During a meeting today with a client, we looked at the financial statements produced by her tax accountant, and we looked at Xero statements for the same date, and they were vastly different.
How could this happen?
For my clients who are working with Xero savvy accountants, the Xero data will be identical to the financial statements produced by the tax accountant, and the Xero savvy tax accountant will, in fact, lodge the tax, directly from within the Xero platform.
What reasons could lead to the Xero data being different to the financial statements produced by the tax accountant?
Here are some reasons that could have caused this:
- The accountant does not understand how to finalise the accounts in Xero. The accountant doesn’t understand that Xero is a single ledger, and adjustments and tax submission can happen within the Xero platform.
- The accountant is processing the tax in an external system and never produces or enters an alignment journal in Xero.
- The End Of Financial Year adjusting journals have not been entered in Xero. This may be a separate service the accountant offers (?). You could ask them if they have prepared the journals and if they can provide them to you, or enter them directly for you. Search through your emails from your accountant – you may already have them.
- Business transactions or business division may not be in the Xero organisation (can we get it in!).
- Bank or business accounts exist that are not in the Xero organisation (again let’s get them in!).
Here’s another tip. Log into Xero and click on to Advisor > Assurance Dashboard and look at the User Activity page. You should see blocks reflecting the users from your accountants firm, and if you hover over the blue blocks, you can see limited details about the time they’ve accessed your Xero file.
You as the business owner are responsible for your financial data, and what you submit to the ATO. Not the tax accountant. You sign a document absolving them of all that responsibility. So it’s definitely in your interest to work out what’s happening.