Self-test for CPA Accumen, Part 1

When out beating the bushes I hear it all the time. “S-corporation? Structure? Taxes? Oh, I have a good accountant. I have been with him for years. He does just fine. We’ve never been audited.” While I appreciate their loyalty, I cannot help but wonder, “Do they really know?”

Even without meeting the accountant de jure, it can be assumed “things” are slipping through the cracks. That once a year event that brings company and accountant together for the Ides of March is not adequate opportunity for any professional to understand and counsel a corporation, let alone structure it. That corporate tax filing deadline is not the time to do anything except perfect the tax paperwork and file it. Besides if you are filing 2009 tax reports on March 15, 2010, any discussion about tax planning (which a good accountant will not have the time to do during this  busy period) should be about your 2011 tax year that will be filed in calendar 2012. If that isn’t your planning frame work, then your tax planning is misguided.

I have developed some questions. Don’t worry you don’t have to put your accountant on the spot by asking him/her the tough ones. You can read and answer the questions yourself. Some of the gaffs are most obvious, others may not be. In any event, they are missed, hence the “gaff” label.

Recall any previous year, when you met with the accountant, did the accountant ask for the  preliminaries to establishing a relationship?

• a copy of your EIN

• a copy of your articles of incorporation and

• your accounting resolution?

Accounting is little different than banking–it’s about money. Most accountants have seen enough boiler plate corporate forms to know a company needs to have a banking resolution to open a corporate account. (No, openning a personal that you designate as the “company account” is not sufficient.) That is necessary because of the fiduciary relationship that exists between the corporation (a separate legal entity) and the corporate actors/owners. The power and authority to have bank accounts and operate them must be delegated by the directors.

If one must be empowered to use the company check book, so must one be empowered to hire and retain the corporate accountant. Any accountant who understands corporate business isn’t going move pencil one until he/she sees the basic paperwork. Any accountant who proceeds without demanding this paperwork is either ethically challenged or not well  enough rehearsed in corporate accounting to do the job.  In either event, this is not the accountant for your business no matter how long you have been using him or her. If one fails in the prelims, what about other details?

These are not small issues to be brushed aside. This is exactly kind of blind acting that opens corporations to having their veil pierced. There are no options to these beginning steps. Remember, in the end, the owners of the corporation are responsible for all malfeasance.

1. Did your accountant as for a file copy of your EIN number?
2. Did the accountant request a copy of the board resolution authorizing him/her to be retained on behalf of the corporation?
3. Was a copy of your articles of incorporation requested for his file?

A “no” answer to any of the above suggests that you do not have the right accountant for your corporation. Thank him/her for their time and move on.

This part one of an ongoing series that will be continued and revisited from time to time.