Business, Life Skills

Why Pay for an Accountant When No Legal Duty of Loyalty?

That first page called ‘Notice to Reader’ that comes with your accounting stuff would be better named “Don’t look at me if you get sued for your numbers” because even if you pay an accountant and they screw it up, that page washes away all their liability.

One day last year, I found myself stuck in a Canada Revenue Agency audit for a company I stopped using years ago.  During the painful process of having to dig all this stuff up and prove our numbers I got into a conversation with the auditor.  I suggested to him that since my former accountant had done a poor job on one part that I could make him responsible for the pain.  The auditor was very quick to say ‘I doubt that.”   Then he explained this story to me, roughly paraphrased:

“A long time ago, in a land far away there lived a man named John Doe.  John was very tricky so he decided to take a bunch of cash from his business and slide it into his personal bank account.  On the business books, it looked like he was failing so taxes were low, and on the home tax account he also declared poverty.  John handed the books over to Albert the Accountant. Albert noticed that there was a lot of cash growing in his bank account.  Of course, the accountant saw that there was little money in the business, and much money in the home.  But because Albert gets over $2500.00 guaranteed each year just for filing a stack of paper with the CRA, he just filed it as provided by John.  He didn’t question John his client, but just filed it.  One day, Andrew the Auditor decided to audit John and asked to see his personal bank account and business bank.  Andrew noticed this big discrepancy and asked what’s up.  John looked at Albert and asked what’s up and what to do.  Albert pulled out the ‘Notice to Reader’ page at the front of the filing and said ‘Good luck with this and call me when it’s over’ and left the room.”

True story with names changed.

Not very cool.

And just to cement this with a real life story, a close friend of mine had an accountant who was put in jail for sliding money out of a university bank account into his own.  And if the fact that his accountant was a full time criminal wasn’t bad enough, all of his books were locked up/tossed from his office when he went to the slammer after he got caught!

So then I asked the question that will forever change the way I view accountants and their role in my life and my role with my own books. Ready for the question?

“Don’t Accountants have a fiduciary duty to their client like a lawyer or a real estate agent?”

“No.  They don’t.” was the shocking answer, and I almost fell out of my seat.

“So why should I pay my accountant $2500/year to file my corporate taxes and another $400.00 for my personal taxes?”

“I don’t know.  Other than convenience of having someone else input the numbers, they have no legal obligation to you according to their basic job description.” was his response.

From that point forward I started researching free bookkeeping programs and making a rough plan to learn accounting for myself.  How could it be that an accountant is not obligated to stand before a judge in defence of his work for his client?  But oddly, he’s not.

If you want your accountant to be legally obligated to you in front of a judge you have to pay for a *full audit*!  And the reason why you won’t be doing that is – well, ask your accountant for a quote for fun.  That’s why.

As for me, my five year plan is to learn how to file personal and corporate taxes alone and use accountants for full audits if/when necessary.

Hopefully this posts saves a lot of people the pain of thinking that their accountant will defend them legally in court if they get sued.  There is no guarantee of that at all.

Disclaimer: I still think accountants are very valuable for their knowledge of *tax law* and how it applies to your situation.  If you find an accountant who is ethical and highly knowledgeable they are great.  But be very cautious about the fact they don’t have to defend you in court if that notice to reader form is delivered.

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