issue.
Jody Linick, an AIPB Certified Bookkeeper, QuickBooks Certified Pro Advisor and member of the Intuit Trainer/Write Network, heads up FitBooksPro which specializes in helping professional services providers set business goals, and using the tools available in QuickBooks Online, to manage...