For many of the companies the annual closing is quickly approaching, together with the statutory audit. The significant part of the annual closing is the confirmation of balances with debtors and creditors (Accounts Receivable (AR) and Accounts Payable (AP) balances.
Why it is important?
Such reconciliation is obligatory according to Article 11 of the Russian Law “On Accounting” (402-FZ). It is not a secret that the importance of the inventory taking of accounts receivables and accounts payables is often underestimated and done formally just in order to meet the requirements of the law.
However, such an approach is not acceptable and, moreover, is not in favor of a company.
The main reason why the reconciliation of Receivables and Payables requires special attention is that such a procedure permits avoiding the misstatement of companies’ assets, as well as identifying bad and doubtful debts.
The results of the inventory taking of AR and AP are used for management purposes as an information base for the collection of overdue liabilities, for statutory and tax accounting purposes, for the creation of special provisions for bad debts and write-offs of accounts receivables, where there is no expectation of getting it back.
The process of reconciliation may include the following stages:
- Review of the accuracy of accounts payables and receivables in 1C (incl. advances offset, terms of contracts, and FOREX effect).
- Reconciliation with counterparties: direct contact via phones and emails, official notifications via post office, and further processing of the documents received.
- Analysis of debt aging, defining of overdue debts.
- Work with bad debts: informing debtors about delayed payments and respective penalties to be charged.
- Work with overdue liabilities: taking a decision on writing-off, analyzing debt aging and overdue debts, control over terms of payments, preparation of the payment calendar and further cash flow planning.
- Reconciliation with foreign (non-resident) customers and suppliers, taking into account currency control regulations, tax risks, availability of supporting documents.
- Intercompany reconciliation: per contract and invoice, analyzing the application of thin capitalization rule, check of the certificate of residence, accruals and deferred income.
- Checking bankruptcy or other court cases related to business partners (especially for big contracts and tenders).
How it will help?
The above steps help to meet the legislation requirements and eliminate the following possible risks:
- risk of modified auditors’ opinion due to over- or understated assets / liabilities, unconfirmed AP or AR balances, wrong intercompany settlements;
- risk of lost tenders due to weak balance sheet;
- tax risks due to wrong FOREX effects, higher profit tax due to missing expenses; VAT and profit tax risks due to improper or missing primary documents; wrong calculation of withholding profit tax due to lack of supporting documents;
- risk of a cash shortage due to lower or delayed cash inflows;
- risk of currency control penalties due to documents not being timely provided to the bank,
- risks of business sustainability, waste of cash and bad debts due to problematic counterparties.
We will be happy to support you with the described tasks on a one-time or regular basis.