Monday, September 13, 2010

A Tax Return is not an audit

I was listening to the Dan Gaffney Show this morning on WGMD and a caller was speaking about the embezzlement case where an employee reportedly stole $900,000. The caller seemed to think that an accounting firm which prepares a tax return should have found these problems. I called into the show and expressed that when we prepare tax returns, we don't audit a client's books. In many cases when we prepare a tax return we are just given the year-end "financial" reports and we use those reports to create the tax returns. We don't review bank reconciliations, look at all the cancelled checks or perform procedures to look for embezzlement. Businesses need to expand these year-end engagements to include at the very least a review of the banking records and payroll records.

Clients may also want to consider a monthly accounting relationship which includes monthly bank reconciliations, preparation of payroll reports, and creation of financial statements. These services are very affordable and may reduce the potential pitfalls.

Monthly accounting relationships may also assist a business in improving their bottom line because we will review the financial performance on a routine basis instead of at the end of the year when it's usually too late to make any tax beneficial moves.

Using the services of an independent, professional and experienced accountant is an investment that will produce dividends for years to come and in many cases could actually save a business. I always tell clients that successful business people start with a strong foundation and surround themselves with qualified professionals.

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