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Accounting, group and tax balance sheets − or what robs accountants of their sleep and how to change it

Piotr STASZKIEWICZ
statutory auditor, Audit Partner at RSM Poland

The economic reality is not so simple as it is described in academic textbooks, but this is the difference between theory and practice. This is particularly visible in our country, where young graduates of business schools often painfully collide with the business reality. Their enthusiasm is dampened on the occasion of an unassisted attempt at posting, settling taxes, preparing financial statements and performing audit controls. It's just the way it is and it can't be helped − at least until apprenticeship and training programmes based on case studies are implemented in the school system and classes are conducted by practitioners.

Theory and practice on the example of the balance sheet

Financial reporting is one of the areas where everything is "balanced" in theory. In practice, however, it happens that financial statements of entities with foreign capital are prepared in several versions: for the local reporting (according to the Accounting Act), group reporting (consolidation at the level of the group − in line with the Group's accounting policy) or for the purposes of proper tax settlement. With limited capacity, accountants need to dabble with drawing up balance sheets and income statements for the three different recipients. Given the discrepancies between the accounting rules applicable locally, group policies or the tax law, accountants often face a dilemma: whether to prepare the necessary report for the Group on time at the expense of the quality of data in the local balance sheet, or devote more time to prepare a correct tax return at the expense of the quality of data recognized in the statutory financial statement and/or the group package? Does it have to be this way?

How to prepare a balance sheet and not to go crazy?

Our examination of financial statements and audits prove that very often the differences between international accounting principles, national accounting standards and tax regulations are not analysed, not to mention the reasons for the emergence of these differences. We suggest that our customers use the support of specialists in the field of tax law and financial reporting to eliminate these differences step by step. The initial effort will pay off and will significantly facilitate the fulfilment of reporting obligations in the future.

For example, with regard to depreciation of fixed assets for the purposes of a tax return, local balance sheet or group package you can eliminate the most important differences and make the appropriate adjustments so that the depreciation rate complies with the accounting (also for the purposes of group consolidation) and tax requirements. Another area could be the valuation of inventories or the use of different exchange rates for balance sheet valuation. After this analysis, there will still be some differences, but you should strive to ensure that − first of all − they are irrelevant to reporting as a whole, or − secondly − that their value is correlated with the relevant accounting assets/provisions for deferred income tax. Looking at the financial statement, the recipient wants to see that the effective tax rate is similar to the income tax rate.

My goal was not to indicate all the discrepancies that may arise when the balance sheet is drawn up in several variants − for accounting, group or tax purposes. I only wanted to indicate that a correct analysis of differences between the international accounting principles and national accounting standards or tax regulations may reduce them. Therefore, accountants do not necessarily have to prepare two or three balance sheets, as it is possible to reconcile different expectations from stakeholders (parent company/Group, state institutions, banks, management, etc.).