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The new year marks the start of the annual closing season. All companies required to prepare financial statements are addressing questions surrounding the preparation of their year-end accounts. Even if many managers are unaware of it, accounting compliance forms the foundation here. It ensures that all relevant accounting regulations are identified and applied, and that the company's assets and liabilities are correctly valued, so that the annual financial statements are prepared in accordance with regulations.
Who knows what? Information in a one-way street
One of our clients was served with a lawsuit in October 2020. Poor performance, damages – the company's business partner was demanding the full works. The company's managing director was quite incensed and took the writ to their lawyer. The defense strategy was discussed there, and the writ remained at the law firm.
As a result, the information flow required for accounting was interrupted. The managing director did not think to inform the accounting department, which was working from home, about the incident. The company's tax advisor, who began preparing the annual financial statements in February 2021, also learned nothing about the court proceedings. The letter of representation for the tax advisor was prepared by the accounting department as it is every year and signed by the managing director.
It doesn't take much imagination to figure out how high the risk provision for this case was in these annual financial statements. Neither the litigation cost risks nor the potential liabilities from warranties and damages were included in the financial records.
This is where the potential problems only begin. Because not only are the annual financial statements inaccurate as a result, but the taxation is also assessed incorrectly. The bank, with which the medium-sized company has an extensive credit engagement, receives false figures. Distributions to shareholders are made on the basis of an incorrect result. All these points carry various risks for the company, but also for the management.
More prevention, transparency, and security through accounting compliance
There is no question: errors like the one in the case mentioned above happen in accounting time and again – rarely out of calculation, mostly out of ignorance or due to unclear processes and workflows. Most of the time, these workflows depend on individuals and are rarely systematically anchored in the organization.
This is where THE MAK’ED TEAM comes in. A company's individual situation leads to an adaptation of processes and workflows to ensure that relevant accounting regulations are strictly adhered to. In addition to the figures, this also includes the notes to the financial statements and, if applicable, the management report. The necessary information must also be available here.
These processes and workflows are set up and expanded in such a way that they take on the function of an internal control system (ICS) and, in their entirety, represent the company's procedural documentation. This also ensures that changes in regulations can be identified and implemented.
Every company is set up differently and has different priorities in accounting. Therefore, off-the-shelf standards are of little help when developing a suitable compliance concept. The goal is to establish a tailor-made system within the company that addresses individual risks. No matter how progressive or conservative your finance and accounting department is: the accounting experts at THE MAK`ED TEAM will support you in organizing accounting processes, implementing individual compliance systems, and with all your challenges surrounding accounting compliance.
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