The older members of the Fizz team have essentially gone through three phases of preparing year-end accounts.
Phase 1 - 90s: most businesses use physical books. At the end of the year, they give those books to the accountant, and start using a fresh set. The accountant uses last year’s books to prepare the accounts.
Phase 2 - 00s: most serious small businesses use Sage or QuickBooks on a desktop computer. At the end of the year, they take a backup, and put it on a disk and give it to the accountant who restores it on their own Sage. The business owner carries on inputting to their live (e.g.) Sage, which from this point is diverging from the data the accountant is working on. When they are finished, the accountant takes the adjustments they’ve made as part of their process and duplicates them on the client’s live Sage, so that the position per the software at the last year-end matches the accounts.
Well, that’s what is supposed to happen. Often, that last bit is forgotten about, or put to one side because of the pressure to crack on with the next job (one of the multiple evils of timesheets), and the first task for the accountant next year is to update a fresh backup with last year’s adjustments (sometimes multiple previous years!) before preparing the new year’s accounts and generating another year’s adjustments to be overlooked. So, it’s fairly common for a business’ live Sage not to match the accounts filed at Companies House and with HMRC for extended periods of time. Often, the first job when taking on a new client from another accountant is to figure out the wild differences between the two. That’s annoying for the new accountant, but more importantly means that the business does not have a reliable guide to its own financial position!
Phase 3 - 10s onwards. Cloud accounting means that there’s only one live set of data. The accountant can be entering their adjustments as they go, on the live Sage (more likely Xero or FreeAgent with us). There need be no mismatches of any sort between the accounting records and the accounts filed at Companies House/HMRC.
Problem solved, right? Wrong! Many (maybe even most) accountants seem to be still operating as if we’re in phase 2, and doing some or all of their work outside of the live data, and never incorporating it into the actual accounting records. When we take on a new client, it’s more common than not for there to be material differences between the accounts filed at Companies House and the position on the client’s (e.g.) Xero at the same date. They should be identical. Last year, we took on a client where on handover the old accountant supplied us with a set of accounts signed by the client - but it turned out that the accounts filed at Companies House didn’t match them, the set submitted to HMRC were different again, and none of the three remotely matched Xero! Completely farcical.
If you have a limited company, have a look at the balance sheet of the last accounts filed at Companies House. Then run a balance sheet report in your software for the same day. Is the number at the bottom the same? If not, something is wrong. Best case scenario, you’ve a technically accomplished but phase 2 accountant. Worst case scenario, you’ve got the guy who handed that client over to us last year!