Trump and SBF blamed their accountants – but your taxes are your responsibility | Gene Marks

We business owners can’t just shrug and say it’s the accountant’s job – it’s our signature on those forms

Every year, millions of individuals and small business owners have their tax returns prepared by outside accountants. It makes sense. Taxes can be complicated so it’s a good idea to have someone who knows this stuff well – a professional – to do your year-end reporting, and do it right.

But let’s say there’s a problem with your tax return. Maybe your tax professional made a mistake. Or was negligent. Or wasn’t up to date on the rules. And let’s say this problem resulted in you owing more money to the IRS. Or even – if serious enough – it results in the IRS taking you to court. Who’s ultimately responsible for this problem? Is it your accountant?

Nope. It’s you.

Another example: you run a business, and every year your bank requires that you receive an audit from an approved outside accounting firm. The auditor’s opinion is clean. But then it’s determined that some of the numbers provided to the auditors weren’t correct. Or that the auditors failed to fully verify other amounts. Or even that the auditors didn’t follow proper auditing procedures. Let’s say this problem resulted in the bank pulling back your loan. It’s the auditor’s fault, right?

Nope. It’s you again.

I’ve been a licensed certified public accountant for over 30 years. I was a senior manager at one of the world’s largest accounting firms. We accountants are very, very good at covering our butts. We have lots of disclaimers. And we’re adamant about one thing: the financial statements and tax returns of a client are their responsibility, not ours. It’s their books. It’s their taxes. It’s their signature. You can’t blame us for your problems.

Of course, you can try. That’s what the Trump family and Sam Bankman-Fried have been doing in recent weeks. In two separate court cases, the former president and his sons, as well as the former CEO of the crypto trading platform FTX, have been blaming their accountants for errors in their companies’ financial statements.

“As a trustee, I have an obligation to listen [to] those who are expert – who have an expertise of these things,” Donald Trump Jr told the court. “I wasn’t working on the document, but if they [the accountants] tell me that it’s accurate, based on their accounting assessment of all of the materials, these people had an incredible intimate knowledge, and I relied on them.” According to the report, Trump Jr is an executive vice-president of the family’s Trump Organization and has been a trustee of a trust set up to hold its assets when his father was in the White House. Trump’s organization has been regularly audited for years.

Bankman-Fried also blamed poor accounting on his problems. But his accountants claimed that they “were never engaged to audit internal controls”. FTX had two outside firms that opined on its 2020 and 2021 financials.

Did these accountants make mistakes? Seems so. Were they negligent? Perhaps. Were they over their heads? Most definitely. Should these firms be punished? I certainly hope so. But that will be a discussion by the shareholders of these companies as they seek recourse for the problems that occurred under their watch. When it comes to the responsibility of the executives running these companies, the accountants will certainly argue that they were themselves the victims of fraud. And it’s a pretty strong argument, particularly when you consider a very important letter they’ve received.

That letter is called the client representation letter, and as someone who has worked on dozens of audits, it’s an essential part of the documentation. The letter, which is an industry standard, must be signed by senior management and confirms that management has provided all the information necessary to their outside accountants to complete their work and that management is “responsible for the fair presentation in the financial statements of financial position, results of operations and cash flows in conformity with generally accepted accounting principles”.

This signed letter is a requirement to complete any audits and for most tax services. In short, it says: “Management owns this, the accountants don’t.” Accountants test, prepare, review and submit to management. But the managers are the ultimate signers.

There’s a lesson in all of this for those of us who use outside accountants to prepare our taxes or audit our books. In the end, our tax returns and financial statements are ours. Like Trump and Bankman-Fried, we are ultimately responsible for the data they contain. We can’t just shrug our shoulders and say that it’s the accountant’s job. It’s our job. It’s our signatures on those forms. The IRS, the banks, our shareholders and the government will come after us if there’s a problem, just like they’re going after the Trump family and Bankman-Fried.

Contributor

Gene Marks

The GuardianTramp

Related Content

Article image
Biden's Covid relief means small businesses can save big on taxes in 2021 | Gene Marks
More than $5tn has been spent on stimulus programs in the US to fight Covid’s economic impact – and a significant amount has been earmarked for small businesses

Gene Marks

14, Mar, 2021 @11:00 AM

Article image
What do you do when Ivanka buys your stuff? Donate her money to anti-Trump causes
Jewelry designers used the $84 Ivanka Trump paid for an ear cuff to back opposition to her dad – and they’re not alone in making such donations

Jana Kasperkevic in New York

18, Aug, 2016 @7:52 PM

Article image
Why giving your employees a piece of the pie could boost your business
Employee Stock Ownership Plans hold over $1.6tn in assets and can make a more profitable company and a better place to work

Gene Marks

22, May, 2022 @11:00 AM

Article image
Are robots coming for your lawyer | Gene Marks
San Francisco-based Atrium wants machines to do the work of some high-paid lawyers but says it’s about ‘humans + software’

Gene Marks

13, Sep, 2018 @2:00 PM

Article image
Trump backer speaking at RNC, billed as boss of 100,000, employs zero workers
Michelle Van Etten, billed as small business owner on official schedule, is ‘multi-level marketer’ of nutritional products who says she doesn’t have employees

Jon Swaine in New York

18, Jul, 2016 @6:09 PM

Article image
If it were up to small business owners, Trump would get his second term | Gene Marks
They may not like his tweets, but a buoyant economy and the president’s pro-business tone do nicely, a survey has found

Gene Marks

27, Feb, 2020 @11:00 AM

Article image
If Ted Cruz comes to dine at your restaurant, what should you do?
After the senator was recently chased out of a restaurant by local activists, the owner didn’t want to take sides. But was that the right business tactic?

Gene Marks

04, Oct, 2018 @10:18 AM

Article image
Businesses refusing to sell to Trump supporters may want to think twice | Gene Marks
A music store owner in Ohio recently told customers he felt ‘unclean and dirty’ accepting money from the president’s sympathizers – but the damage was done

Gene Marks

24, Feb, 2019 @12:00 PM

Article image
How do you feel about Trump supporters? The answer impacts your small business | Gene Marks
As business owners, we risk alienating our customers and communities if we assume that our political beliefs should be imposed on others

Gene Marks

12, Nov, 2020 @12:00 PM

Article image
My election advice to small businesses? Let your people vote | Gene Marks
About 100m registered voters did not cast a ballot in 2016, many citing lack of time. We can help

Gene Marks

04, Oct, 2020 @10:00 AM