By this time dealerships should have finalized their accounting for 2014 and should have posted the adjusting journal entries as provided by their CPAs. Dealers should be aware of the entries that are being made each year.
These year-end entries should not be voluminous. Ideally, there should be only a handful of entries. Your CPA should be adjusting items such as income taxes, depreciation, and possibly a few last minute accrual items, such as bonuses and profit sharing amounts. There should not be pages of “clean up” entries of routine matters that your accounting office did not handle properly.
Dealers rely heavily on the results as reported on their monthly financial statements. If your CPA is making significant adjustments to your books and records at year-end, an assessment of your accounting department’s monthly closing procedures should be performed. If there are a lot of adjustments at year-end, then the monthly financial statements that you analyzed were not accurate and your conclusions about the month’s financial results were not correct.
Make sure that you have engaged a CPA firm that is knowledgeable of automotive accounting and capable of reviewing your year-end schedules. At the conclusion of the CPA’s work, he/she should discuss the effectiveness of the accounting department with the dealer. We regularly get calls from prospective dealers that are concerned about the accuracy of their record keeping and the CPA’s level of knowledge to assist in this area. In many of these cases, the CPA just takes the financial information provided and enters it on a tax return without any analysis of the detail. In other cases, the CPA will make pages of adjustments to the figures year after year and the accounting inaccuracies as reported by the office never improve.
Your CPA each year should review the adjustments with your office manager and, as needed, help design policies and monthly closing procedures to improve the accuracy of your monthly financial statements.
The importance of accurate monthly financial statements cannot be understated. A quick review of the CPA’s year-end journal entries will give you an idea of the accounting department’s effectiveness. After reviewing the entries, ask the office manager why certain adjustments were required.
At Downey & Company, we have a specific dealership schedule review checklist that is completed on each engagement. The checklist focuses on reviewing all material balance sheet accounts at year-end to ensure that the accounts are maintained according to dealership accounting standards. It focuses on the ageing of all receivables and inventories and reviewing reconciliations of balance sheet accounts. Many dealers will engage us to perform this service at mid-year as well.
We also suggest that the office manager complete our “Office Manager Checklist” each month and review it with the dealer or GM. You can click on Office Manager Checklist to obtain a copy.
In today’s competitive environment it is essential for dealers to be provided with accurate monthly financial statements. A qualified automotive CPA can provide the dealer with the assurance that he or she has an office that is producing accurate statements.
If you have any questions regarding this article, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or 800-849-6022.
