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Audit adjustments can significantly impact your organization’s financial statements. It’s essential to evaluate their regulatory compliance effects and determine potential internal control deficiencies that may prevent you from detecting misstatements.

Though many audit adjustments are common, there are various measures you can take to avoid these corrections and ultimately improve your internal operations.

What Are Audit Adjustments?

Audit adjustments are proposed corrections that outside auditors make for your company’s general ledger. These corrections come from financial misstatements, errors or items discovered during auditing procedures that may require revision or reclassification to different accounts. Your business must correct these issues before your auditors will sign off on the audit report. 

Understanding Basic Audit Principles

The American Institute of Certified Public Accountants (AICPA) is a national professional organization that establishes auditing and ethical standards in the United States. The AICPA has developed a set of audit principles to guide auditors as they perform their duties:

• Training: All auditors must have the appropriate training to plan and execute the various audit types across all industries.
• Independence: Auditors must have no financial, relational or operational ties to whatever institution they’re auditing to avoid potential conflicts of interest, bias and approval without evidence.
• Due care: An auditor should possess the same level of skills and competence as their peers within the same industry and employment.
• Planning and supervision: Auditors must be involved in planning and supervising their work to provide an accurate, informed opinion of their findings.
• Understanding: Auditors must possess or gain a comprehensive understanding of the industry, the organization and its internal control processes to plan audit procedures for appropriate risks properly.
• Evidence: An auditor typically should ask for appropriate proof or documentation that supports the line item entries listed in the financial statements.
• Generally accepted accounting principles (GAAP) compliance: The auditor must verify that the organization is presenting its financial statements in accordance with the industry’s generally accepted accounting principles.
• GAAP exceptions: The audit report must identify instances where GAAP compliance does not exist.
• Disclosures: Auditors must verify that any information disclosed about the financial statement line items is adequate.
• Opinion: Auditors must provide an opinion based on their findings during the audit process. If they choose not to state an opinion, they must give their reasons for doing so.
• Confidentiality: Auditors must maintain confidentiality, as their clients entrust them with highly sensitive financial information. An auditor must seek the client’s permission before disclosing information to uninvolved parties.

Auditing Principles in Context

Some real-world examples of these auditing principles include:

• Honesty: Auditors must be transparent about their actions and discoveries. For example, auditors should not withhold vital information from their clients or issue their clients false information. An institution trusts its auditor to provide a true opinion of its financial data and relies on the auditor to disclose any valuable insights.
• Unbiased opinions: Auditors cannot allow their personal feelings and opinions to influence their decisions as they conduct audits. Maintaining an unbiased opinion may be challenging if the auditor has a personal or professional relationship with their client, as this is a conflict of interest. That’s why it’s crucial not to have any ties to the institution they are auditing. Remaining unbiased will enable an auditor to demonstrate their expert auditing skills and provide their client with an accurate opinion on their financial information.
• Evidence-based results: An auditor must be able to back up every line item with supporting documents, such as payroll reports, receipts and invoices. A thorough track record ensures that auditing results are accurate and allows the auditor to provide a true representation of the client’s financial information.

Why Do Businesses Get Audit Reports? 

The purpose of a financial audit is to ensure the entity is not avoiding FICA or federal taxes. Some companies get audited because they over-report expenses, hide or under-report income, misclassify employees, or redeem ineligible deductions. Some other reasons why your business may get audited include:

• Your reported revenue is outside the industry norm: Revenue is a key focal point when evaluating your business’s financial statements and deciding whether to audit you. If your business diverges from the industry standard income, it is a red flag that may result in an audit.
• You are in the process of being acquired: If a company acquires your business, they will do a deep dive into your financials to ensure you handled your taxes correctly.
• You have previously been audited: After you have been audited once, auditors will check your business books to see if you have missed any taxation items. The process will continue until you organize your books. You can leverage an auditing service to help break the cycle.
• You are sharing articles of unprecedented growth: Press releases and articles about accelerated growth, acquisitions and additional investments can trigger audits. Auditors may investigate your financial statements to ensure you paid the necessary taxes and check for risks that can cause material misstatements in the financial statements. 
• You made inaccurate statements regarding your registration: Your business must register for a tax license timely, and you must acquire sales tax licenses before your revenue exceeds your state’s parameters. Claiming your business started after the date that it did can result in an audit.

Common Audit Adjustments

Depending on their financial activities, companies encounter many common audit adjustments. These can range from verifying financial reporting accuracy to adjusting incorrectly classified accounts. 

Some frequently occurring audit adjustments include:

Transactions and Events

In fast-paced environments, frequent transactions can lead to an increased risk of oversight. Some transactions may get recorded inaccurately or not at all. For example, financial statements may miss a liability that should have been recognized, or someone may record an asset with the wrong value.

These types of mistakes result in the auditor making necessary adjustments. So, recording every event or transaction in real time is essential to reduce the chances of errors.

Account Balances

Account balances are the most common adjustments. When discrepancies exist between the actual amounts and the records, an audit adjustment checks and confirms them.

For example, if a general ledger overvalues an asset, it requires a downward adjustment once an auditor’s review is complete.

An account balance adjustment could involve any form of general ledger account, including a liability account or asset account.

Revenue and Expenses

Inaccuracies in the financial statements relating to revenue and expenses are another common audit adjustment area.

These errors can distort your business’s financial standing and require adjustments to align the actual figures and records.

For example, premature recognition can lead to overstating revenue, or missing vendor invoices can result in understated expenses.
 

The Different Types of Audits 

The first step when preparing for a company audit is to identify and understand which type of audit you are dealing with. Once you do this, you can take the necessary steps to prepare for the audit and incorporate the results into your daily operations. Here are the common types of audits:

• External audit: External audits are performed by independent auditors who have no stake in your company. They are ideal for businesses of any size that want to gain a clear view of their company and its processes without bias.
• Internal audit: An internal audit is an audit your company handles itself, checking that each branch of the company is following the proper procedures and internal policies. The goal of an internal audit is to strengthen the organization and identify areas for improvement.
• Forensic audit: A forensic audit is usually required at the court’s request, and its findings are used during legal proceedings to investigate fraud or misappropriation.
• Financial audit: A financial audit is conducted by external auditors who carefully analyze your company’s financial statements, processes and position. Because financial audits are typically annual audits, make sure you close out your company’s fiscal year before proceeding.
• Review financial statements: A review of financial statements is less expensive and smaller in scope than a full audit. It’s useful for analyzing financial information and checking for accountability, accuracy, and legality.
• Tax audit: The IRS conducts tax audits, which are among the most recognized types of government audits. Your company could experience a tax audit for several reasons, including noncompliance, or it could just be a scheduled event by the IRS.
• Agreed-upon procedures (AUP): An agreed-upon Procedure (AUP) is when a company hires an external auditor to audit a specific part of its business. Companies may initiate AUPs if a part of their organizational structure is not performing up to standards or they need to identify where they should allocate time or funds. 

How to Prepare An Audit

If your business needs an audit, following the relevant measures helps ensure your finance department is compliant. Here are the typical steps that go into preparing for an audit: 

1. Determine the Audit You Need 

You will first need to decide what type of audit is necessary for your business. For example, a construction company would likely need a bonding or licensing audit.

Consider whether you need a balance sheet audit or a full audit. 

Balance sheet audits examine your business’s assets, liabilities and equity in detail and compare them to previous periods. Auditors will investigate the reasons behind changes and verify the information’s accuracy and compliance with generally accepted accounting principles.

Full audits go a step beyond the balance sheet. During a full audit, your CPA will thoroughly dig into your financial picture. They will confirm income and its sources and verify operating expenses, sometimes in line-item detail. For example, an auditor may match accounts payable claims with the actual invoices your business received. After conducting a full audit, the CPA will issue an audit report stating their opinion on the information’s accuracy. These reports help boost confidence in a company’s financial condition.

Single audits are another option, especially if your organization is a nonprofit receiving government funding. During a single audit, the CPA has a narrower scope — the auditor focuses on accounting for a specific government award. They will investigate broader financial statements as part of their review to determine precisely how your organization managed the money you received from a government program. Its purpose is to confirm you followed any associated rules or restrictions for the money’s use.

2. Choose a Certified Public Account (CPA) Firm

Now that you know what type of audit your company requires, you should research CPA firms. It’s critical to find a reliable and trustworthy option to ensure you are getting the correct service from trusted professionals. Follow these steps to choose the best firm for your business:

• Ask about their specialty: In many cases, you can find a firm specializing in your industry, increasing the CPA’s likelihood of conducting a dependable audit.
• Check their history: CPAs receive licenses from their state, so you can research the accountancy board’s database. Doing so allows you to view essential information, including any disciplinary actions.
• Verify their memberships: Many CPAs belong to industry organizations, like the American Institute of Certified Public Accountants. These organizations promote integrity and ongoing education, so membership is a sign of your CPA’s values.
• Confirm their experience: While all CPAs have passed the required exams, there’s a benefit to working with an audit-experienced firm. Those who’ve served the industry longer generally have more in-depth knowledge of the process to make audits smoother.
• Check their fees: CPA firms may work on different fee structures based on the hours or complexity involved. Ensure you understand payment arrangements so you can compare costs between CPAs accurately.
• Confirm audit representation: If an IRS audit happens, you’ll likely want a skilled CPA in your corner. Reputable firms should offer audit defense to help represent you in dealings with the IRS.
• Ask people you trust: Referrals from friends, family and business advisors can help you identify the ideal CPA for your audit. Sometimes, they can also prevent you from engaging the wrong one.

3. Start Preparing for a Financial Statement Audit

The last step is to prepare for the audit. Communication is crucial, especially for loan covenant or federal spending requirement compliance. Make sure you know the best way to communicate with your CPA firm. That way, you can convey important information, such as when your audit’s deadline is, to ensure the firm conducts it correctly.

It’s also essential to start gathering important documents like the organization’s financial statements and plan for the time it takes to work with your auditor. That way, it’s easier and faster for them to complete your audit because you are ready to assist as necessary.

The documents needed for an audit will vary based on the audit type and scope and the structure of your business. Generally, you should expect to provide supporting evidence for your financial reporting.

Prepare for an audit with this internal audit checklist for the finance department:

• Gather expense evidence: Have receipts, paid tax statements and other evidence of business expenses available for your auditor. The auditor will align these with any allowable deductions to verify their existence and eligibility.
• Present income evidence: Ensure you have bank statements, deposit receipts and customer invoice copies to give your auditor. They’ll be able to confirm revenue claims and reconcile receipts with journal entries faster.
• Provide access to past third-party opinions and confirmations: Allow your auditor to review any previous objective opinions and audit reports. They can use these as supplemental resources to form a more comprehensive audit trail.

For privately held corporations, auditors may request additional documents that speak to financial health. These include:

• Cap tables representing your company’s ownership allocations to confirm value, expenses and the owner’s equity entry on your balance sheet.
• Form 409A to set forth the fair market value of outstanding stock and ensure you’ve valued equity-based compensation accurately.
• Other stock-based compensation reports detailing your valuation calculations.

How to Avoid Audit Adjustments

Though audit adjustments may seem unpreventable, there are ways to elude them. You can avoid even the most common audit adjustments by taking the following precautions:

• Perform self-audits: Frequent misstatements indicate that your company’s financial processes require remediation. Consider self-auditing any significant transactions, receipts, disbursements and potential variances to catch errors before they occur.
• Timely reconciliation: Regularly reconciling accounts is one of the best methods of avoiding common audit adjustments. It allows you to identify and correct any discrepancies between subsidiary accounts and the general ledger before the auditor reviews your financial statements. It also prevents minor errors from spiraling into more significant issues requiring audit adjustments.
• Review financial statements: Management should regularly review your company’s general ledger, cash receipts, cash disbursement journals and subsidiary ledgers to confirm that these balances are reconciled accurately. Frequent reviews are evidence of effective internal controls and timely corrections.
• Consultation and discussion: Understanding what procedures the auditor must perform and their objectives is essential when preparing for audits. Having the auditors and accounting team discuss and consult regularly can help mitigate any need for adjustments.
• Open communication: Being transparent makes it easier to align your company’s financial practices with the audit requirements. By helping each side understand the standards and expectations through collaboration, you can resolve issues and prevent them from leading to audit adjustments.
• Compliance with financial standards: Following relevant financial standards can significantly lower your chances of requiring audit adjustments. That means your financial reporting must comply with regulations. If you don’t, you could incur regulatory penalties and audit adjustments.
• Internal controls: Internal controls are mechanisms to accurately record all transactions, ensuring financial statements are free of discrepancies. They include manual oversight and automated checks, such as flagging unusual transactions and quickly reporting them. Regular internal audits can also strengthen the authenticity of your financial records.
• Monitor nonroutine transactions: It can be easy for nonroutine transactions to slip through the cracks, as these periodic activities are not typically part of your routine flow of transactions. Consider reviewing these transactions regularly to account for them.

Schedule Audit and Assurances Services at Marshall Jones

You can avoid audit adjustments with the help of the audit and assurance experts at Marshall Jones. We’ve spent over 35 years providing excellent client service to customers across Atlanta with exceptional technical competency and complete integrity.

Get in touch with us and let us help you save time, refocus your resources and improve your operations.

Owning rental property is a significant investment, but it also has its share of responsibilities — especially when managing taxes. Understanding which expenses you can remove can significantly affect the overall profitability of your real estate company. By taking full advantage of tax deductions, you can minimize liability and keep more of your hard-earned income. Here are the key tax deductions available for rental property owners: 

Maintenance and Repairs

These are the costs of keeping your property in good condition, such as fixing a leaky roof, replacing broken windows or repairing damaged appliances. The IRS allows you to deduct these expenses as long as they are considered ordinary, necessary and reasonable. To prove the tax deductions for your rental property maintenance, you must keep detailed records of all repairs, including receipts and invoices.

Insurance Premiums

Insurance is essential for protecting your investment. Fortunately, the premiums you pay for rental property insurance are fully deductible, including fire, theft, flood and landlord liability insurance coverage. If you have people working on your property, you can subtract the premiums for workers’ compensation and health insurance. These deductions can add up, offering you significant savings over time.

Employee and Contractor Expenses

If you hire workers to help manage your rental property, the costs associated with their services can be deducted from your taxes. These include wages, salaries, employee benefits and payments made to contractors for property management, landscaping and cleaning. Keeping detailed payroll records is crucial to ensure you can back up these deductions if ever questioned by the IRS.

Travel and Transportation

The expenses that add up when you’re driving to your rental property for an inspection, meeting with tenants or purchasing supplies can be subtracted from your taxes. The IRS allows you to subtract costs like gas, maintenance and tolls. Travel-related expenses — including airfare, hotel stays and meals — can also be deducted if your rental property is out of state. Remember, these expenses must be directly related to your business activity to qualify.

Legal and Professional Services

Any fees for legal and professional services directly related to your rental property are deductible, including fees paid to attorneys for lease agreements, accountants for tax preparation and property management firms. These help offset the costs of ensuring your rental property is managed effectively and in compliance with the law.

Work With the Professionals

At Marshall Jones, we provide tax planning and preparation services to ensure your business is tax compliant. Let us help you save time, refocus your resources and improve your operations. Contact us today to learn how we can help you navigate your real estate tax deductions.

As the owner of an architectural firm, it’s essential to strike a balance between working on projects and managing core areas of your business, such as bookkeeping and accounting. Growing your architectural firm and maximizing your revenue is easier when you have a strategic accounting system that monitors all financial aspects of your business. 

Accounting and Bookkeeping Tips for Architecture Firms

Managing your company’s finances may be daunting. To help you get started, consider these four accounting tips for architectural firms:

1. Track Project KPIs

Architectural firms handle multiple projects, each with its own financial data. While many companies focus on their financial performance as a whole, architectural firms must review the costs and income associated with individual projects to determine their profitability. 

Track each project’s key performance indicators (KPIs), such as billable hours, gross profit margin, client acquisition costs and net revenue per employee. Recording and analyzing these KPIs helps you measure your firm’s current performance and work toward your long-term goals. 

2. Monitor Your Cash Flow 

Keeping track of the money coming in and going out of your business is critical to your company’s overall financial stability. One of the best ways to maintain a healthy cash flow is to stay on top of your billing cycles. To receive regular payments, you could request a percentage of the project’s cost upfront or a retainer fee before starting the project. 

Remember to bill your clients periodically and check that their payments reflect on time. Set up and evaluate your statement of cash flow, a financial report that tracks these incoming payments and outgoing costs.

3. Explore Applicable Tax Benefits

Architectural firms may be eligible for certain tax provisions, such as the Work Opportunity Tax Credit (WOTC), a federal tax credit encouraging businesses to hire individuals from targeted groups. You can also reduce your taxes by deducting a few expenses, including rent, training, travel costs and health insurance premiums. The key to qualifying for these tax credits and deductions is to maintain detailed records of all invoices, receipts, income and expenses. 

4. Outsource Your Bookkeeping and Accounting to a Professional

Hiring a professional accountant is one of the most effective ways to remain compliant and track your firm’s financial progress. Experienced accountants thoroughly understand applicable tax provisions, quality software and general accounting best practices. Professional accounting firms can record and analyze your company’s project-based income and overall expenses to help you track KPIs, manage cash flow and prepare taxes. 

Connect With Marshall Jones for Expert Accounting Services

Marshall Jones has a team of certified public accountants and advisors to take on your architectural firm’s bookkeeping and accounting so that you can focus on essential business tasks and your clients. We can assist with tax planning and preparation, bookkeeping and a wide range of other accounting services. 

Get in touch with our experts to streamline your architecture firm’s accounting system.

For any business, audits are important in maintaining transparency, trust and accountability in financial reporting. If you’re running a small or mid-size business (SMB), you may be caught up in daily business operations and put auditing to the side.

However, an audit is an essential process for your company, and prioritizing auditing can lead to numerous benefits. This guide to business audits will help you understand the auditing process and how to prepare for internal and external audits.

What Is an Audit?  

An audit is an extensive review of a company’s transactions, financial records and processes, helping to determine their accuracy and compliance with regulations and laws. There are two main types of audits:

• Internal audits: Audits conducted by employees within the business.
• External audits: Audits conducted by independent auditors. 

An external audit is generally more detailed than an internal audit and contains one of the following judgments:

• Qualified opinion: A qualified opinion is given when the auditor doesn’t reach a definite conclusion and doesn’t have full access to accounting records.
• Clean opinion: This opinion is given when a company has accurate financial statements and records.
• Negative opinion: This opinion is given when the financial records of a company contain a misrepresentation. 

The audit verifies whether the financial statements accurately represent the business’s performance, financial position and cash flows.

What Is the Audit Process for a Small Business?

There are three main steps involved in auditing a business:

1. Collecting Accounting Records

The auditor starts by gathering accounting information, which is available in records such as invoices, bank reconciliation statements, receipts and financial statements. The auditor will ask you or your team to present the past two to three years of accounting data. Auditing can’t be done without a proper record of this accounting-related information.

2. Inspecting the Information

The auditor will review the accounting information to ensure no errors are present. Some key accounting records reviewed in this second stage include financial reports, vendor receipts, sales invoices, meeting minutes, electronic records, internal policies, taxation documents, trial balances, and transaction-related documents.

3. Comparing the Records

The auditors compare the company’s records with the information it has submitted to other companies, government entities and other third parties. The auditor will:

• Flag any wrong entries.
• Highlight math errors that result in inflated figures.
• Compare the salvage value of assets with the gain or loss from an asset’s sale.
• Inspect and compare losses or gains from previous years.
• Flag inflated expenses or fewer sales on Form 1099.
• Use accounting formulas to identify errors.

How to Prepare for an Audit

Be sure to organize your financial records and documentation in preparation for audits. In addition, you should understand the auditing process and what to expect. Understanding the process helps you prepare well for the audit and allows you to select competent certified public accountants or auditors to perform the audit. 

Take the following measures to prepare for an audit:

• Understand the purpose: Understand why the audit is being conducted. While audits are important for keeping your business’s books in order, they also help with satisfying stakeholders’ expectations and building trust.
• Maintain accurate records: Ensure you maintain accurate financial records and supporting documentation. Supporting documents include receipts, bank statements and invoices. Financial records you should maintain include expenses, income, assets and liabilities. Use accounting software or engage a qualified bookkeeper for easy record-keeping. Ensure you separate your personal finances from your business finances.
• Review internal controls: Review the policies and internal procedures designed to safeguard your business assets. Address any weaknesses discovered during the review.
• Understand tax regulations and auditing standards: Understand the tax regulations that apply to your business and industry. Ensure you comply with local, state and federal tax laws. You should also familiarize yourself with auditing standards to understand the requirements and expectations.
• Perform a self-audit: You can prepare for the official audit by conducting a self-audit to identify and address issues. Perform reconciliations, review your financial statements and verify the accuracy of your financial records.
• Prepare for the auditor’s questions: Expect your auditor to ask questions during the auditing process. These questions will generally cover internal controls, transactions and financial statements. Prepare for these questions by having a thorough understanding of your financial records and business operations.
• Engage professionals: Engage certified public accountants or auditors who are experienced in auditing SMBs. A professional and experienced auditing firm will help you navigate the complexities of the audit process and stay compliant with relevant regulations.

What Are the Benefits of an SMB Audit?

For many business owners, auditing seems like an overly complicated process that should be avoided if possible. However, auditing is essential for your company’s financial success. Here are some of the key reasons why companies need to pursue auditing:

Identify Fraud

An audit can help you identify internal fraud or learn about potential theft of business assets. It can also identify discrepancies in recording accounting information. Regular audits can deter employees from engaging in fraudulent activities and prevent misappropriation and waste of business resources.

Compliance With Tax Submission Rules

The Internal Revenue Service (IRS) can potentially impose fines and audits for businesses that submit false accounting and tax data. The SMB auditing process helps you collect all documents required to file tax returns correctly and make sure your financial reporting information is accurate.

Gain Investor and Lender Confidence

Before investing in any business, investors want to understand its finances. If someone is interested in investing in your company, they will likely ask for bookkeeping and accounting records. Having your accounts audited by an independent auditing firm can help you gain the confidence of these investors. Financial institutions like banks and credit unions can also consider this information when deciding to lend to your business.

Get Certifications 

Some certification bodies require companies to audit their operations before they are certified. Certifications can help your business build trust with customers, lenders, vendors and investors.

Contact Marshall Jones for a Comprehensive SMB Business Audit

A business audit can help your business detect fraud and implement measures to prevent future incidents. In addition, having accurate audits can make all the difference when looking for new investors, helping your company grow and succeed.

At Marshall Jones, our experienced team has been assisting businesses in the Atlanta area for more than three decades. We offer an array of accounting services, including professional audit and assurance services that can give you an in-depth overview of your company. 

We’re here to support your organization with customized accounting solutions that can help you save time and lower costs. Contact one of our specialists today to learn more and get started.

A lot goes into the financials behind a nonprofit or business, including bookkeeping and accounting. While the terms are often used interchangeably, the roles are distinct. Knowing the difference between accounting and bookkeeping can support your success. 

Bookkeeping focuses on the minute details of your finances, while accounting looks at the big picture through a strategic or advisory lens. Accountants can be bookkeepers, but not all bookkeepers can be accountants. Both jobs require skills with numbers and financial data. 

What Is Bookkeeping?

Bookkeeping is the daily financial tracking of transactions, typically through bookkeeping software. This administrative role doesn’t necessarily require specific accounting expertise, though many bookkeepers have at least a college education, which may include training or classes in accounting. 

Bookkeepers must pay attention to details to monitor financial information and catch small mistakes in a budget or invoice. The duties of a bookkeeper might include tasks like:

• Managing payroll
• Tracking bill payments
• Posting debits and credits
• Producing invoices
• Recording financial transactions
• Maintaining and balancing ledgers
• Conducting bank reconciliations

What Is Accounting?

Accounting focuses more on overarching financial management than day-to-day tracking. This job includes trained professional services that provide a more complete summary of your finances. Accountants take the financial statements from bookkeepers and use them to analyze broad trends. An accountant offers professional advice and guidance about your financial well-being and assists with various practical business tasks. 

Accountants need specialized training, particularly certified public accountants (CPAs). These financial experts often handle tasks like:

• Budget management and changes
• Tax filing and returns
• Business operation analysis and advising
• Generating financial reports
• Preparing tax returns, income statements and balance sheets

Why Trust Marshall Jones?

We are an outsourced accounting and bookkeeping firm that has worked in the financial industry since 1984. Our team consists of various experts, including CPAs and advisors. We also have bookkeeping and accounting specialists who handle these services for our clients. 

You can trust us to educate you about various financial services and to provide them reliably on your behalf. Our core values are service, integrity and quality. We work hard to fulfill your needs, always acting reasonably and professionally. As a team, we take pride in our passion for excellence in every aspect of our work. Our accounting and bookkeeping expertise covers various industries, including nonprofits and small to midsize businesses. 

Turn to Us for Services

Marshall Jones provides bookkeeping and accounting services depending on your needs. We can manage your financials from the small details to the big picture to save you time and enhance your business operations. Contact us online to discuss our services today. 

Running a law firm means dealing with countless details, and while legal expertise is at the forefront, managing your firm’s finances is just as crucial. Good accounting and bookkeeping practices keep your business compliant, profitable and capable of growth. However, even the most meticulous lawyers can make bookkeeping mistakes that may lead to significant issues for the company down the line. Understanding these pitfalls and how to avoid them is crucial to ensure your firm thrives.

What Are the Common Accounting Mistakes Law Firms Make?

Learn more about accounting mistakes prevalent in this field:

1. Mismanaging Trust Accounts  

Trust accounts hold client funds separately from the firm’s operational accounts, ensuring they are used solely for their intended purpose. However, many firms inadvertently mix trust account funds with operating funds, which can lead to serious legal and financial consequences. Mismanagement of trust accounts risks legal trouble and breaks the trust your clients place in your firm.

2. Data Entry Errors  

Accurate data entry is essential for reliable financial records. Unfortunately, data entry errors are common, often leading to inaccuracies in your financial statements. These mistakes range from simple typing errors to more complex issues like incorrect categorizations. Over time, these mistakes can accumulate, resulting in inaccurate financial statements that don’t reflect your firm’s financial position. Regular reviews and automated accounting software can help mitigate these risks.

3. Inadequate Client Trust Fund Accounting

Many firms fail to keep detailed records of all transactions involving client funds, leading to discrepancies that can be difficult to reconcile. This oversight can result in compliance issues and may even jeopardize the firm’s reputation. Implementing rigorous trust accounting practices, including regular reconciliations, can help ensure client funds are managed appropriately and transparently.

4. Avoiding Professional Help  

Some law firms try to manage their bookkeeping in-house, but this can lead to costly mistakes without the right expertise. Bookkeeping for law firms involves specific regulations and complexities that general accounting knowledge may not cover. Partnering with a professional accounting firm can provide the specialized knowledge and experience necessary to navigate these complexities, allowing you to focus on your legal practice while ensuring your financials are in expert hands.

Let Marshall Jones Help You Stay on Track

At Marshall Jones, we understand the unique challenges that law firms face in managing their finances. Our team of certified public accountants and advisors offers specialized accounting services for law firms, ensuring compliance, accuracy and peace of mind. Don’t let accounting mistakes derail your law firm’s success. Contact us today to learn how we can support your firm’s financial health and help you avoid these common pitfalls.

Inflation poses serious challenges to businesses worldwide. However, small businesses operating on thinner margins often experience more intense inflation effects than larger businesses and corporations. Inflation can increase raw material and production costs while decreasing profit margins.

While some businesses opt to pass these costs to their customers by increasing their prices, this strategy can be counterproductive if not implemented correctly. For instance, your customers may cut down on their spending, leading to a decrease in your revenue.

For small businesses, managing inflation requires a strategic approach that ensures business continuity without compromising operations. 

What Is Inflation? 

Inflation is the gradual loss of buying power, reflected in increased prices of goods and services over time. It is calculated as the average increase in the price of a basket of selected goods and services for one year.

A high inflation rate means the prices are increasing quickly. A low inflation rate means the prices are rising slowly. When prices decline exponentially instead of increasing, it results in deflation. 

Understanding Inflation Effects

The main cause of inflation is an increase in the supply of money. Additional causes include shortages of critical goods and supply bottlenecks. When inflation hits the markets, money loses its purchasing power. Businesses may start charging higher prices, and workers may demand higher wages in anticipation of sustained inflation. This further reinforces factors that push the prices of goods and services up. 

The average rate of inflation in the United States was 4.1% in 2023. At the basic level, you’ll see the effects of inflation in the increased price of groceries, bills or even mortgage payments. Corporate executives, entrepreneurs, founders and business managers must deal with the effects of inflation and find ways to protect margins while paying for raw materials. 

Some of the major effects of inflation on small businesses include:

• Decrease in customers’ purchasing power: Inflation reduces the customer’s purchasing power, which lowers their demand for goods and services. 
• Increased costs of goods and services: Inflation can increase business overhead costs like labor, raw materials, utilities and more.
• Higher interest rates: One tactic the Federal Reserve implements to manage inflation is raising interest rates, making it more expensive for businesses to access financing options.  
• Challenges in planning and budgeting for the future: Price fluctuations make it challenging for business owners and managers to make accurate financial projections. 

Ways for Small Businesses to Manage Inflation

Inflation is almost always inevitable, the only difference being the rate at which prices change. As a business owner or manager, you must constantly develop plans to manage inflation and implement them effectively for the best outcome.  

Review Your Efficiency Strategies

One of the most effective ways to manage inflation is by improving operational efficiency. Conduct regular reviews to identify areas where you can cut costs without compromising the quality of your goods or services. For example, you can invest in efficient appliances that will still give you the same output at a lower energy cost. You can also use apps that track and boost productivity.

Some options include reducing noncritical fixed business costs and canceling unimportant subscriptions.

Invest in the Right Technology

Invest in business technologies that will help automate processes. These technologies can help your business reduce manual labor costs and increase efficiency. Some tools to consider include:

• Customer relationship management (CRM) software.
• Expense management software.
• Software for your finance team.
• Project management software.

Depending on your specific line of business, you may want to consider industry-specific tools that can help improve your team’s productivity. Businesses unlock the most value with technology when they apply it to innovate their entire business model instead of focusing on disconnected use cases. 

Retain Your Employees and Customers

You might be tempted to cut operational costs by laying off employees, but this is unwise if you’re doing it solely because of inflation. Your employees possess valuable insights and skills that contribute to your business’s success. Losing them can compromise operational efficiency and innovation. You’ll incur high costs associated with severance pay, as well as recruitment and training expenses when you eventually need to hire new talent.

Instead of panicking, letting go of loyal team members and desperately searching for new customers, focus on what you have — both your existing employees and customers. Create strategies for retaining your employees, such as flexible work arrangements, wellness programs and career development opportunities. Additionally, develop products or services your customers love and provide them with better experiences.

Analyze Profits

Analyze your profit margins to understand where your business stands based on your target goals. Inflation can derail progress, and you may have to change tactics to meet business goals.

An adverse effect of inflation on small businesses is the increase in operating costs, which can crunch the profit margins. Companies must look for creative ways to boost profits during this period without affecting the quality of products, services and customer experience.

For example, you may have to diversify your supply chain to provide a buffer against inflation. Businesses that don’t rely on a single source for products or materials can mitigate the risks of price hikes from specific suppliers. When you can negotiate with multiple suppliers, you have more options and leverage. Venture beyond your neighborhood, town or city. Build strategic international partnerships. 

Build up Cash Reserves

Maintaining healthy cash flows is essential for any business, especially small businesses. Managing inflation means having enough cash flow to meet business operational costs when input prices are likely to rise. If a business doesn’t have this cash to cushion against the effects of inflation, it may have to resort to urgent and expensive loans or even close down. Small businesses should anticipate situations for cash flow challenges and secure lines of credit before the cash is needed.

You can improve your cash flow by encouraging customers to pay your business faster. Consider offering discounts for customers who can pay early.

Adjust Prices Strategically

Some businesses pass production costs directly to consumers without considering factors such as the percentage increase in the price. Instead, you should increase the price thoughtfully to avoid turning away your client base. Businesses must strike the right balance between increasing their price and retaining their customers, especially when it’s necessary to pass some costs to the clients.

You may have to communicate the price increase to your customers. Be upfront about the reasons for the increase in pricing. Timely communication can help in building trust.

Partner With Marshall Jones for Reliable Accounting Services

Preparing for inflation equips you with the right tools to combat it when it comes. As a full-service accounting service provider, Marshall Jones can help you save time in managing your finances.

Our team of certified public accountants and advisors has served businesses and individuals in Atlanta for over 30 years. Our accounting services include year-end financial statement audits, compilations, reviews, tax compliance and consulting.

Let us help you save time, refocus your resources and improve your operations. Get in touch with us for more information.

Navigating tax deductions can be challenging, especially for engineers who often incur various work-related expenses. It’s important to understand these deductions so you can reduce your taxable income and ensure you’re not leaving money on the table. Knowing what you can deduct can significantly improve your financial situation and allow you to take full advantage of your tax benefits.

Common Tax Deductions for Engineers

Engineers face unique expenses that are necessary for their work. Some of the most common deductions include:

• Work-related travel expenses: Whether traveling between jobsites or attending a professional conference, travel costs such as mileage, airfare, lodging and meals can often be deducted.
• Home office deductions: If you regularly use part of your home for work, you may be eligible for a home office deduction. This can cover expenses like rent, utilities and even home repairs.
• Equipment and software purchases: The tools and technology required to perform your job, from computers to specialized software, can often be written off as business expenses.
• Professional development and education costs: Continuing education is crucial in engineering. Tuition, course materials and certification fees may be deductible.
• Uniforms and protective gear: If your job requires specific clothing or safety gear, these items may be eligible for a deduction.

Lesser-Known Deductions

Beyond the obvious expenses, there are several lesser-known tax deductions that engineers should be aware of:

• Internet and mobile phone use for work: If you use your phone or internet connection for work purposes, you can deduct a portion of these expenses.
• Union and professional association fees: Membership dues for professional organizations related to engineering are often deductible.
• Insurance premiums related to engineering work: If you carry insurance specific to your engineering practice, such as liability insurance, these premiums can be deducted as business expenses.

How to Claim Deductions

Here’s a step-by-step guide to claiming deductions on tax returns:

• Keep detailed records of all work-related expenses, including invoices, bank statements and receipts.
• Group expenses into relevant categories like travel, home office and equipment.
• Use tax software or IRS forms to enter deduction details and save copies for future reference.
• File your tax return electronically or by mail and confirm receipt.
• Track your refund status and respond to any IRS notices.

Tips for Maximizing Tax Savings as an Engineer

Follow these three steps to fully capitalize on your deductions:

1. Plan and track your expenses regularly throughout the year to avoid a last-minute scramble during tax season.
2. Consult with a tax professional and have them help you navigate the complexity of tax laws and take full advantage of all your available deductions.
3. Stay updated on tax law changes to avoid missing out on savings.

Take Advantage of Available Deductions With Help From Marshall Jones

Make the most of the tax benefits available to you as an engineer with professional tax preparation from Marshall Jones. Contact us today to learn more and get started.

Working with remote, hybrid and out-of-state employees is a rising trend that offers exciting benefits like wider customer reach, more efficient business operations and more access to skilled professionals. Before accessing these advantages, you need to understand the tax implications imposed by your remote employees’ states and your own. 

Workers may have concerns about what taxes they owe, how much and whether they should pay in themselves. As their employer, it’s your duty to inform them about these factors. Whether you have full-time in-office employees who drive to work from another state, remote workers in-state, or out-of-state or hybrid workers, this guide explores all the essential information you need to pay them correctly. 

How to Pay Remote Employees 

To pay remote employees, it’s essential to understand two key terms first: 

• Nonresident state: This denotes a state that an employee commutes to for work when they are not a resident of it. 
• Resident state: This is the state in which your employee resides.

By knowing what these two terms mean, you can gain a better understanding of tax laws surrounding workers working in resident and nonresident states. How you pay remote workers depends on whether or not they work in the same state where you conduct business. 

Tax Implications for Remote Workers in Your State 

If you have remote employees who reside within the state your business is registered in, you’ll need to withhold state income taxes from their earnings and submit state unemployment insurance (SUI) tax in your state. Depending on your state, you may also need to withhold local income tax if their location requires it. 

Payroll Taxes for Remote Out-of-State Employees

Hiring employees who work from home in another state involves three main steps: 

1. Registering with your employee’s state tax agency: As an employer, you’re required to withhold your workers’ income taxes. When working with out-of-state employees, you should register with the state and local tax agencies, including their state’s labor and unemployment agencies. 
2. Following their state’s labor laws and payment requirements: To avoid legal issues in the future, it’s best to stay well-informed about the state laws of your remote employees. Learn critical information like what the minimum wage requirement is in their area, whether you should withhold local taxes, if you should provide a pay stub, what labor laws say about paid and unpaid breaks, and if there are workers’ compensation insurance requirements you need to meet. 
3. Withholding income taxes while filing the necessary documents and payments: Lastly, you’ll need to gather the correct paperwork for reporting withheld income tax and send in this payment along with any state unemployment taxes you might need to send to tax or unemployment agencies in your remote worker’s state. 

How Does Income Tax Work for Employees Who Commute From Another State? 

Does your employee commute from another state to work in your state? In this case, there are two main ways to pay income tax depending on their situation. 

The first is a reciprocal agreement. A reciprocal agreement is when two neighboring states agree that if any residents work in the other state, they are allowed to pay taxes only to the state they live in. If your employee’s state has a reciprocal agreement with your state, it means they’ll be able to withhold income taxes in their home state and only file one tax return each year. This may be more convenient than paying taxes in both states. 

If your states are without reciprocal agreements, this means you’ll need to pay income taxes in both the resident and nonresident states. Fortunately, some states might have a rule in place that allows nonresidents to apply for a tax credit that can cover the cost of double taxation. 

You may be able to help your employees pay taxes by offering courtesy withholding from their paychecks. This can spare employees from having to deal with a huge bill during tax season. Working with seasoned accountants who can manage your payroll tax management processes can help you achieve this with more accuracy and efficiency. 

Here’s a quick example of income tax implications for nonresident employees who commute from another state to work in Georgia. If you have a worker who is a resident of another state and works in your primary workplace in Georgia, receives income from your Georgia-based business, and is required to file a federal income tax return, then Georgia law may require them to file a Georgia income tax return. 

Alternatively, if they are a legal resident of another state and their earnings from a Georgia employer are 5% or less of $5,000 or 5% or less of their wages in all places for the year, they may avoid filing a Georgia income tax return. 

Tax Implications for Hybrid Payroll 

Some businesses or employees might find it more convenient to have hybrid work arrangements for working in-office and remotely according to a given schedule. Hybrid workers have tax implications similar to those of other types of remote workers mentioned above. For example, you’ll still need to withhold the income tax of hybrid employees like you would with fully remote workers. Still, double taxation may occur for hybrid workers if their home and workplace are in different states. 

It’s also important to take into consideration whether the state has any unemployment and workers’ compensation insurance requirements. If your employee is working in different states throughout the year, you must check what the tax obligations are in those states beforehand. 

How to Inform Your Remote Employees About Taxes 

Your remote workers may have expectations about the salary they receive when working with your company, so they must understand the tax implications of their position. The tax challenges related to remote work might impact their financial situation negatively, which may have an impact on how employees view your perspective of the remote team. 

When discussing remote workers’ pay, be sure to inform them about the tax laws of their state and yours and how much money they should expect to receive on payday. Your remote and hybrid teams might also appreciate it if you provide them with guides and other tax resources to understand everything you discuss with them about the matter. 

Consult With Marshall Jones and Outsource Payroll and Bookkeeping Services 

Remote, hybrid and out-of-state employees can create various benefits and opportunities for your business in the long run. When you fully understand and manage the different tax implications correctly, you will be able to keep them informed and content. 

We recommend working with a full-service accounting firm like Marshall Jones to manage payroll taxes for remote employees. Working with our knowledgeable outsourced team will allow your business access to multistate payroll processing and accurate monthly financials delivered on time. For excellent payroll and bookkeeping services, contact the experts at Marshall Jones for a consultation today. 

Audit reports are written assessments of whether a company’s financial statements comply with generally accepted accounting principles (GAAP) and are free of incorrect information. Auditors’ findings provide management, shareholders and potential investors with valuable financial information and insights on your business’s financial position. 

If you’re new to the auditing process, you may wonder what to do after receiving your audit report. You can take several courses of action, depending on the auditors’ findings and whether you agree with them.

What Happens After You Receive Your Audit Report?

An audit report includes a written letter attached to your company’s financial statements detailing the auditors’ opinions of your GAAP compliance. It states the auditors’ responsibility, the accounting principles that guided the report and the auditors’ opinions.

After you receive your company’s audit report, you can assess the auditors’ findings and determine if you agree or disagree with their assessments. Then, you can gather important documentation and respond to the audit findings.  

Read and Analyze the Audit Findings Report 

Read through the audit report immediately when it arrives. The report will contain key findings and recommendations that your business will be in a position to recognize or dispute. Auditors will use the report to inform you of any determination around your internal controls’ compliance with GAAP standards. A separate document will contain possible grievances the auditor may have with your internal controls. You will also receive recommendations for improving controls.

By analyzing the report, you can verify its contents and determine if there are any items to dispute. Key decision-makers should read through the report and provide feedback about the auditor’s findings and the methods the auditor used to assess your business.

Compile Necessary Documentation

Gathering relevant documentation is an important next step after reading through the audit report. There are two reasons to gather documentation after the audit, and one or both may apply. 

There are many types of financial documentation that aid auditors in their processes. You’ll provide these documents at the start of the process, but the auditor may request more in their report. Gather relevant documents after reading through the auditor’s findings to satisfy their requests. 

You will need various financial documents if you disagree with the auditor’s findings. Your business may have proof within its documentation that it meets various GAAP standards. Gather financial statements, compliance verification, expense reports and governance documents to prove your financial information and support your claims. 

Deliver a Response 

Any audit report your business receives warrants a written response from your management. The contents of your response depend on whether you agree or disagree with the auditor’s findings. If you agree with the findings and recommended solutions, you can respond and confirm this. Otherwise, you can dispute the auditor’s claim.

What to Do If You Agree With the Auditors’ Findings

If you agree with the conclusions of the audit report, your next steps are fairly simple. All audits with recommendations or concerns are subject to a post-audit review to verify that your management addresses the suggestions outlined in the auditor’s report.

To proceed, you’ll state that you agree with the auditors’ findings. You’ll also detail the steps you’ll take to resolve any operational deficiencies identified in the report. The steps you provide should be specific and time-bound. While it takes time to complete your action plan for the audit’s findings, detailing a precise path forward shows your commitment to resolving the auditor’s concerns. 

What to Do If You Disagree With the Conclusions on an Audit Report

You can oppose the auditor’s conclusions by stating your disagreement with the audit response and reasoning to back up your statement. The audit report will include sections for each claim where you can provide clarification. 

To write a dispute, carefully assess your financial records to gather proof that counters specific claims within the audit report. Write a detailed response that shows how your processes followed the specific regulations, laws or guidelines the auditor claims you broke. Use clear, concise and respectful language within your dispute to show that your business and the auditor share a common interest in proper accounting practices. 

Upon receiving your dispute claim, your auditors will respond with further explanation to rebut your assertion. Their response may show a process failure or oversight that helps your case and elicits further investigation. 

The decision to dispute an audit is one you should make carefully. Auditors and oversight agencies will give your situation extra scrutiny to determine the validity of your dispute.

Follow All Recommendations 

Whether you agree with the auditor’s finding or you come to a mutual understanding through the dispute process, it’s important to implement the final recommendations the auditor provides. Keep note of the specific recommendations your auditor provided and document the processes you use to enact them. The auditor will follow up, so recording your methods will help you prove your adherence. 

Submit an Auditor Evaluation

Once your auditor issues a final audit report, management must evaluate the audit’s quality, taking into account the auditor’s communication, performance, professionalism and recommendations. To assess these areas, you can verify that the auditor tested relevant aspects of your business and industry. If you’re unsatisfied with your auditor, you can submit a proposal requesting that you get a new one.

Book Audit and Assurance Services at Marshall Jones

If you require assistance with your next audit, consider audit and assurance services from the Certified Public Accountants and Advisors at Marshall Jones. We conduct our accounting services with humility and integrity in mind.

Contact us to learn more about our services today!