Following some feedback on Final Accounts, I’ve put a few words together to indicate how we can counter some accountants’ fears that Final Accounts poses a threat to their business.
As many accountants and bookkeepers see cloud accounting itself as a threat, and final accounts the final nail in the coffin, I first want to cover some history within the accounting industry. Whilst I will tend to use the term “accountant” this can apply equally to bookkeepers, especially as, these days, the differences between the two are becoming blurred.
Bookkeeping:
Accounting firms have traditionally either kept the client’s accounting books themselves, or charged to put the books right, either quarterly, when they are asked to prepare/check the VAT return, or more usually when the year’s books are first presented to them by the client —maybe 3-6 months after the year end.
This latter situation has always been the most inefficient in that the accountant has to search through a whole year’s worth of transactions to track down any problems. There may be many corrections to make and little time to explain to the client where they went wrong. Plus, of course, the client may now be months into the next year during which more errors might have occurred. Such has been the case since I started in this business 40ish years ago.
Many accountants (including me) would moan about clients bringing in badly kept books, and how long it would take to correct them, but would charge accordingly for the work and so, with cloud collaboration enabling easier correction and client education throughout the year, resulting in far less time and a 95%+ accurate set of figures within weeks of the year end, it’s understandable that some may fear reduced workload and fees.
Because they may never have experienced it, what many firms fail to see is that the ideal is for a client’s accounting records to be kept up-to-date and accurate, leaving little to do at the year end, other than perhaps calculating an accurate tax bill to incorporate into the books.
The pressure for up-to-date and accurate figures has come partly from HMRC – in their guides to record-keeping and their ability now to visit and check the records whenever they want. The time has passed when you can explain to an HMRC officer that the errors or guesswork in a client’s year end accounts is down to the client keeping “incomplete records”, something that was the norm when I started out.
Pressure for a decent set of books is also there from new, more educated, businesses who can’t see the sense in keeping inaccurate and out-of-date records.
It is also the case that more and more of these new entrants are not bothering to seek out an accountant, they can Google bookkeeping guidance and use HMRC software at the year end to prepare accounts. This means they will not be convinced that doing the books in a half-hearted way during the year, with an accountant correcting everything at year end, is good enough.
The new development that has created so much comment on AccountingWEB, and will give added importance to the “up-to-date and accurate” principle, is the announcement in this year’s budget that, within a few years, year-end tax returns will not be required and that business accounting records will need to report directly to government throughout the year, maybe monthly. Other than a few adjustments at the year end this might even mean the end of formal annual accounts for some businesses.
Final Accounts:
However you arrive at an accurate set of annual accounting records, the next step (in this case for a limited company) is to create the final accounts to report the results to the company’s shareholders, HMRC and Companies House.
Traditionally accountants have had to carry out a translation process, taking the year end figures from the bookkeeping and inputting (or hopefully importing) them into their own software to prepare the final accounts and tax calculations.
With no standard format and so many different bookkeeping methods, no matter how slick the accountant’s software, there will always be some checking, conversion and mapping that needs to be done every year and so the cloud accounting providers have seen an opportunity to cut out this translation process by adding a final accounts process on top of the bookkeeping. Again though, even this could be seen as a threat to be avoided in order to preserve workload and fees.
Hand in hand with the above development has been the simplification and deregulation of the final accounts themselves. Many years ago “Small Companies” were defined and able to reduce the amount of disclosure needed each year in their accounts. At that time many accountants resisted the change and refused to take advantage of the reduced requirements and, in an effort to maintain workload and fees, some even failed to inform their clients that they no longer needed an audit.
Even with the reduced disclosure requirements there was still a need for expert knowledge over what was needed to comply fully with accounting standards and regulation but then, a couple of years ago, the UK signed up to the European “Micro-Entity” accounting regulations which allow the smallest limited companies (approximately 90–95% of all companies) to produce less detailed balance sheets and P&Ls and restrict the number of notes to two, one being rare and the other only needed in a minority of cases.
In other words, and here is the nail in the coffin, with the software translating the bookkeeping’s two statements into the micro statutory formats, there is very little extra work, if any, that needs to be done to prepare the Final Accounts.
Welcome to Clear Books Final Accounts.
The Threats and Opportunities
Frequently Asked Questions
“How can I give my client micro accounts? They will want to know how I’ve charged them so much for just a few pages.”
Obviously the threat from Final Accounts is, like cloud accounting, loss of workload and therefore fees. The fear though is borne more out of the speed of change, rather than the change itself. Even though micro accounts were first mentioned perhaps five years ago, and have been legal for year ends since 30 September 2013, many firms still don’t know about them or have chosen to ignore them.
Consequently, as the micro format becomes more commonplace, these accountants are going to have to change more quickly and will not have adequately prepared for the change.
There were scare stories that HMRC would not accept them and so they would raise more enquiries and also that banks would always want to see more disclosure in accounts if finance was being arranged.
The reality is that micro accounts were brought in to reduce red tape and to cut admin costs for the smallest businesses and in the few occasions where a tax inspector has queried the format, it was because they had not bothered to read their internal guidance and so immediately withdrew.
Similarly banks can be provided with the statements from the bookkeeping and are very nervous of being seen as putting barriers in front of small businesses.
Explanations and Opportunities:
The way that I have explained this to accountants I meet is to say that the accounts I now spend my time discussing with clients are the ones that come off their bookkeeping during the year, maybe quarter by quarter, and that, rather than spending a few days, months after the year end, I’m now spending hours during the year, logging into their books and keeping in regular contact with the client.
The year end figures in the books will still take time to double check and will still need the same adjustments (accounting rather than corrective) as before, only now, rather than having a rushed meeting months after the year end, or sending them the accounts to sign without the time for a meeting, I can now discuss the year’s results and concentrate on what they mean for their business. In other words they are a business tool and not merely a legal piece of paper.
So yes, there is time saving in the basic stuff but it can be spent on more valuable work for the client or, if not needed, I can spend more time with other, more valuable clients, take on new ones, or use the time to plan my own business.
In my case, with a typical client, I have probably reduced my time on compliance work and fees (e.g. year end accounts) by a third but ended up hardly changing the overall fee to the client. I do the basic work in less time and the client gets far more for their money than they did five years ago. With other clients I have actually reduced the fees by maybe 20% (sharing the savings) leaving me time to earn extra from other or new clients.
So when I first introduced cloud accounting and then micro accounts, I sold them as a positive thing to my clients, telling them that I’d now have more time to spend helping them with their books, answering questions, and looking at their business and personal tax affairs.
“If the client is allowed to see Final Accounts in their Clear Books, what will stop them for having a go themselves and seeing how easy it is to produce final accounts, making me redundant?”
Explanations and Opportunities:
This is partly explained above, and the mindset to get across is that the final statutory accounts are no longer the whole object of the accountant’s exercise, much as with VAT returns, they are just the few bits of paper that come out after all the hard work is done (keeping the books up-to-date and accurate and discussing how the business is doing), so we can stop obsessing about them.
Regardless of this, clicking on Final Accounts in Clear Books would still be unknown territory for some clients and so, in reality, few are likely to go there, leaving it for the accountant to do.
If all else fails, as with any other area in the books, if the accountant feels the client has insufficient knowledge, then the Final Accounts feature can be switched off in the user profile.
“If you release it to all users they will be able to do their own accounts and so will never need an accountant”
Explanations and Opportunities:
If a business owner has done without an accountant for years, this is hardly likely to change their mind, and will hopefully make their lives a bit easier.
However, for new businesses starting out with Clear Books, rather than being forced to learn and use HMRC’s clunky pages, they will see Final Accounts, think it looks a bit too advanced for them and be encouraged to seek an accountant, using the Clear Books directory to find one.
In addition, as businesses grow they are more likely to need the help of an accountant for their financial and tax skills, rather than their bookkeeping skills, and the accountant/client relationship will prove far more valuable, for both of them.
Let me know what you think of Final Accounts in the comments below.
