According to 2018 statistics from the U.S. Bureau of Labor, there are 1,424,000 accountants in the United States. While there’s no lack of options if you want to hire an accountant, not all accountants are good accountants. Not knowing the signs of a bad accountant can lead to lost money, negative press coverage, and a host of other problems for you and your staff.
Unfortunately, most accountants seem nice, friendly, and knowledgeable when you’re interviewing them. This is another reason why it’s essential to know the signs of a bad accountant.
Why it’s important to know the signs of a bad accountant
Here are some examples of accountants who may have seemed nice as they interviewed for an accountant position:
- An accountant who stole more than $109, 000 from a church in Wakefield, Nebraska.
- A bookkeeper in Bedford, VA, who was hired to handle some accounting duties, but stole more than $26,000 from two companies in Roanoke, VA.
- A former accountant-turned-author, Martyn Arthur wrote The Taxpayer Strikes Back in 2009 but was recently convicted of tax fraud just this month.
- An accountant who pleaded guilty to running a Pennsylvania-based Ponzi scheme worth approximately $60 million.
So, how can you spot a bad accountant before hiring them and putting your business at risk?
Fortunately, some warning signs of a bad accountant can help you avoid hiring someone who’ll steal from your business or give you bad or incorrect business advice.
Signs of a bad accountant to notice before you hire them
As I said before, an interview can be misleading regarding whether someone will be a bad accountant or not. After all, job applicants who are interested in filling an accounting position will do their best to impress you. The latter may subscribe to the idea that professional knowledge comes with the title of an accountant.
1. They aren’t discreet about their other clients
One of the first warning signs that you should not trust an accountant is a lack of discretion over other clients’ business and financial statements. Although it’s perfectly understandable and acceptable for accountants to use client stories to demonstrate their experience, mentioning the names or financial details of their other clients indicates your financial matters won’t remain secret for long.
2. They suggest dishonest practices to save money or qualify for loans
Saving money is always a good thing – unless it’s done dishonestly. While there’s certainly nothing wrong with being a bit more aggressive in saving on taxes or exploring whether you qualify for loans, a good accountant will understand how to maximize tax deductions and tax credits without submitting misleading tax returns or falsifying loan applications. Instead, they’ll explore legitimate ways your business can qualify for tax credits, increase tax deductions, or qualify for business loans.
3. They dodge questions or give incomplete answers
The role of an accountant is critical to your success as a business owner. An effective accountant helps you stay on top of tax codes, maintain regulatory compliance with the IRS and local tax authorities, and otherwise manage your business’ accounting duties. Qualified accountants who have experience and up-to-date knowledge will be able to answer your questions with straightforward answers and provide supporting examples of their experience with client testimonials or professional education achievements.
4. They make big promises before they’ve seen your financial statements
Cheaper fees. Better tax savings. Friendlier service. When you’re interviewing applicants for your company’s accountant position, you’re sure to hear at least one of these or something similar. Now, any worthwhile accountant will be able to confidently explain why they are the best person for the job, but you should be wary of exaggerated promises or guarantees. Just like you wouldn’t trust a doctor who prescribes you without seeing or examining you, you shouldn’t trust an accountant who makes claims without reviewing your financial statements. A good accountant will make you tax-efficient the legal way, which is better for your business in the long run.
Now that you know how to spot a bad accountant in an interview, let’s look at some red flags for knowing if you’ve already hired a bad accountant.
6 red flags that indicate you’ve hired a bad accountant
Recent studies show that approximately 86% of business owners trust their accountants. This is only natural since accountants are responsible for helping you interpret financial statements within the context of your business goals and key performance metrics. But, it’s easy to be blindsided by a bad accountant when you’ve already hired them. Here are some red flags you should be aware of so you can change from a bad accountant as early on as possible.
1. They don’t understand your business or industry
As a business advisor, your accountant should have a clear understanding of your business and industry – particularly from the perspective of financing, taxes, or possible business opportunities. For example, your accountant should be able to advise you on how to remain compliant with the tax laws that apply to your industry. They should also be proactive and prudent when it comes to spotting a potential opportunity for maximizing tax credits and tax deductions or lessening your tax burden.
2. They don’t communicate well or are slow in getting back to you
One of the most important skills an accountant should have is good communication. This includes responding promptly to your phone calls, emails, or text messages at most within a couple of days. Although they might be busy, they should prioritize your needs and questions enough to make time to address them or, at the very least, acknowledge them. When you’re trying to reach your accountant, they must be available to help you.
3. They don’t explain things so you can understand what’s going on
Whether you know a lot or a little about accounting, you’re bound to have questions for your accountant. If your accountant doesn’t answer your questions or provides muddled explanations that confuse you more than they help you, you’ve got a bad accountant. Any good accountant will take time to explain your financial statements or the reasoning behind a particular piece of advice in a way that you can understand.
4. They don’t stay informed about changes in tax laws
A while back, a review of a client’s tax situation revealed that their previous accountant neglected to recommend the passthrough entity (PTE), costing the client approximately $86,000 over two years. There wasn’t any strategic angle to their accountant’s omission, it was just the kind of negligence that happens when a CPA isn’t aware of tax changes or isn’t willing to do their best work for their client.
5. Their pricing doesn’t match the value of their services
Accountants should be transparent about their rates and fees upfront, and those fees should be commensurate with the expertise, attention, and results they provide.
If an accountant is charging significantly more than the industry average without justifying that higher cost, that’s a sign they may be taking advantage. On the flip side, if an accountant is charging unusually low rates, that could mean they are cutting corners or lack the proper qualifications.
When evaluating an accountant’s pricing, consider factors like:
- The accountant’s level of experience and credentials
- The complexity of your financial situation and accounting needs
- The amount of personalized attention and hands-on support you receive
- The quality and accuracy of the work they provide
- Any additional value-added services they offer
An accountant worth their salt will be able to clearly explain their pricing structure and demonstrate how their fees align with the value you receive.
6. Their staff are overworked or unhappy due to a toxic culture
Accountants and their teams often work long hours, especially during busy seasons. But if employees appear chronically stressed, burnt out, or resentful, that suggests deeper underlying issues at the firm. Staff turnover that seems unusually high is another potential indicator of workplace problems.
When assessing an accountant, pay attention to cues like:
- How quickly calls or emails are returned, as overworked staff may struggle to be responsive
- Whether you interact with the same team members consistently or if there is frequent changeover
- The overall demeanor and energy level of the staff – do they seem enthusiastic and engaged or listless and frustrated?
- Whether the firm acknowledges and tries to address employee well-being, or if the focus is solely on billing hours
An accountant with a healthy, supportive work culture is more likely to provide attentive, high-quality service. In contrast, a toxic environment where staff are stretched thin can lead to costly mistakes, missed deadlines, and a poor client experience.
The way an accounting firm treats its people can be a strong indicator of how they will treat their clients. As I explained in another article about dealing with a retiring accountant, firms with a toxic work culture are bound to underserve their clients and it will eventually be you.
7. Their financial reporting isn’t clear or practical for business
If your accountant’s financial reporting is confusing, overly complex, or fails to give you the insights you need to effectively manage your business, that’s a major red flag that you have a bad accountant.
High-quality financial reporting from an accountant should be:
- Clear and easy to understand: The reports and statements they prepare should present financial data in a way that is accessible and meaningful, even for non-finance professionals. Excessively technical jargon or opaque presentation can obscure important information. At MBS Accountancy, we often send Looms along with client financials to provide a concise explanation of what they’re looking at, along with our insightful commentary.
- Tailored to your needs: An experienced accountant will take the time to understand your specific business, industry, and goals in order to provide reporting that is directly relevant and actionable for you. Generic, one-size-fits-all statements are unlikely to be useful.
- Timely and up-to-date: Financial data quickly becomes outdated, so you need an accountant who can deliver reports on a regular, reliable schedule. Delays or long lag times undermine the value of the information.
- Insightful and analytical: Beyond just presenting the numbers, a good accountant will analyze the data, identify trends and anomalies, and offer strategic recommendations based on their findings. Their reports should go beyond raw figures to provide valuable business intelligence.
If you find yourself constantly confused by your accountant’s financial reporting, unable to get the information you need, or feeling like their work isn’t tailored to your unique situation, it may be time to seek out a more competent and client-focused accountant.
8. They only do tax planning with you once a year
One of the biggest mistakes an accountant can make is only engaging in tax planning with their clients on an annual basis, usually right before tax filing deadlines. This “once-a-year” approach to tax strategy is a major red flag, as it fails to take advantage of opportunities for proactive tax management throughout the year.
Effective tax planning is an ongoing process, not a singular event. By only meeting with clients annually, accountants miss out on crucial chances to:
- Implement timely tax-saving strategies: Tax laws and deductions are constantly changing. If an accountant is not regularly reviewing your financial situation, they may miss out on new opportunities to reduce your tax burden in a given year. Waiting until the last minute limits the strategies that can be put into place.
- Adjust withholdings and estimated payments: An annual tax planning session makes it difficult to accurately project your expected tax liability and make the necessary adjustments to withholdings or quarterly estimated payments. This can lead to penalties and cash flow issues.
- Incorporate major life/business changes: Over a year, your personal or professional circumstances are likely to change in significant ways. Quarterly check-ins allow your accountant to proactively account for events like marriage, children, new business ventures, etc., and update your tax strategy accordingly.
- Gather and verify important information: Waiting until the year-end rush means your accountant has less time to carefully review all the documentation and data needed for accurate tax filing. More frequent interactions allow for a steady flow of information and reduce the risk of missed tax opportunities.
The most reputable, client-focused accountants will schedule regular tax planning meetings – quarterly at a minimum – to keep your strategy nimble and comprehensive. Beware of any accountant who relegates this essential process to a single annual session.
Dealing with a bad accountant? Contact us to get a great one!
As a CPA myself, I think it’s horrible when others in my profession act in a way that throws doubt, suspicion, and mistrust on an accountant’s title. If you’ve read these signs of a bad accountant and noticed many similarities to your existing accountant, it’s time to change accountants. After all, retaining a bad accountant is much too expensive for your business. If you’re looking for a new accountant, contact MBS Accountancy today and join hundreds of happy businesses and nonprofits throughout the United States!