Common financial reporting errors companies make and how to avoid them

If an accountant relies on automated systems too heavily, claims from the tax office are inevitable. Tatyana Piskareva (Unicon Outsourcing) told what else result in reporting errors and how to avoid them

The arrangement of accounting processes is company-specific and depends on the type of the company’s activity, the level of automation, the internal structure and the number of employees supporting the accounting function. At the same time, the requirements for the format of reporting to government bodies are the same for most companies, therefore, errors that may occur during its preparation may also be the same. Here's what to look out for in order to prevent them.

Check comparable indicators and control ratios

According to the latest amendments to the Russian Tax Code, the tax inspectorate may refuse to accept a VAT return if discrepancies in control ratios are found therein. This is the name of the reconciliation of data of the VAT return for compliance with the total amounts by VAT return section. Discrepancies may arise, for example, if an accountant has to correct tax registers, make adjustments. Sometimes indicator ratios are checked not only within one tax return, but also using indicators provided in other tax returns. Pay attention to the ratio of tax bases in the VAT and income tax returns — be prepared to explain the reasons for a discrepancy, if any.

The discrepancy between indicators can be quite justified in some situations. For example, if a company disposed of any property without compensation, then such a transaction is recognized as revenue only for the purpose of calculating VAT. In this case, make sure that the code for this type of transaction in the sales book is selected correctly. Then, having discovered a discrepancy, the tax authorities will not request any explanations and you will not have to waste time collecting documents. However, when indicator ratios are is checked, errors can also be detected. They must be corrected before the submission in order to avoid preparation of an updated declaration and any unnecessary attention to the company in the future.

How to correct

Keep your accounting system up to date. If in doubt, take the effort to look through the instructions how to draw up a tax return. It can also be useful to introduce additional procedures for control before approving and submitting tax returns. Furthermore, be sure to check the status of the report submitted. If any discrepancies in the control ratios are found in the VAT return, you will receive a request to submit a VAT return with the discrepancies eliminated within five days. It is important not to miss the said deadline.

Trust but verify

Perhaps the main recommendation for how to prevent a significant number of errors in accounting is not to rely on the system to automatically make all the calculations correctly. For example, there is such a thing as “standardized expenses” in tax accounting. The accounting system is quite able to calculate them, but only if you assign a relevant attribute to such an expense item. If the attribute is not assigned, then the program will not understand that certain rules should apply to this very item. Then an amount exceeding the standard value may be included in such expenses.

How to correct

Remember that your system is just a tool. It can do accurate automatic calculations and fill out forms correctly, but only provided that the accounting algorithms are set up correctly.

Be sure to analyse the balance sheet items

Errors are often made if a specialist fails to pay due attention to the classification of assets, finds it unnecessary to analyse receivables for their liquidity, and to form reserves for depreciation of assets when preparing financial statements. These violations affect the quality of financial statements, can mislead the company’s partners and sometimes cause business owners make wrong managerial decisions.

If such errors are discovered during the audit, the company may get a modified auditor’s report. This will at least affect adversely the image of the organization and increase the risk of unavailability of bank loans.

How to correct

Review the requirements of the standards, go through collections of information on changes in the legislative framework, and analyse the balance sheet items.

Don't put it off till the last day

Having shown necessary prudence and prepared financial statements, it is better to submit them to regulatory authorities in advance not putting off everything till the last day. It happens that just one digit discrepancies in indicators resulting from rounding of values can prevent uploading statements to the TCS system and their verification, if any. And you will not be able to submit your statements until these discrepancies are resolved. Sometimes the correction of some indicators entails the correction of others, and it can take a lot of time and nerves to make them consistent.

Consider, for example, the following situation. You received an audit report and postponed its submission to the federal resource till the last day. But it turned out that the electronic signature required to authorize the submission had become invalid or was absent, which took the accountant unawares. Late submission of information threatens the company with penalties.

How to correct

Check whether the reporting deadlines have changed and whether all necessary certificates are valid. Submit your statements in advance to have enough time to make any necessary adjustments if needed.

Update accounting policies in a timely manner

The company's accountant must monitor changes in legislation and update their accounting policies on a regular basis. The accountant should also check whetherthe rules enshrined in local regulations are properly applied in practice. Namely, it is necessary to make sure that the records are actually kept in accordance with the accepted rules. There were situations when the company's policy assumes that stock in production is recorded at an average cost, but the accountant failed to verify that this method was specified in the accounting system settings. In fact, the goods were written off in the sequence of their acceptance at the warehouse. This violation materially misrepresented the financial statements and led to unplanned losses.

How to correct

Be sure to check that all updates to the accounting policy match the current settings of your accounting system. In case of discrepancies, be guided by the regulations and make appropriate changes.

Source: RBC Pro