Mistakes by the UK accounting profession “cost clients £1.8 billion” claims new report

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A report published today indicates that beleaguered small businesses are facing further woes due to inept accounting.

Your blueprint for a better accountancy practice” published by The Accountants Club, an association of over 700 UK based accountants, found that this ineptitude is losing UK businesses a staggering £1.8billion.

The report will make very uncomfortable reading for the profession, its clients and regulators highlighting that accountants are making mistakes on almost half of their clients’ affairs.

Alarmingly, many of the errors constituted “major” mistakes – for example, allocation of illegal dividends, lack of inheritance tax planning, not reviewing tax credit eligibility, not considering incorporation, capital allowances not claimed properly and not claiming R&D tax credits.

At a time when small businesses are struggling to get funding from banks, poor advice from their accountants in these areas could mean businesses having to close.

According to one of the reports’ authors, Mark Wickersham FCA:

“Large parts of the accountancy profession are costing clients a huge £1.8 billion in poor advice. The entire profession has to sit up and do something about this as a matter of urgency.”

Thankfully, some accountancy firms are already giving a much better service to their clients. The report reveals that the UK has a ‘two track accountancy profession’, where 27% of practicing firms are ‘Stars’ and 73% are ‘Laggards’. Explaining the findings, another of the report’s authors Steve Pipe FCA said:

“Our research indicated that the ‘Stars’ grow at 20% or more a year. But, for the ‘Laggard’ firms and their clients, the picture is very different and very much worse, with widespread under-performance and under-achievement. The good news, though, is that by identifying what makes the Stars so successful, the research provides a blueprint for other firms that want to replicate their success.”

Another key finding is that Star firms also seem to be much better at spotting the mistakes made by other accountants. Therefore, the research suggests that if all accountants followed in the proven footsteps of the Stars, clients would no longer have to suffer the £1.8 billion of unnecessary losses and costs that appear to be inflicted on over 40% of businesses as a result of the mistakes made by their accountants.

Robert Craven, author of Grow Your Service Firm, comments:

“In my book we isolated the fact that most service firms just don’t get what it means to be in business… to serve the customer… to see the business from the customer’s point of view. My old accountant charged me by the hour, invoiced when he felt like it, never explained what I was paying for, made me feel like I was doing him a favour by paying his bills and subsidising the purchase of his holiday home in the Maldives. By huge contrast, I now have an accountant who charges a fixed price, agreed at the beginning of the year, has regular meetings and generally goes out of his way to find ways to help me run a better business, make more profit and pay less tax. Shame I didn’t know about him sooner!”

An overview of the report’s findings and the full report itself are available from the Accountants Club at www.myaccountantsclub.co.uk/shop.aspx.

The estimate of the £1.8 billion cost of mistakes made by accountants is arrived at as follows. According to the latest Department for Business Innovation and Skills data there are c. 4.5 million private sector businesses in the UK, and this research suggests that accountants are making mistakes in handling c 40% of their clients’ affairs. Therefore c 1.8 million clients are probably affected. In many cases these mistakes will cost those clients many thousands of pounds each, so factoring in an average cost of £1,000 is unlikely to be excessive. Therefore a conservative estimate of the total cost to clients would appear to be c £1.8 billion.

Other key findings about the differences between Stars and Laggards include:

  • Only 7% of Stars are worried by the threat from unqualified and cheap accountants, compared to 25% of Laggards
  • 33% of Stars believe that they are as proactive as they should be, compared to only 12% of Laggards
  • 30% of the Stars are as successful as they want to be, compared to only 8% of the Laggards.

The research is based on a detailed survey of 156 leading UK accounts in practice that was carried out in the summer of 2011 by the Accountants Club. Full details of the research and its findings are given in the report.

The Accountants Club is an association that helps practicing accountants serve their clients better. Launched in June 2010 it currently it has 781 members. .