Is an accountant “professional” because he has letters after his name and charges a high fee? I don’t think so. Is he competent because he works in a large firm? Well, we all know at least some incompetent people who work at big companies. What if he wears a designer suit and tie, drives an expensive car, and has a fancy office? Maybe he just charges too much. So how can you know if your accountant is a true “professional”? You could try asking around to see if anyone knows this fellow, and if so, what their experience has been. But if you don’t know anyone who has ever dealt with him, then what? One way is to book a consultation and let your instincts be the judge. The consultation may be free, or you may have to pay a bit. Either way, it is a worthwhile investment. Here are some examples I have been involved with:Power of AttorneyA new client came in to review his financial situation. It turned out he had done a lot of prior work on his own, checking out various options. One of the issues he was dealing with was that his aged mother was in the early stages of dementia. He had this covered, or so he thought, because he had a lawyer draw up a power of attorney and had it lodged at the bank. Therefore, as his mother slipped into more encompassing dementia, he could conduct her affairs without hindrance. I pointed out that this was all well and good so long as Mom was alive, but when she died, so would the power of attorney. That meant that on death, Mom’s bank account would be frozen. The solution was simple, forget the power of attorney and just become a joint signatory on the bank. That way nothing happens upon death, and you have complete access to the account.InheritanceAnother new client came in with the question of how he could “hide” an inheritance he received from overseas. I told him that there was no need to hide the money, as inheritance was tax free in Canada, and he was greatly relieved. However, if CRA (the Canadian equivalent of the IRS) investigates the matter, he would have to prove that the money was an inheritance. Since CRA usually investigates these matter two or three years later (when finding proof may be difficult), he should collect what he can today, copy of the will, bank transfer details, etc. As you can imagine, he was extremely happy and relieved to have had this consultation.FilmmakingAnother new client came in with questions about filmmaking. He was going into the movie business and, to a large extent, was financing the movie himself. Most small business in Canada set up a “shareholders loan” account. With this type of arrangement, the owner (shareholder) can “loan” money to their business as needed, and have the business pay it back later – normally a very simple procedure, but not so in films. The Canadian government offers subsidies to anyone making a film in Canada. However, these subsides are limited by the “cost” of the film. This cost is calculated by taking the actual cost of the making the film, and then deducting any revenue earned or other subsidies already provided to it. Oddly enough, a shareholder loan is deemed a subsidy under the film tax credit rules unless there is a legal agreement that stipulates the amount of the loan, the interest rate, payment terms and security. Draw up a legal agreement and you are okay, otherwise you will lose thousands of dollars in government subsidies. This was highlighted with a simple consultation. Without this knowledge, my client would have lost thousands of dollars in government grants.Hopefully, these three short stories illustrate the potential value of a consultation, but not all consultations will produce these kinds of dramatic results. So what else should you look for? Trust you judgment. Did he seem to know what he was taking about? Did he listen to you? Did you get the feeling your situation was over his head?
Does your accountant need to be a sharp dressed man or sharp dressed women? Not necessarily. But ask yourself this: If I were a banker or tax investigator and I came to my accountant’s office and met him or her for the first time, what would my impression be? Trust your instincts on this.
A good accountant will listen to you, asses your needs, and not try to “sell” you on any course of action. One of the most important things for all of us is to be able to sleep at night.Mutual FundsOne of my clients is a widow who has a sizable amount of money that she keeps in bank term deposits. She has faith that I am on “her side”, and she will not make any investment decisions without us first talking it over. Bank deposits currently pay less then 1%, and the banks are constantly urging her to put some of the money into blue chip mutual funds. From the bank’s point of view, this makes perfect sense; Why get 0.5% on bank deposits when you can get 3 or 4% on a solid bond portfolio. My answer is always the same, no. My client is comfortable with bank deposits, not mutual funds. She will never spend all her money, and her children are well looked after. What is important to her now is her quality of life – that she can sleep at night. That’s all that matters. If she buys mutual funds, she will not sleep well. Life InsuranceSome of my clients strongly believe in life insurance. When they die, they want to leave an estate with all taxes paid. For these clients, I undertake estate planning with this in mind. If they don’t have an insurance agent, I recommend one. Others clients have no use for life insurance; They would rather use their money while they are still alive. Their philosophy towards life insurance is “If I die, I win, and if I live, I lose. Why would I go into that transaction?” For these clients, I estate plan without insurance. There it is no absolute right or wrong approach here. It depends on what is best for you. A good accountant should not be selling you one way or the other. They should be assessing what will let you sleep better at night. Shades of GreyInterpretation of the tax rules goes from white to grey to black. No professional accountant will let their clients go into the black, so we are really dealing with white to grey. Should you be in the white or grey area? Again, there is no right answer. It depends on your personality. Some clients want to play in the white area only, and take no chances whatsoever with dealing with the tax authorities. Others want to take full advantage of any and all deductions possible. And if this means arguing with the tax authorities later, so be it. A good accountant can assess the different personality types and act accordingly. The right criteria, again, is not what the accountant would do for himself in a similar situation, but what will let the client sleep at night.
If you have a good accountant, he is a partner in your business. He is not a legal partner of course, but you should think of him as an intricate part of your business’s success. He shouldn’t try to run your business, that’s what you do, but a good accountant should be a sounding board, an inspirational voice, an energizer, more then a business advisor. Here are a few examples from my own experience:ConfidenceI have a client, a motivational speaker, and a best-selling author based in New York. In one of her emails she mentioned she was hitting a wall in her business. While I am in no way a motivational speaker, I felt it was my obligation to do what I could to help get her over this hump so I sent her an email reminding her of all the talent she possessed. Two weeks later she replied that that was just what she needed. She booked the Good Morning America show twice and the Katie Couric show once. A word of encouragement was all she needed.Sounding BoardAnother client of mine is in the office building rental business. A building came up for sale that was suffering from high vacancy rates (over 50%), and as a result, was bleeding cash. The current owner was desperate to sell and was willing to give a large discount on the selling price. If my client could achieve an 80% occupancy rate, he could break even. However, he was concerned that he might not be able to find a sufficient number of new tenants before the building gobbled up all his available cash, and the bank foreclosed. I pointed out (although he already new this) that he excelled in filling older buildings such as this with good paying tenants. It would be a challenge, but he could do it. He purchased the building and reached his break even point within a year. It currently generates several hundreds of thousands of dollars in profits each year. I didn’t tell him anything he didn’t already know, I was just a sounding board. Was having a sounding board the difference in him making hundreds of thousands of dollars of additional income? We will never now the answer to that but it probably didn’t hurt.A good accountant isn’t there to run your business, only you can do that, but he should be able to access your strengths and weaknesses. Given who you are, he should be able to set you on a path that you are almost surely to succeed with. You will usually know what that path is, but we all need sounding boards and inspiration for our business ideas, and who better to fill that role then a good accountant?
Unfortunately, we are going to face challenges in our business lives. These may be from bankers, the security commission, the tax department, or somewhere else. When these challenges happen, we want to know that our accountant has our backs. Here are a couple of real cases I have dealt with:Standing Up to the AuthoritiesOur client was a public company, and we were engaged to perform an annual audit. In one particular year, the directors borrowed a sum of money from the company. We fully disclosed this in the financial statement, but warned the directors that they could face a backlash from the shareholders, or even the regulators, unless it was paid back quickly. We also advised them that there may be adverse tax consequences. They maintained that, under the loan agreements they had signed, the loans could be outstanding for a few years. The loans were subsequently approved by the board of directors.The Ontario Securities commission investigated the matter and asked us whether or not we wanted to withdraw our audit report in light of the investigation. Now, in the accounting world, when a regulator asks you if you want to withdraw your audit report, it is usually code for, “If you withdraw your report, we will not investigate you.” We stood firm. We pointed out that our responsibility was to the shareholders – to inform them as to what happened to the company from a financial standpoint. We were confident we had done this, as the loans and terms were clearly spelled out on the financial statements and in the notes to those statements. We informed the Securities Commission that we would only consider withdrawing the report if they could point out to us that: 1. The loans were not adequately described in the financial statement. 2. The loans were either impaired or not what they seemed to be. 3. There was a legal prohibition on lending funds to a director.Although the Commission continued their investigation with our client, we didn’t hear from them again. A good accountant doesn’t back down in the face of adversity if he thinks he is right. In this case, our job was to report to the shareholders as to what had happened financially during the year, and with that information, they could take whatever action they thought appropriate. Furthermore, if we had withdrawn our audit report, we would have given the Commission a green lite to suspend trading in the company. with the result that the shareholders would have lost 100% of their money. Our job is to stand by our clients (unless there is fraud or something we are unaware of), even if it means personal setbacks.Going to CourtIn another case, our client undertook a large renovation / capital improvement to their premises. We broke down the expense into a capital component and a renovation component. The capital component would be deprecated over several years, while the renovation component could be expensed immediately. The safe way to treat this was to capitalize the whole thing and depreciate it over time, but that would cost my client hundreds of thousands of dollars in tax in the near term, a figure he didn’t have. I knew that this is what the tax department would want, but it is not what the income tax act or the courts have necessary said is the correct interpretation. Predictably, the tax department investigated and determined that all the expenditure should have been capitalized. However, we felt strongly they were wrong and we were right, so we appealed the decision. Due to the time it took and the high staff turnover at the tax department, we ended up with four separate appeals officers. To nobody’s surprise, all the appeals officers said the tax department was right and we were wrong. We didn’t back down though. We appealed to the tax court and had a meeting with one of the heads of justice that was assigned to the case. He listened intently to what we had to say and then said he actually agreed with us. He asked us to lay out our arguments in writing with a few minor changes he thought necessary, and he would approve and close the case. Our client saved several thousand dollars in taxes because we wouldn’t back down.We were once approached by a new client that had been assessed as owing over $750,000 in tax. It appeared that his old accountant either didn’t want to challenge the tax department on this or didn’t know how. We went to bat for him and eventually the tax department settled for just over $30,000. The point of these three stories is that you should find an accountant that has your back when time get tough.
You don’t want an accountant that always deals with your information at the last minuet.I picket up a large client because his previous accountant phoned him on the afternoon of April 30 (the deadline for filing personal tax returns) and proudly announced that his return was ready, and could he come down to the office right away and bring a check for $200,000 for his income taxes owing. Obviously, he was not impressed as he had received no prior notice that there may be more taxes owing, let alone $200,000 more. I have picked up several other clients with horror stories from their previous accountants. One said his old accountant had personal problems, which my client was sympathetic to, but he rarely returned phone calls, and for months he just disappeared. After a year and a half of this, with no financial statements being prepared and no filings with the tax department, he final came to me. This story is a bit extreme, but unfortunately, similar themed stories are more commonplace than one would think.Accountants are not on call 27/7, and they do take holidays and are sick on occasion. However, there should be someone else in their office that can handle your calls in an emergency. If you bring your information in late then, yes, it will likely be filed at the last minute, but if you bring it in well within the time limits then you should expect to have your documents done well ahead of time so that you have a chance to review it.Are your emails answered with 24 hours, are your phone calls returned? Does your accountant give you decent service? This is all normal considerate business practice, and your accountant should be able to meet these minimum standards.
For those who don’t have time to read all the posts above, here is a summery. First, you need to know what an accountant can do. Then, figure out what you need and what type of accountant you want. There is no magic bullet to finding a good accountant. Use the old fashion way; Ask your friends and business associates, check out the web and the web sites and finally, when you think you have found a candidate, book a consultation, either in person or via zoom. Did you hit the mark? If not go back to step one.
Is an accountant “professional” because he has letters after his name and charges a high fee? I don’t think so. Is he competent because he works in a large firm? Well, we all know at least some incompetent people who work at big companies. What if he wears a designer suit and tie, drives an expensive car, and has a fancy office? Maybe he just charges too much. So how can you know if your accountant is a true “professional”? You could try asking around to see if anyone knows this fellow, and if so, what their experience has been. But if you don’t know anyone who has ever dealt with him, then what? One way is to book a consultation and let your instincts be the judge. The consultation may be free, or you may have to pay a bit. Either way, it is a worthwhile investment. Here are some examples I have been involved with:Power of AttorneyA new client came in to review his financial situation. It turned out he had done a lot of prior work on his own, checking out various options. One of the issues he was dealing with was that his aged mother was in the early stages of dementia. He had this covered, or so he thought, because he had a lawyer draw up a power of attorney and had it lodged at the bank. Therefore, as his mother slipped into more encompassing dementia, he could conduct her affairs without hindrance. I pointed out that this was all well and good so long as Mom was alive, but when she died, so would the power of attorney. That meant that on death, Mom’s bank account would be frozen. The solution was simple, forget the power of attorney and just become a joint signatory on the bank. That way nothing happens upon death, and you have complete access to the account.InheritanceAnother new client came in with the question of how he could “hide” an inheritance he received from overseas. I told him that there was no need to hide the money, as inheritance was tax free in Canada, and he was greatly relieved. However, if CRA (the Canadian equivalent of the IRS) investigates the matter, he would have to prove that the money was an inheritance. Since CRA usually investigates these matter two or three years later (when finding proof may be difficult), he should collect what he can today, copy of the will, bank transfer details, etc. As you can imagine, he was extremely happy and relieved to have had this consultation.FilmmakingAnother new client came in with questions about filmmaking. He was going into the movie business and, to a large extent, was financing the movie himself. Most small business in Canada set up a “shareholders loan” account. With this type of arrangement, the owner (shareholder) can “loan” money to their business as needed, and have the business pay it back later – normally a very simple procedure, but not so in films. The Canadian government offers subsidies to anyone making a film in Canada. However, these subsides are limited by the “cost” of the film. This cost is calculated by taking the actual cost of the making the film, and then deducting any revenue earned or other subsidies already provided to it. Oddly enough, a shareholder loan is deemed a subsidy under the film tax credit rules unless there is a legal agreement that stipulates the amount of the loan, the interest rate, payment terms and security. Draw up a legal agreement and you are okay, otherwise you will lose thousands of dollars in government subsidies. This was highlighted with a simple consultation. Without this knowledge, my client would have lost thousands of dollars in government grants.Hopefully, these three short stories illustrate the potential value of a consultation, but not all consultations will produce these kinds of dramatic results. So what else should you look for? Trust you judgment. Did he seem to know what he was taking about? Did he listen to you? Did you get the feeling your situation was over his head?
A good accountant will listen to you, asses your needs, and not try to “sell” you on any course of action. One of the most important things for all of us is to be able to sleep at night.Mutual FundsOne of my clients is a widow who has a sizable amount of money that she keeps in bank term deposits. She has faith that I am on “her side”, and she will not make any investment decisions without us first talking it over. Bank deposits currently pay less then 1%, and the banks are constantly urging her to put some of the money into blue chip mutual funds. From the bank’s point of view, this makes perfect sense; Why get 0.5% on bank deposits when you can get 3 or 4% on a solid bond portfolio. My answer is always the same, no. My client is comfortable with bank deposits, not mutual funds. She will never spend all her money, and her children are well looked after. What is important to her now is her quality of life – that she can sleep at night. That’s all that matters. If she buys mutual funds, she will not sleep well.Life InsuranceSome of my clients strongly believe in life insurance. When they die, they want to leave an estate with all taxes paid. For these clients, I undertake estate planning with this in mind. If they don’t have an insurance agent, I recommend one. Others clients have no use for life insurance; They would rather use their money while they are still alive. Their philosophy towards life insurance is “If I die, I win, and if I live, I lose. Why would I go into that transaction?” For these clients, I estate plan without insurance. There it is no absolute right or wrong approach here. It depends on what is best for you. A good accountant should not be selling you one way or the other. They should be assessing what will let you sleep better at night.Shades of GreyInterpretation of the tax rules goes from white to grey to black. No professional accountant will let their clients go into the black, so we are really dealing with white to grey. Should you be in the white or grey area? Again, there is no right answer. It depends on your personality. Some clients want to play in the white area only, and take no chances whatsoever with dealing with the tax authorities. Others want to take full advantage of any and all deductions possible. And if this means arguing with the tax authorities later, so be it. A good accountant can assess the different personality types and act accordingly. The right criteria, again, is not what the accountant would do for himself in a similar situation, but what will let the client sleep at night.
Unfortunately, we are going to face challenges in our business lives. These may be from bankers, the security commission, the tax department, or somewhere else. When these challenges happen, we want to know that our accountant has our backs. Here are a couple of real cases I have dealt with:Standing Up to the AuthoritiesOur client was a public company, and we were engaged to perform an annual audit. In one particular year, the directors borrowed a sum of money from the company. We fully disclosed this in the financial statement, but warned the directors that they could face a backlash from the shareholders, or even the regulators, unless it was paid back quickly. We also advised them that there may be adverse tax consequences. They maintained that, under the loan agreements they had signed, the loans could be outstanding for a few years. The loans were subsequently approved by the board of directors.The Ontario Securities commission investigated the matter and asked us whether or not we wanted to withdraw our audit report in light of the investigation. Now, in the accounting world, when a regulator asks you if you want to withdraw your audit report, it is usually code for, “If you withdraw your report, we will not investigate you.” We stood firm. We pointed out that our responsibility was to the shareholders – to inform them as to what happened to the company from a financial standpoint. We were confident we had done this, as the loans and terms were clearly spelled out on the financial statements and in the notes to those statements. We informed the Securities Commission that we would only consider withdrawing the report if they could point out to us that:1. The loans were not adequately described in the financial statement. 2. The loans were either impaired or not what they seemed to be. 3. There was a legal prohibition on lending funds to a director.Although the Commission continued their investigation with our client, we didn’t hear from them again. A good accountant doesn’t back down in the face of adversity if he thinks he is right. In this case, our job was to report to the shareholders as to what had happened financially during the year, and with that information, they could take whatever action they thought appropriate. Furthermore, if we had withdrawn our audit report, we would have given the Commission a green lite to suspend trading in the company. with the result that the shareholders would have lost 100% of their money. Our job is to stand by our clients (unless there is fraud or something we are unaware of), even if it means personal setbacks.Going to CourtIn another case, our client undertook a large renovation / capital improvement to their premises. We broke down the expense into a capital component and a renovation component. The capital component would be deprecated over several years, while the renovation component could be expensed immediately. The safe way to treat this was to capitalize the whole thing and depreciate it over time, but that would cost my client hundreds of thousands of dollars in tax in the near term, a figure he didn’t have. I knew that this is what the tax department would want, but it is not what the income tax act or the courts have necessary said is the correct interpretation. Predictably, the tax department investigated and determined that all the expenditure should have been capitalized. However, we felt strongly they were wrong and we were right, so we appealed the decision. Due to the time it took and the high staff turnover at the tax department, we ended up with four separate appeals officers. To nobody’s surprise, all the appeals officers said the tax department was right and we were wrong. We didn’t back down though. We appealed to the tax court and had a meeting with one of the heads of justice that was assigned to the case. He listened intently to what we had to say and then said he actually agreed with us. He asked us to lay out our arguments in writing with a few minor changes he thought necessary, and he would approve and close the case. Our client saved several thousand dollars in taxes because we wouldn’t back down.We were once approached by a new client that had been assessed as owing over $750,000 in tax. It appeared that his old accountant either didn’t want to challenge the tax department on this or didn’t know how. We went to bat for him and eventually the tax department settled for just over $30,000. The point of these three stories is that you should find an accountant that has your back when time get tough.
You don’t want an accountant that always deals with your information at the last minuet.I picket up a large client because his previous accountant phoned him on the afternoon of April 30 (the deadline for filing personal tax returns) and proudly announced that his return was ready, and could he come down to the office right away and bring a check for $200,000 for his income taxes owing. Obviously, he was not impressed.I have picked up several other clients with horror stories from their previous accountants. One said his old accountant had personal problems, which my client was sympathetic to, but he rarely returned phone calls, and for months he just disappeared. After a year and a half of this, with no financial statements being prepared and no filings with the tax department, he final came to me. This story is a bit extreme, but unfortunately, similar themed stories are more commonplace than one would think.Accountants are not on call 27/7, they do take holidays and are sick on occasion, but there should be someone else in their office that can handle your calls in an emergency. If you bring your information in late then, yes, it will likely be filed at the last minute, but if you bring it in well within the time limits then you should expect to have your documents done well ahead of time so that you have a chance to review it.Are your emails answered with 24 hours, are your phone calls returned? Does your accountant give you decent service? This is all normal considerate business practice and your accountant should be able to meet these minimum standards.
For those who don’t have time to read all the posts above, here is a summery. First, you need to know what an accountant can do, and then figure out what you need and what type of accountant you want. There is no magic bullet to finding a good accountant. Use the old fashion way; Ask your friends and business associates, check out the web and the web sites and finally, when you think you have found a candidate, book a consultation, either in person or via zoom. Did you hit the mark? If not go back to step one.
