The cost of accounting errors
Posted on 28th January 2020 at 11:58
Failures for a fashion brand
Superdry found itself in trouble after accounting errors cost the company almost £4million.
They described it as an ‘isolated error’ concerning stock handling costs. The business reported a loss of £4.2m, compared with a profit of over £26million in the previous year. One of the company’s original founders, Julian Dunkerton, has now taken back control in an attempt to get the business back on track with a new product range.
Overall the accounting error and bad business debts relating to the 2018 financial year wiped out Superdry’s profits for the first six months of 2019. Problems arose due to complicated processes to keep track of stock as it moved between warehouses.
There are still questions to be answered about the accounting methods and financial management of the travel company, Thomas Cook, including its treatment of exceptional payments and available capital resources.
The construction company Kier Group announced an additional £40 million of debt, due to an accounting error. Following the collapse of Carillion in 2018, outsourced construction businesses were badly affected. Kier Group’s share prices fell, and the chief Executive left.
While some parts of the business recovered, £40.2 million of its debts were reportedly misclassified in an accounting error, bringing its total debt to £180.5 million.
The government has announced that the accounting regulator, the Financial Reporting Council, is to be replaced by a new body to improve auditing standards in the UK. The Audit, Reporting and Governance Authority will have powers to intervene directly and make changes to company accounts, instead of having to apply to the courts. It will be able to regulate the biggest audit firms directly. There will also be greater sanctions for businesses that fail to meet auditing standards.
Small business accounting errors
These large businesses have faced major challenges because of errors and bad accounting practices. You might think that some errors in small business accounts aren’t too serious, but the implications could be just as serious for your business. Here are some of the most common accounting mistakes small business make:
Not taking the proper advice - many small business owners try to do everything themselves. However, when you are busy mistakes can creep in. If you make decisions based on inaccurate figures you could end up without enough money to pay your bills and tax liabilities.
Going for the cheap option - anyone can call themselves a bookkeeper or accountant without any formal qualifications. Business owners who are tempted by cheap rates could find themselves badly affected by errors and poor advice from inexperienced or unqualified people.
Understanding profitability - while you might be invoicing a healthy amount each month it’s easy to overlook all the expenses and operating costs you must also pay. Once you have taken these costs into account your business might not be as healthy as you think.
Mixing up personal and business finances - you can quickly lose track of business expenses if they aren’t paid though your business accounts. It can be costly and time consuming to work it out later. You might even find that your business isn’t profitable at all because you have subsidised it with your own money.
Inaccurate information - if you use manual systems to keep track of your business finances, they can become out of date very quickly. Then you won’t have any reliable information on which to base decisions. Modern Cloud-based software like Xero is easy to update and you can even check your financial position on your mobile phone.
If you would like to know more about how we can help you avoid accounting errors in your business, please give us a call.
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