Irregularities related to settlement inventory. Relatively, weaknesses in settlement balances are also common. Legal accounting regulations in force in Poland require creditors to come forward with an initiative to agree on balances. In practice, however, often the agreement initiative does not respond.
It also happens that creditors themselves do not always include all their counterparties in the endorsements. The consequence of this is that it is not possible to fully assess the existence and completeness of claims and liabilities. Sometimes, even the entire arrangement mode cannot be considered credible. This is the case when:
- • the entity will not issue validation forms for the significant part of significant counterparties
- • the entity will not ensure receipt of confirmations of balances from most significant counterparties
Without doubt, the fact that settlement balances have not been received or the receipt of balances that do not comply with the balances in the unit's books does not mean that certain economic operations have not been correctly recorded in the unit.
In practice, often encountered in the confirmations of the balances of discrepancies result from the lack of the principle of accrual by the counterparty. This is the case, for example, when the sales invoice issued by the entity in December is booked with the counterparty in January of the following year, i.e.
in the month of its receipt, and not in the month when the sale in the form of the delivery of the goods or performance of the service actually took place. There are also often time differences in the recording of payments, i.e.
the payment made by the counterparty in the last days of the year only affects the entity's account at the beginning of the following year.
However, there are also situations where errors are intended and arise from the desire to "artificially improve" the financial result.
In order to reduce the risk of such intentional errors, the "sensitive" Chief Accountant and the Management Board should, inter alia, draw attention to any unjustified increase in revenue in the last month of the financial year, or to conduct unusual operations or to enter into preliminary conditional contracts.
Such transactions may be recognised differently in the accounts of each party and result in differences in the confirmed balances of mutual settlement.
In the event of a significant and frequent discrepancy between the accounting records and the receipts, it is necessary to establish the reasons for these. Such discrepancies may be due to repetitive errors in the unit's records and operating system.
It is also common that, despite the reminders, there is no answer to requests sent to settle the balance. In such situations, the auditor shall use alternative examination procedures, i.e. checking subsequent payments or payments for receivables and liabilities, or checking of shipping documents and correspondence with counterparties.
However, alternative procedures generally result in additional work for the company and the researcher, while giving a lower degree of certainty than classical balance confirmation. Therefore, if possible, the recommended method is to enforce balance confirmations.
A statutory auditor can help
As noted above, there are much more errors and irregularities in the accounts. We have tried to present only the most typical, which we meet most frequently during the audit. In identifying all relevant and protecting company owners and boards from any tax risk associated with their occurrence, a sound auditor may and should assist.
In order to increase its effectiveness in this respect, the management of the company may indicate to the statutory auditor the risk elements it has to pay more attention to, or unusual transactions where it is not certain about the method of accounting adopted.
It is worth that the management of the company sees not only a reviewer in an expert review whose sole purpose is to meet the statutory obligation to provide a signed audit opinion on the financial statements, but also a partner on the way to improving the organisation. This partner, using his knowledge gained in research not only ours, but also many other entities, can indicate how to improve financial reporting processes, information prepared for the needs of the Management Board and management, or internal control processes.
Many organisations have found that a reliable audit not only identifies accounting errors, but also shows the company the way towards appropriate solutions on less standard issues and contributes to fully reflecting the financial and property situation of the business unit in its financial statements.
In our practice, audits of financial statements, using the strategies developed by the most professional audit firms in the world, carry out preliminary examinations even before the end of the period.
They aim not only to get to know the entity, to know its business processes and internal control system, but also to focus on the smooth closure of the reporting period, so that the final result of the study is the financial report as accurately as possible presenting the image of the entity to its owners, potential investors and all stakeholders.
In order to benefit from this solution, we therefore encourage the choice of an auditor and the conclusion of a contract with him a few months before the end of the year under examination, which is actually now...
Classical examples of misstatements on estimates include underwrites in stock, receivables or underwrites in guarantee costs and other costs/services incurred but not invoiced before the end of the period. Frequent manipulations can also be noted in construction and service companies using long-term contracts.
The manipulation of estimates in these entities is usually made through incorrect forecasts that affect the determination of the level of progress of the contract and consequently the result shown on it during the period.