December 2014

Beware of suspense accounts, especially big ones!

Sounds boring but ignore at your peril otherwise you could be mightly embarrassed. Suspense accounts are a sort of cop out. If your book-keeper doesn't know what to do with the input then it could well end up in a 'temporary' suspense which means it's not reported properly.

The problem with a suspense is that it hides the true story and almost certainly distorts the accounts. We've just reviewed some company accounts from a prospective client. Right down at the bottom was a suspense account of some £352,781 and guess what, neither the owner nor the bookkeeper knew it was there. They didn't have the foggiest idea what it was and why it was there. Ignorance may be bliss but it doesn't help with producing quality information. It just might affect the year end accountancy bills as well...

The moral of the story is - don't let amateurs get in the way of quality otherwise there'll be consequences. It's not difficult to deal with, the starting point is to speak to someone who knows what they are talking about, like everything else in life or business.

By the way, in the accounts just described, the Balance Sheet didn't balance and not by the suspense account - another embarrassment.

Anthony Pilkington, Managing Director, BookCheck Ltd


This entry was posted in Business Development and tagged in Bookkeeping, Suspense Accounts, Balance Sheet by bookchadmin

Forecasting - a waste of time or worth some effort?

With Tesco now revising its forecast profits down from the original £2.8bn to £1.4bn you might wonder. This is despite armies of accountants spending millions on this task. So how could it happen and why bother?

Part of the how it happened is the small amount of £263 million overstatement of profit which has been described as 'dubious bookkeeping' and 'a bookkeeping scandal'. That's an insult to the bookkeepers, although I'm not sure that's the correct term for their computer systems behind everything. More like high level dodgy manipulation, judging by the Serious Fraud Office investigation.

Why bother? The only purpose of forecasting is to provide a benefit otherwise it really is a waste of time. Other than for the stock exchange the reasons are broadly as a target or as a control. If you don't set targets then it's a lot more difficult to judge results. The control part is relevant when you could be heading towards difficulty, especially cash flow problems.

It's worth reviewing existing forecasting for cost benefit checking and where there's no forecasting it's worth an external person advising on its value. But don't get it as wrong as Tesco because that really would be failure.

The best antidote to 'misleading' information is independence - that's one of the key benefits of outsourcing. With Tesco that's down to the auditors but that's another story.

Anthony Pilkington, Managing Director, BookCheck Ltd

This entry was posted in Business Development and tagged in Forecasting, Business Intelligence, Bookkeeping by bookchadmin