The new year marks the beginning of the annual financial reporting season. All companies that prepare financial reports have to deal with the issues surrounding the preparation of their annual financial statements. Even if many of those responsible are not aware of it: accounting compliance forms the foundation here. It ensures that all relevant accounting rules are recognized and applied, and that the company’s assets and liabilities are valued correctly, so that the annual financial report is prepared in accordance with the rules.
Who knows what? One-way information
One of our clients was served with a lawsuit in October 2020. Poor performance, damages – the company’s business partner is demanding the whole lot. The company’s managing director is quite incensed and takes the statement of claim to the lawyer. There, the defense strategy is discussed, and the statement of claim remains at the law firm.
This interrupts the flow of information necessary for the accounting department. The managing director does not consider informing the accounting department, which is working in his home office, about the case. The company’s tax advisor, who starts preparing the annual financial statements in February 2021, also learns nothing about the court case. The letter of representation for the tax advisor is prepared by the accounting department and signed by the managing director, as it is every year.
It does not take much imagination to work out how high the risk provision for these proceedings has turned out to be in these annual accounts. Neither the litigation cost risks nor the possible obligations arising from warranty and damages are included in the accounts.
This is where the potential problems begin. For it is not only the annual financial report that is inaccurate in the result – the taxation is also inaccurately determined. The bank with which the medium-sized company has an extensive credit exposure receives incorrect figures. The distribution to the shareholders is made based on an inaccurate result. All these points carry different levels of risk for the company, but also for the management.
More prevention, transparency, and security through Accounting Compliance
There is no question: mistakes like the one mentioned above happen again and again in accounting – rarely out of calculation, mostly out of ignorance or due to unclear processes and procedures. Most of the time, these procedures depend on the people involved and are rarely systematically anchored in the organization.
This is where THE MAK’ED TEAM comes in. The individual situation of a company leads to an adaptation of processes and procedures in order to safely comply with the relevant regulations in accounting. In addition to the financial data, this also includes the notes to the financial statement and, if applicable, the management report. Here, too, the necessary information must be available.
These processes and procedures 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 procedural documentation of the company. This also ensures that changes in the rules and regulations can be identified and implemented.
Every company is set up differently and has different priorities in accounting. Prefabricated standards are therefore of little help in developing a suitable compliance concept. It is a matter of establishing a customized system in the company that addresses the individual risks. No matter how progressive or conservative your finance and accounting system is set up: the accounting experts of THE MAK`ED TEAM support you in organizing accounting processes, implementing individual compliance systems and in all your accounting compliance challenges.