Why does my Accountant charge so much?

Many people in business, especially those new to business, express concern at how much their accountant charges them, especially as it was for “just a tax return”. I hope to throw some light on this issue. 

First, what expectations did you have of the amount of fees you were likely to be charged? Did your accountant prepare an engagement letter setting out the scope of services to be provided and an estimated range of charges for thos services? Even if there was an engagement letter, was it specific and detailed enough and did you, as the client, fully read and understand the engagement letter before you countersigned it? The answer unfortunately, is often too little was established by way of expectations when the professional relationship started. Even if an accountant has quoted hourly rates for partners, senior accountants, bookkeepers etc, there may have been scant attention to the amount of work (ie hours) required to undertake your work. Indeed the amount of work may change as time goes by.

Who are you? – in an accounting sense?

Is your business structure a sole trader, partnership, company or trust? Each type of structure has different requirements and different levels of complexity in preparing financial accounts and preparing income tax returns.

What work have you asked for?

While most business people believe they only need an income tax return, there are other tasks implied in producing a tax return and often other tasks are requested by the client.

Before an income tax return can be prepared, financial statements must be produced for the business entity. At a minimum, this should be an Income Statement and a Balance Sheet.

Trading entities such as Companies and Trusts have additional requirements over a Sole Trader or Partnership. The checklist in dealing with a company or trust is considerably longer than for a sole trader or partnership. Many of the extra requirements are because of the requirements of the tax laws. In addition, it must be remembered that a company or a trust is a separate entity from the owners of the structure. Therefore the flow of funds between the different entities must be properly tracked. Other considerations include preparation of meeting minutes, calculation of Trust distributions and Company dividends.  

There is no simple answer to what an accountant’s fees should be. For business accounting and tax work there is no “industry standard”.  There are a few things that affect the level of fees. Even if a client has done their own bookkeeping, say in accounting software like MYOB, the first question is “Is the work that has been done correct?” This means, as a minimum: bank reconciliations correctly done, BAS returns all correctly done, all coding correctly done. On this last point of coding, it is easy for a client to code something as repairs expense when it should be a capital item that should be depreciated. Loan repayments can be coded to an expense item, when they should in fact come off a loan in the Balance Sheet. If a cursory check of the bookkeeping throws up some elementary errors, then the accountant will want to do additional checking and make corrections. This takes time that you will be charged for.

Even if the client’s bookkeeping is reliable, there still may be some things left to do when the file gets to the accountant. The accountant usually updates the asset register for the business and calculates depreciation. In addition all loan accounts will be checked to ensure that interest and loan repayments have been correctly allocated. Most accountants will scan all the expense codes for reasonableness. Any large or unusual expenditure would be checked and: changed if it incorrectly allocated or if correct, notes made as reminders of what the circumstances were. In addition, all Balance Sheet account balances would be checked. All of this may take some time.

If all the above is okay, the accountant will prepare the financial accounts and tax return in the form they need to be. Even with accounting and tax software this will take a little while to ensure everything is done properly.

Finally, company tax returns involve more work than say a partnership tax return, even in your first year of business. There are particular laws surrounding owners’ loan accounts, where owners have taken money out of the business or have spent money privately. Also when companies pay tax, a “franking account” must be maintained. If you are unfamiliar with franking, I can explain another time. The point being, it is something particular to Pty Ltd companies.

The other thing that you need to take into account about your bill is what other work did the accountant do for you apart from tax returns? If he/she also prepared your individual tax returns and depending upon their complexity, that would add to the cost. As for other work, did your accountant spend any time with you or do any work on your behalf about advising you in setting up the company? Did the accountant do any work like preparing finance applications on your behalf or provide advice on the early stages of setting up and running your business?

The above questions are only ones that you can answer. If your accountant has provided other services or advice beyond preparing financial accounts and income tax returns, then normally those other things would be detailed on the account you received.

One final thing about the difference between competent accountants and really good accountants is that competent accountants will attend to the “score keeping” – preparing financial accounts and tax returns. Really good accountants will be prepared to offer you advice about how your business is going and will provide pro-active advice on where it is going – in conjunction with knowing what your goals and directions are for your business. Sometimes you have to ask in order to start accessing the extra advice. The extra advice will come at a cost but like anything, good advice will add to your business.

If your current accountant is simply providing “score keeping”, then I would first re-consider whether there was more work than usual in the current year and whether or not there had to be some extra work done in addition to your bookkeeping. The fee charged may or may not be reasonable. If you are contemplating comparison shopping for accountants based on the price of “score keeping” then lowest is not necessarily best. Think of cut price haircuts or buying Black & Gold chocolate!

Where you may want to compare accountants is the interest they take in your business and the advice they willingly and pro-actively provide based on their knowledge of your business. The main way to find these accountants is to talk to other people in similar sized businesses and find out who raves about how helpful their accountant has been.

Get more tips and hints on running your business at fixmybusiness.com.au

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5 Responses to “Why does my Accountant charge so much?”

  1. Cathern Says:

    What can a finance major expect to do as far as work goes?

  2. business Says:

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  3. flyinggma Says:

    It’s funny that you would choose the car service business for comparison. We are in the car sales and service business. I have no problem paying a professional accountant for the services they render.

  4. flyinggma Says:

    We are in business with my mother-in-law, father-in-law and brothers’-in-law. Each year she complains about the cost of the tax return costs but I think they are a bargain knowing that they are being done properly. I would have to go back to college to learn what I would need to do for taxes for our corporation properly.

    • tomontuesday Says:

      Thanks for your comment. I liken the situation to any other professional service. I COULD service my car but only up to a point – check the tyre pressures, change the oil, refill the radiator coolant and top up the water in the windscreen washer. That is a LONG WAY from a complete car service. I would liken it to basic transaction entry for a business – that is also a LONG WAY from a complete set of financial accounts and a correctly prepared income tax return. For a start I have neither the equipment nor the knowledge to conduct a complete car service. And I don’t have the inclination to do any of it. I can top up the oil but I have no intention of doing a full oil change even if I could. In the end, the professional car service is well worth the money. It will get done quicker, better and cheaper than I could ever do it. Yep, cheaper. If I did it myself, I would inevitably muck it up and someone would have to fix that! It is the same with getting your business accounts and income tax return done.

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