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From this article you will learn:
- What is the role of the auditor?
- What is subject to an inventory?
- Which companies are required to be audited?
Independent Accountant at RSM Poland
The end of the year is approaching fast, and for most businesses it means they need to close their accounts and prepare their financial statements. Unfortunately, this year there may be some trouble around the corner: due to exceeding predefined thresholds, many organisations will be burdened with additional obligations arising from the requirement to have their financial statements audited by a statutory auditor.
When does a Polish company need to hire a statutory auditor?
The 2022 financial statements will be subject to an audit by a statutory auditor (and thus require the organisation to get more involved), if the company has met at least two of the following conditions in the preceding financial year (i.e. 2021):
- average annual headcount in the company (full-time equivalents) was at least 50;
- total assets of the balance sheet at the end of the company’s financial year amounted to at least EUR 2,500,000 (its equivalent in Polish currency being PLN 11,498,500);
- net revenue for the financial year (derived from the sale of goods and products and financial operations carried out by the entity) amounted to at least EUR 5,000,000 (its equivalent in Polish currency being PLN 22,997,000).
In accordance with the Accounting Act, the statutory auditor shall review the statements in order to express a written opinion (in the form of an audit report). This report determines whether the financial statements of the audited entity comply with the accounting principles and whether they offer a fair and clear representation of the assets and financial situation of the audited entity.
How should accountants prepare for the audit?
To prepare the accounts for audit, the entity should first determine its ability to continue as a going concern in the foreseeable future. The accountant must do it at least once a year, namely at least at the end of the financial year. If the going concern of an entity is uncertain or doubtful, is some cases the entity is required under the law to take certain predefined steps due to this difficult situation.
The safest way is to start preparing your accounts for the closing of the financial year (and their audit) as early as the fourth quarter of the year to be audited. This helps avoid a massive workload on the last day of the financial year. If you do this well in advance, you will be able to carry out some of the inventory work in advance, for example. This, in turn, will allow you to bring the stock in the books in line with the actual stock. In addition, by reviewing the books and records in advance, you can reconcile, identify and correct any errors.
The most common items to be inventoried are: cash assets, securities, tangible current assets, inventories of goods and materials, real estate, receivables and payables.
When we reconcile the accounts to the facts, we, as accountants, lay the groundwork for estimating possible write-downs and provisions. For infrequently used fixed assets, receivables deemed doubtful of recovery or unsold stock for which there is no buyer and which has been in storage for a long time, it is worth considering write-downs. And for risks known to the entity (such as impending losses or adverse effects of other developments) you can make provisions right away. The most common provisions entities make are primarily for costs, employee benefits (severance payments, bonuses or unused holiday leaves) as well as litigation.
When preparing your financial statements for audit, do not forget one extremely important thing: to determine deferred tax assets and/or provisions and post the balance sheet valuation, prepared at the NBP exchange rate as at the last working day of the financial year. This is necessary if the entity has made transactions in foreign currencies.
Deferred tax in the financial statements
Not all entities subject to audit are required to establish deferred tax assets and/or provisions. This requirement is introduced if the company has exceeded two or more of the following for the previous financial year:
- average annual headcount: full-time equivalent of at least 50 persons;
- total assets of the balance sheet: at the end of the financial year amounting to at least PLN 25,500,000;
- net revenue from sales of goods and products: amounting to at least PLN 51,000,000.
Good accountant is ready to do anything
Taking stock, putting the books in order and aligning them with the facts, posting all costs and revenues relating to the year being audited in the books of that year, making any write-downs, creating provisions and accruals, and finally posting the balance sheet valuation: all this is the basis for any accountant to prepare a full financial report to be audited.
Properly prepared and comprehensive financial statements to be audited should include the following elements:
- balance sheet;
- profit and loss account;
- cash flow statement;
- statement of changes in equity;
- management report.
Closing a financial year always involves a great deal of work, stress and a perpetual lack of time. However, closing another year is also a success; after all, you know that you have come through an exceptionally difficult period and are richer in new experiences from the past. If you did it this time, you are going to do this next year, and should you need any help, you can always rely on an accounting office, such as RSM Poland.