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Who is obliged to operate full accounting system?

Karolina STANKIEWICZ
Accounting Assistant at RSM Poland

Operating a business is inevitably related to the obligation to operate a full accounting system. An enterprise may keep the accounts on its own or by hiring an accounting firm. The most often method to satisfy this obligation is to keep the accounts in the form of a revenue and expense ledger (PKPiR), i.e. so-called simplified accounting. The second method requiring more efforts and costlier is the full accounting system. Therefore, it is worth knowing what entities are obliged to operate such full accounting system and how one could prepare to do it.

Who is obliged to switch from the revenue and expense ledger to full accounting system?

Pursuant to Article of the Polish Act dated 29 April 1994 on Accountancy (consolidated text: Journal of Laws of 2013, item 330, as amended) partnerships, companies, including those during organization, private partnerships (except for partnerships of natural persons) as well as other corporate entities, except for the State Treasury and the Polish National Bank. This duty applies also to entities operating on the basis of the Banking Law, regulations on trading of securities, regulations on investment funds, regulations on insurance and reinsurance, regulations on cooperative savings and credit unions or regulations on organization and functioning of pensions funds, as well as communes, counties, provinces and their associations, as well as branches and representative offices of foreign entrepreneurs. However the regulations referenced above shall apply in a situation in which the above mentioned entities have their registered seat or administration within the territory of the Republic of Poland.

Revenue cap and full accounting system

It should be noted that the provisions of the Polish Act on Accountancy specify the cap of revenue earned in the previous financial year on the sales of goods, products and financial operations which is decisive to existence of the obligation of such entities to have the full accounting system. Said cap is Polish zloty equivalent of EUR 1,200,000.

In accordance with the provisions of the Polish Act on Accountancy, this amount should be converted according to the mean exchange rate published by the Polish National Bank on 30 September in the year proceeding the financial year in question. Currently, the revenue cap which, if exceeded, creates the obligation by the aforesaid companies to switch on 1 January 2015 to full accounting system, is equal to PLN 5,010,600 as the mean exchange rate, according to table No. 189/A/NBP/2014 of 30 September 2014 was PLN 4.1755. It is worth noting that pursuant to the published act of 23 July 2015 on the amendment of the Act on Accountancy and other acts (consolidated text: Journal of Laws of 2015, item 133), the cap value shall be determined by conversion at the rate published by the Polish National Bank on the first day of October.

The entities determining their revenue cap described above should take into account the disparity between the revenues that qualify for the cap in accordance with the Act on Accountancy and the Act of 26 July 1991 (consolidated text: Journal of Laws of 1991, No. 80, item 350) on personal income tax. Pursuant to Article 14 of the latter act, this cap includes the amounts due, even if not actually paid, and for sales of goods and services subject to the value-added tax, the VAT should be subtracted from this amount. It also should be noted that contrary to the provisions of the Act on Accountancy, the revenue arising from the sale of fixed assets, subsidies and, among others, services received free-of-charge or exchange rate differences should also be included in the above cap. It should be added that for entities settling their accounts only in the form of the revenue and expense ledge, the revenue cap should be determined on the basis of provisions of the act on personal income tax, whereas if the entities operate a full accounting system, they are obliged to determine the cap in two variants. Additionally, if switching to full accounting system relates to a private partnership of natural persons, general partnership of natural persons or a limited liability partnership, the revenue cap shall be determined on the basis of revenue of the partnership itself and not that of its individual partners.

Therefore, it is of utmost importance to monitor, during the year, and especially in the last quarter of the year, the amount of revenue earned and, if premises arise that the revenue cap might have been exceeded, if possible, to prepare for such situation. Because when the aforesaid cap for 2015 is exceeded, the entity will have to switch to full accounting as early as of 1 January 2016 which will entail a number of additional duties. As a result of these changes, the entity shall, among others:

  • Close the revenue and expense ledger as at 31 December 2015, making the inventory by method of physical stock taking of commercial goods, materials, production in-progress, finished products, waste or missing items and appraise it within 14 days of completion of such inventory;
  • Prepare, as at 31 December 2015, the inventory, i.e. the list of assets and liabilities which should be appraised in accordance with the Act on Accountancy which will require clearings with the bank and other business partners. The prepared inventory shall constitute the basis for preparation of the opening balance;
  • Open, as of 1 January 2016 the full accounting ledgers which should take place until 15 January 2016 at the latest and which comprises the daily log, main ledger, auxiliary ledgers, trial balance of the main ledger and auxiliary ledgers and the inventory.

Accounting policy and other requirements

An important issue is also the necessity to determine the accounting policy (rules) which should state, among others, the adopted financial period, appraisal methods for assets and liabilities and method of determining the financial result. Apart from the foregoing, this document should also contain the corporate chart of accounts, list of ledgers and - which cannot be omitted - description of the IT system if the accounts are kept with the use of a computer. Therefore, one should analyse in advance if starting up a full accounting system might require the modification of the existing computer system or, potentially, implementation of a new, more advanced one.

The new duties of the organisation with a full accounting system include also the preparation of a financial statement at the end of the financial year which comprises the following documents: balance sheet, profit and loss account, additional information including the introduction to the financial statement as well as additional information and clarification. Furthermore, if the organisation is subject to the duty of having one's financial statement examined by an expert auditor, it should also include the list of changes in the own equity (for investment funds - list of changes in net assets) and cash flow statement.

In summary, the duty to operate a full accounting system entails additional effort when switching from the simplified accounting as well as in the following financial years. Both a natural person operating own business and a manager of a large company should be aware of the fact that they are liable for the correctness of their accounting and its compliance with applicable regulations. Therefore, it is vital to consider the possibility of outsourcing the accounting services to specialised third party companies which offer comprehensive and reliable cooperation in this scope.