Bookkeeping corrections engagement

Accounting and Bookkeeping
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Over the years I’ve seen an increasing popularity of small - medium-sized business owners doing their own bookkeeping.

The business owners would like to have their tax returns filed but prior to that, they would like to have their bookkeeping checked for errors.

Normally, I will start an email thread with the subject line: Bookkeeping corrections and/or additions, and then my first email will say:

I will glance over your bookkeeping to assist in cleaning your books and make/ask you to make corrections.

However, I would like to make the following clear:

  • I cannot guarantee that I will detect or prevent all possible errors, fraud or other irregularities; and
  • Responsibility for the accuracy and completeness of your bookkeeping remains with you.

The service has become so popular that I’m considering making a dedicated engagement letter specifically for it (please note: I do use an engagement letter for the tax service).

Your general thoughts and comments on this matter would be appreciated.

Do you think a dedicated engagement letter for this service is the best option or inputting a paragraph in the tax engagement letter would be a better approach?

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Interesting query. The problem - as always - is management of expectations for what would have been (at best) an NTR previously and is now either “non-noted” or a Compilation. The former, I assume, are the ones we’re talking about.

As with you, I’ve had numerous clients do their own bookkeeping (usually to their considerable detriment - but not always - repairs can be expensive). Identifying those that are competent is one thing…for the rest the process is likely a different one.

With my “competent” clients, they know I’ll prowl through their books and correct “what I see” that looks like an error…but given that I don’t (usually) have the original invoices in my office, nor do I want them, I can only use my native wit an intelligence to discern what may…or what may not…be an issue. Large ITCs that seem odd, or charges that seem misplaced, weird balances in a GL account other than the usual due diligence matters come to mind. I train them…and they ASK before booking complex or weird things…and if they just need to get 'em done, they’re trained to put the unknown portion in Suspense so I see them and can advise/fix as needed.

For the “other” ones…there is nothing I would provide as any form of assurance…that is stepping into a realm that is fraught with issues. In the expectation area I’d NEVER say more than “I’ll look…and no guarantees on anything.” ONly YOU can determine, based on what you see, how deep you’ll dig in your “glance”.

OK…so that’s a long way of saying that how you’ve framed it seems (mostly) fine to me…and I wouldn’t get too fancy about it or offer too much…

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@SmallBizGuy Amazing reply.

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Short answer - yes. What you are describing is bookkeeping services, which are either incidental to the year-end engagement, or additional work of a different scope. You need to recognize the legal risks and separate them accordingly.

Year-end work, even if only a compilation, carries certain expectations from CRA, regulatory authorities, tax court judges, banks, etc. Bookkeeping, on the other hand, carries much less expectation. For example, if you see that the client’s GST balance/transactions in their books don’t reconcile with CRA, and you include an adjustment in your year-end process (particularly if you are reducing the liability balance), you better have solid proof in your year-end file to support that. If you make the same adjustment in the client’s books PRIOR to the year-end process, that is considered a bookkeeper’s responsibility, and bookkeepers are not expected to have the same level of knowledge or expertise as an accountant.

In the last few years, the courts (i.e. TCC) have been holding accountants more responsible for vague or questionable year-end adjustments, but if that same thing was posted by a bookkeeper or the taxpayer him/herself, there is much more leniency.

The other issue is whether you can legally bill for that work, if your year-end engagement letter does not specifically include it.

Of course, we all do SOME bookkeeping as part of year-end work, but it should be incidental, and the clients usually don’t complain about an extra $100 in a $2,500 year-end bill. But, if it is an extra $1,000 you will find some clients who say, “I didn’t hire you to do that!” and they would be legally correct.

Conversely, if clients start to EXPECT that bookkeeping work from you, and you don’t do it, or you miss something in the process, you might end up with an angry client here and there, blaming you for some CRA penalties or something. If you offer a separate bookkeeping engagement, and the client didn’t take it, you can confidently tell such a client that it’s not your responsibility that the bookkeeping was in error.

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I add it to my year end engagement letter.

Normally it’s just in the scope list which is all I do for ‘incidental’ bookkeeping that’s normal in a compilation engagement,

But if it’s more substantial then that list entry is beefed up and includes a reference to a full paragraph later in the engagement letter describing what we actually do.

I’ve had my engagement letter regularly reviewed (every 5 years or so) by my lawyer and this approach passed muster each time.

To billing: my invoices have three sections each with one amount - normal year end services, bookkeeping, and special tax planning services. The last invoice I issued (yesterday) was over $7000 for a compilation but about $3000 if it was bookkeeping. They didn’t even wince, because we all knew it would be that much from our discussions during the engagement planning process.

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I never have a problem with bookkeeping. My clients hire me BECAUSE they’re not accountants. I’ve had basically the same client base for 30 years.
What does bother me is the way the CPA associations keep narrowing the scope of work that non-designated accountants can do. Here in Nova Scotia, the CPA Act has been changed to include compilations as a restricted service, meaning non-CPA’s can no longer do them. That’s taking work away from people who have been doing them for years. Granted, there are some real wing nuts out there putting out awful work, who should have been put out of business years ago. But there are many who do good work. And there are CPA firms who do little more than rearrange client numbers, round off the cents, and bill for it. Did you check the bank rec? Does the HST agree with HST reports? Do you have a list of receivables and payables? Nope. Don’t have to. CSRS 4200 doesn’t say I have to. Personally, I don’t subscribe to that approach. Clients expect realistic financial statements, and I do whatever is necessary to meet that expectation.

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