Frequent Errors in Company Financial Reporting and Ways to Prevent Them From Happening

Extending absolute trust towards automated systems is a mistake in strategy, which is often made by some accountants. If people rely on modern technology too much, claims from tax inspectors are inevitable.

Any reporting system within an organization is always unique. It depends on the level of automation, company structure and the number of employees responsible for reporting.

While this is true, the tax authorities reporting requirements are standard for the majority of companies, and the errors commonly seen in the reports are often typical. The following key points will help accountants avoid making such mistakes.

Compare the Related Indicators and Key Ratios

The latest changes in the Tax Law of the Russian Federation clarify that a tax inspection authority may refuse to accept a VAT tax declaration if it finds differences related to acceptability ratios.

The information in the VAT declaration must be in line with the final amounts shown in the VAT section in the declaration. A difference in these may occur when an accountant changes or corrects the tax ledgers.

Sometimes tax officials verify not just one single VAT declaration, but also compare it with the other indicators within a tax declaration. Pay attention to the correlation between tax database information within the VAT reports, and that within the income tax reports. Should you find any differences, be prepared to provide an explanation for these differences.

Example. A company has transferred its property to another entity without any charge. The amount in this operation is recognized as revenue eligible for VAT, while the income tax is not implemented. Unless this operation is flagged using the correct code, the inspector may have a few questions to ask. If all the codes are correctly supplied, the tax authorities will not have any additional questions, and you will not have to waste time collecting additional documents.

It is possible that accounting mistakes are found in the process of indicator checks. These need to be corrected before the report is supplied to the tax authorities. This will help avoid doing your declarations over again, as well as draw less attention to the company in the future.

A Policy to Prevent Mistakes

What you need to do to avoid errors is keep your reporting system up to date. If you have any doubt, see the instructions on producing tax declarations.

It would be useful if you establish an additional procedure to ensure the relevant indicators and ratios are checked before tax declarations are submitted.

Always check the status of the report you have sent earlier. If any declared data is not in line with the acceptability ratios, the Federal Tax Service will send the declaration back so that these differences are eliminated within 5 days. It is important to comply with this deadline.

Check That the System is Correctly Set

The main recommendation to prevent the majority of such mistakes is not to rely on the system to calculate everything correctly.

Example. In tax accounting, there are standard costs referred to as ‘standard expense allowance'. The system can provide the correct calculation for this amount when this section is given the right attribute. This attribute will let the system know that there is a particular set of rules applicable to calculating the right values for this particular section.

When this attribute is not set, then the standard cost may exceed the allowed limit.

Ways to Prevent Such a Situation

An automated system is just an instrument. It will certainly make all of the automated calculations and fill the forums out correspondingly, though only if all the algorithms are correctly set.

Balance Sheet Analysis

Mistakes are often made if the accountant fails to correctly categorize company assets. If the accountant fails to analyze the accounts receivable section for liquidity and allocation of reserves for asset depreciation, this will substantially affect the quality of the financial report.

Absence of details and lack of transparency in financial reports may mislead company partners, or lead to wrong decisions.

If these mistakes are found during an audit, the business may obtain a modified audit report. This means such a report will contain an auditor’s remark drawing attention to the facts uncovered during the audit.

This may at least hurt the company reputation and will diminish the opportunities to obtain credit from the bank later.

Ways to Prevent Such a Situation

Analyze balance sections, study the newly introduced legislation, and the standard requirements. Your goal should be keeping your asset balance in line with the newest standards of balance accounting.

Do Not Put Everything Off for the Last Day

The best practice is to prepare financial reports in advance and submit them to the regulator without putting it off for the last day. If only a single figure is different, which may occur even due to some rounding of values, this may prevent the upload of statements into the system of the telecommunications network channels used by the tax authorities. You will not simply be able to transfer the documents until you remove these differences. Sometimes, a correction of a single indicator may affect other values, which may delay the process indefinitely.

Moreover, some elements of the electronic document management system may no longer be current and up to date.

Example. You have received an auditor’s report, and have put off the task of sending it to the federal portal for the last day. It has turned out that the electronic signature is no longer valid and up to date, which has caught the person in charge off-guard. An untimely delivery of financial reports in Russia is subject to fines.

Ways to Prevent Such a Situation

Always check for the correct dates of reports submission, as well as for validity of all the necessary confirmations. It is best to submit a report in advance, in order to have enough time to submit all corrections necessary.

Keep Your Accounting Policy Current

A company accountant-in-chief must follow all the changes in the laws and modify accounting policies accordingly. Company reporting standards must be formulated and documented on the company level. The accountant-in-chief is responsible for keeping the reports in line with all these rules.

Example. In accordance with the company accounting policy, the stock of goods in the production department is accounted for by the average own cost. The accountant has not checked whether this method has been implemented in the settings of the automated system. As a result, the goods were accepted for storage at own cost instead of the price for the goods, which, in turn, has led to wrong values in the financial reporting and to the report showing unplanned losses.

Ways to Prevent Such a Situation

All changes in the current law must be reflected in the company accounting policy. In turn, all the changes within the company accounting policy must be reflected within the automated reporting system.

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