To ensure the smooth operation of any business, it is crucial to maintain a clean and accurate set of books that are ideally updated on a monthly basis. To accomplish this goal, you can either hire a professional bookkeeper or entrust your bookkeeping to a year-end accountant. Â
Technically, there’s nothing incorrect about asking a year-end accountant to handle your day-to-day bookkeeping and books. However, as best practice, it is generally recommended to work with separate bookkeepers and year-end accountants.
Before we explore the reasons why this is recommended, let's first examine the differences in the responsibilities of bookkeepers and accountants.
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Duties and Responsibilities of Bookkeepers versus Year-End Accountants:
Bookkeeper:
A bookkeeper is entrusted with the crucial task of recording your company's daily transactions, preferably using an accounting software general ledger. The information serves as a valuable resource for you and your accountant to use in making informed financial decisions.
Typically, the core duties of a bookkeeper encompass the following:
Categorizing and documenting financial transactions related to business expenses and revenue.
Handling supplier invoices and ensuring timely payments.
Generating customer invoices for goods or services rendered.
Processing received payments.
Calculating and remitting sales tax payments.
Conducting bank and credit card account reconciliations.
Generating monthly financial reports such as balance sheets, income statements, and cash flow statements.
Assisting with payroll management in specific cases.
Since bookkeepers usually offer their services at a lesser cost than Chartered Professional Accountants (CPA), in the long-term, it is a more cost-effective solution to keep clean and updated books for your business.
Year-End Accountant:
The Role of Year-End Accountants in Relation to Bookkeeping
Year-end accountants play a crucial role in the verification of a business's financial statements, which represent year-round bookkeeping efforts. They are also responsible for preparing the final set of statements required for the company's annual tax returns.
The core responsibilities of a year-end accountant generally include:
Reviewing the financial statements for the fiscal year to identify any necessary year-end adjustments.
Making tax adjustments for items such as depreciation, meals and entertainment expenses, and charitable contributions.
Preparing and, in most cases, submitting the company's tax returns.
During tax season, many businesses choose to collaborate with professional accounting firms to assist in filing their annual taxes. However, if your year-end accountant also manages your bookkeeping records, it can expose your business to certain risks.
Let’s delve into these risks in the section below.
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Three compelling reasons why you should consider working with separate bookkeepers and year-end accountants.
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1. Working with separate bookkeepers and year-end accountants can help prevent errors and deter fraud.
If your year-end accountant is also responsible for your bookkeeping, there is a higher likelihood that they may overlook their own mistakes during the accounting process. Moreover, there have been cases where independent bookkeepers or accountants have exploited the trust and financials of a business owner.
An accountant was recently charged with theft and fraud for defrauding two North Vancouver businesses for almost $200,000.Â
The case involves a complex technical investigation. If the charges and allegations for fraud and theft was done through improper and unauthorized transactions, below could be possible ways how it may have been committed:Â
Modified bank statements
Misrepresented financial records
Payments designed to disguise the misappropriation of funds to a designated account
By employing a bookkeeper to handle your day-to-day bookkeeping tasks and having an accountant review your financial data annually, you gain the advantage of having two sets of vigilant eyes to help spot oversights and potential errors.
This approach not only serves to prevent expensive penalties but also acts as a proactive measure to uncover fraudulent activities, thus, enabling your business to effectively mitigate the risks associated with fraud, misappropriation, and other financial violations.
2. Tax accountants have expertise in year-end financial matters rather than day-to-day financial activities.
Just as you wouldn't consult an ophthalmologist for high blood pressure, relying on a tax accountant for your bookkeeping needs may not be ideal. While both ophthalmologists and cardiologists are qualified physicians, they specialize in different areas. It is similar with bookkeepers and accountants.
By hiring a separate year-end accountant who specializes in tax return preparation, tax law, and maximizing tax deductions, you can have peace of mind knowing that you are working with an expert in tax-related matters.
On the other hand, professional bookkeepers dedicate their time in engaging themselves in debits, credits, and daily business transactions. This means you can depend on their knowledge and expertise to maintain accurate and up-to-date day-to-day books for your business.
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3. Bookkeepers can deliver a higher level of consistency in their services:
Many businesses follow a fiscal year-end of either December 31 or March 31, resulting in shared tax deadlines among companies. This leads to many accountants being distracted and having a significantly higher workload during the tax season.Â
If you depend on a year-end accountant to handle your bookkeeping:
You may encounter difficulties in contacting them during this busy period.
Their attention to your bookkeeping tasks might become irregular or delayed for several months.
The real-time visibility of your cash flow and other financial information could be adversely affected.
Having accurate and timely books is crucial for the success of your business. By working with separate bookkeepers and year-end accountants, you not only gain better financial oversight but also ensure timely and consistent monthly updates to your books.
Additionally, your bookkeeper can directly collaborate with your year-end accountant, providing financial statements and addressing any inquiries they may have. This allows you to remain focused on adding value to your business and refrain from stress related to the tax season.