First time reviewing end of year accounts... what should I be looking for??

SaLi_2

Hello! Thanks in advance for all comments and help!
I co-own a small business and we've just received our draft end of year accounts for 2020. This is my first time owning a business and it's one I've taken over, so there are previous years of accounts but this is the first one i'm having to review. 

The accountants have sent over drafts and asked for comments back - is there anything specific I should be looking out for? I'm happy the profit figure makes sense given the sales and turnover, and what I expected it to be - but especially given the year we've all had I want to make sure I'm not missing anything commonly found just through not knowing...

Thank you!

Savvy_Sue

As a non-accountant, check the maths.

Balance at start of year
- expenditure
+ income
= balance at end of year

Simple enough, but you would be surprised how many sets of accounts just don't add up ... Plug the figures on the page into a calculator or spreadsheet and just make sure you get the same answer. 

Sandtree

Have you continued on the same accountants as the previous owners or new ones?

Exactly what you need to check, beyond the basic arithmetic, will depend heavily on what type of business it is and whats been happening over the last few years and the method of accounting. As you took over the company all its assets (and the depreciation of those)  and liabilities continue so on the balance sheet you need to ensure the right things have been carried forward and depreciation, releasing accruals etc have all been done correctly. 

The P&L is somewhat similar, and its easy to overstate profits... in my very laymans terms as I'm not an accountant, if the inventory/stock has come in and gone straight on the balancesheet then its not gone through the P&L so when you sell an item that cost £70 for £100 your P&L should show a £30 gross profit however if your mistaken and think the inventory was written down immediately then you'd mark it as £100 profit. 

If you are continuing the same accountant then the risks are lower as they know how the accounts were run under the previous management but switching accountants can increase the risk of errors being made, particularly on the first few years when things may well still be unwinding.

martindow

Are your accounts drawn up to the end of the calendar year rather than the financial year?  Most people align their accounts to end on April 5th.  It may be worth talking to the accountants about this.  I believe you are allowed to have a 'year' that is more than 12 months long to adjust the date.

Sandtree

martindow said:

Are your accounts drawn up to the end of the calendar year rather than the financial year?  Most people align their accounts to end on April 5th.  It may be worth talking to the accountants about this.  I believe you are allowed to have a 'year' that is more than 12 months long to adjust the date.

Not sure its "most" at all... I would imagine that the majority is simply based on date of formation. Most FS companies have aligned to calendar year. From personal experience, financial year is one of the least common.

Maybe worth explaining what benefit you think the OP would gain for doing so.

SaLi_2

Savvy_Sue said:

As a non-accountant, check the maths.

Absolutely - that's top of the list so that's great, thanks.

Sandtree said:

Have you continued on the same accountants as the previous owners or new ones?

Kept the same accountants for this year so we can have some continuity and they seem great, so no reason to change. So that simplifies things. Thank you for the rest of the advice too!

martindow said:

Are your accounts drawn up to the end of the calendar year rather than the financial year?  Most people align their accounts to end on April 5th.

Yes we're end of calendar but that makes a lot of sense for us, and is the same as all of our clients! I agree with Sandtree - seems to me (anecdotal, of course!) like most are January to December!

Thanks all!

martindow

Sandtree said:

martindow said:

Are your accounts drawn up to the end of the calendar year rather than the financial year?  Most people align their accounts to end on April 5th.  It may be worth talking to the accountants about this.  I believe you are allowed to have a 'year' that is more than 12 months long to adjust the date.

Not sure its "most" at all... I would imagine that the majority is simply based on date of formation. Most FS companies have aligned to calendar year. From personal experience, financial year is one of the least common.

Maybe worth explaining what benefit you think the OP would gain for doing so.

I'm a sole trader rather than a limited company.  It just seems more straightforward to be able to use the figures from the accounts directly when doing tax returns.

Thank you for correcting me - I adjusted it to align with the financial year as I understood this was good practice.  No idea where I got the information from as it was a long time ago!