Due To / From Accounts

Discussion in 'Accounting' started by Preston, Apr 1, 2004.

  1. Preston

    Preston Guest

    This is for any seasoned professionals out there.

    Often in practice, you will come across clients with substandard
    accounting systems or staff. When this is the case, if the
    organization has a great deal of transactions running through Due To /
    Due From accounts across funds or related entities, it is highly
    likely that these accounts will be out of balance. Sometimes without
    a great deal of analysis, the problems can be worked out during the
    audit or tax return preparation. Other times, the problem runs much
    deeper, especially if a pooled cash account is involved and literally
    every cash transaction affects the Due To / Due Froms.

    What approach would you take in a situation like this? Client staff
    is not capable of fixing the problem due to inexperience. Possibly
    client staff created the whole mess on purpose to conceal something.
    Either way, the accounts need to be properly balanced and problems
    revealed so the financial statements can be prepared. What would you
    do? Withdraw from the engagement, or stay and resolve the problem
    with a surefire method to tackle the problem?

    Thanks,

    Preston Singleton, CPA
     
    Preston, Apr 1, 2004
    #1
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  2. Preston

    John Guest

    "Preston" <> wrote in message
    news:...
    > This is for any seasoned professionals out there.
    >
    > Often in practice, you will come across clients with substandard
    > accounting systems or staff. When this is the case, if the
    > organization has a great deal of transactions running through Due To /
    > Due From accounts across funds or related entities, it is highly
    > likely that these accounts will be out of balance. Sometimes without
    > a great deal of analysis, the problems can be worked out during the
    > audit or tax return preparation. Other times, the problem runs much
    > deeper, especially if a pooled cash account is involved and literally
    > every cash transaction affects the Due To / Due Froms.
    >
    > What approach would you take in a situation like this? Client staff
    > is not capable of fixing the problem due to inexperience. Possibly
    > client staff created the whole mess on purpose to conceal something.
    > Either way, the accounts need to be properly balanced and problems
    > revealed so the financial statements can be prepared. What would you
    > do? Withdraw from the engagement, or stay and resolve the problem
    > with a surefire method to tackle the problem?
    >
    > Thanks,
    >
    > Preston Singleton, CPA


    there is another option but I don't know if it's appropriate to use the
    results of a third party for an audit, - banks (at least large banks) often
    reconcile their customer accounts (for a fee)
     
    John, Apr 1, 2004
    #2
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  3. Preston

    Help Guest

    I'd see if the client would extend my engagement to resolve the issues
    for additional billable time.

    --
    Computer Help Desk
    MAS90, Peachtree & Quickbooks
    No waiting for help

    660-216-0397
    Northeastern Missouri
     
    Help, Apr 1, 2004
    #3
  4. Preston,

    It is a concern when a lot of activity runs through due to/from accounts.
    That can be an indicator of fraud. It will apparently take quite a bit of
    time to sort out what belongs where so I would start by talking to the
    person in charge, informing them of the problem and tell them that your fee
    will be higher than anticipated due to the additional time you will have to
    spend. I am assuming this is an audit which is why you need to clean things
    up although if they are interfund due to/froms they will eliminate in
    consolidation anyway. If they are for related entities etc. then you will
    have to go through perhaps transaction by transaction to properly post them
    if a common cash account is used. There are other techniques that may work
    but without lots of details it is hard to explain in an e-mail. As an
    alternative the company could bring in an outside bookkeeper from a temp
    agency to sort it out for you.

    Hope this helps a bit,

    Stephen Lewis, CPA
    "Preston" <> wrote in message
    news:...
    > This is for any seasoned professionals out there.
    >
    > Often in practice, you will come across clients with substandard
    > accounting systems or staff. When this is the case, if the
    > organization has a great deal of transactions running through Due To /
    > Due From accounts across funds or related entities, it is highly
    > likely that these accounts will be out of balance. Sometimes without
    > a great deal of analysis, the problems can be worked out during the
    > audit or tax return preparation. Other times, the problem runs much
    > deeper, especially if a pooled cash account is involved and literally
    > every cash transaction affects the Due To / Due Froms.
    >
    > What approach would you take in a situation like this? Client staff
    > is not capable of fixing the problem due to inexperience. Possibly
    > client staff created the whole mess on purpose to conceal something.
    > Either way, the accounts need to be properly balanced and problems
    > revealed so the financial statements can be prepared. What would you
    > do? Withdraw from the engagement, or stay and resolve the problem
    > with a surefire method to tackle the problem?
    >
    > Thanks,
    >
    > Preston Singleton, CPA
     
    Stephen Lewis, Apr 1, 2004
    #4
  5. Preston

    Karl Irvin Guest

    I had one of these a few years. About 50 retail stores, most of which had a
    receivable or payable to the other 49 or so stores due to merchandise
    transfers. The net of all the accounts had a balance. We ended up writing
    off the net balance and set up one receivable/payable account on each store
    to a corresponding account on the main warehouse books which had a
    receivable/payable account to all the stores. Transfers hit 3 sets of books
    but were more controllable.


    "Preston" <> wrote in message
    news:...
    > This is for any seasoned professionals out there.
    >
    > Often in practice, you will come across clients with substandard
    > accounting systems or staff. When this is the case, if the
    > organization has a great deal of transactions running through Due To /
    > Due From accounts across funds or related entities, it is highly
    > likely that these accounts will be out of balance. Sometimes without
    > a great deal of analysis, the problems can be worked out during the
    > audit or tax return preparation. Other times, the problem runs much
    > deeper, especially if a pooled cash account is involved and literally
    > every cash transaction affects the Due To / Due Froms.
    >
    > What approach would you take in a situation like this? Client staff
    > is not capable of fixing the problem due to inexperience. Possibly
    > client staff created the whole mess on purpose to conceal something.
    > Either way, the accounts need to be properly balanced and problems
    > revealed so the financial statements can be prepared. What would you
    > do? Withdraw from the engagement, or stay and resolve the problem
    > with a surefire method to tackle the problem?
    >
    > Thanks,
    >
    > Preston Singleton, CPA
     
    Karl Irvin, Apr 1, 2004
    #5
  6. "Preston" <> wrote in message
    news:...
    > This is for any seasoned professionals out there.
    >
    > Often in practice, you will come across clients with substandard
    > accounting systems or staff. When this is the case, if the
    > organization has a great deal of transactions running through Due To /
    > Due From accounts across funds or related entities, it is highly
    > likely that these accounts will be out of balance. Sometimes without
    > a great deal of analysis, the problems can be worked out during the
    > audit or tax return preparation. Other times, the problem runs much
    > deeper, especially if a pooled cash account is involved and literally
    > every cash transaction affects the Due To / Due Froms.
    >
    > What approach would you take in a situation like this? Client staff
    > is not capable of fixing the problem due to inexperience. Possibly
    > client staff created the whole mess on purpose to conceal something.
    > Either way, the accounts need to be properly balanced and problems
    > revealed so the financial statements can be prepared. What would you
    > do? Withdraw from the engagement, or stay and resolve the problem
    > with a surefire method to tackle the problem?
    >
    > Thanks,
    >
    > Preston Singleton, CPA


    After all the good advice as to what to do about the past, what will your
    client do in the future? Repeat the process?

    Why not recommend the upgrade of their systems to software that is capable
    of automating the Due To / Due From process (it is available)? Auditors
    /Accountants often recommend improvements that will prevent the recurrence
    of known problems.

    Wolfgang Rochow
    (remove contact)
    www.gestalt.com
     
    Wolfgang Rochow, Apr 2, 2004
    #6
  7. Preston

    Preston Guest


    >After all the good advice as to what to do about the past, what will your
    >client do in the future? Repeat the process?
    >
    >Why not recommend the upgrade of their systems to software that is capable
    >of automating the Due To / Due From process (it is available)? Auditors
    >/Accountants often recommend improvements that will prevent the recurrence
    >of known problems.
    >
    >Wolfgang Rochow
    > (remove contact)
    >www.gestalt.com
    >


    Believe me, when I run across this during an audit, I report it in the
    Management Letter or report an audit finding depending on the
    severity. I also stress in the exit conference the importance of
    monthly account analysis so that if something goes wrong it can be
    detected in the month it happened and therefore be much easier to
    correct. Somtimes though there have been management changes or its a
    new client to the firm and this situation arises. I guess the only
    way to fix these accounts is to roll up your sleeves, go back to the
    last time they were in balance, and analyze each transaction from then
    on. I was just wondering if there was another technique out there
    that I am unaware of.

    Preston Singleton, CPA>
     
    Preston, Apr 2, 2004
    #7
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