What Your CPA Does & Doesn’t Do
More than once in the last few years, I’ve had to have a conversation with a dealer, that his CPA firm that is doing his taxes, is not doing what he thinks they are. Here’s how each of these conversations came up. DealerStrong was hired to help with an accounting issue, and in the process, we uncovered a significant amount of issues on the books. Our job is to report all irregularities to the dealer as objective data with supporting documentation.
In both cases, the dealer was surprised with the findings and commented that it was unlikely since his CPA hadn’t mentioned it to him and his CPA does his taxes every year. At that point, there is usually a long pause on my part as I decide how to proceed with the conversation. I know what I want to say, that’s not the issue, the issue is how to address the fact that what the dealer believes his CPA is doing, and what his CPA is really doing may be two very different things.
The first question would be is, “Does your CPA firm perform any audit services for you?” If so when was the last full audit? If the things we have found are after a full audit then we know we have a fairly recent development and we can address that. But often than not the CPA firm is not performing any audit services, they are only a tax resource and occasionally review a financial statement for the dealer.
The CPA firm that is not auditing is often provided year-end trial balances, financial statements, bank reconciliations, year-end inventory detail, copies of current year assets purchases, and a few other odds and ends to prepare tax returns from. But not all take the time to drill down in your DMS and look at individual accounts, your managed accounts or schedules to evaluate how accurate or clean they are.
This is not a statement on CPAs who prepare dealership tax returns. They perform the tasks they are contracted to perform. You hired your CPA for their knowledge of tax law, their ability to accurately prepare your tax return and provide tax advice. Therefore, their focus is on producing a tax return for the dealer and/or dealership while capitalizing on all tax advantages possible.
Their focus is not usually on the day to day processes in the dealership. They aren’t usually looking at any processes in your store that are cumbersome or inefficient. They aren’t looking to see if your cash goes to the bank every day, or if your controller is using it for three weeks before depositing as long as it’s deposited timely on the year-end statements they are viewing.
This is why I encourage clients to have a 3rd party, that understands automotive processes, conduct a review a couple of times a year. This will shorten the cycle in which something can fall way behind, increase the chance of finding any less than desirable accounting practices and ensure that nothing is going to be a big surprise at tax time to anyone.
Just because you use a CPA to prepare your tax returns does not mean that your books are clean and without issues. Garbage in still results in garbage out.