After long, difficult discussions with the trade associations, the financial authorities released new accounting rules at the end of 2014. Along with heavily criticized tightening of the rules, there were also significant relaxations for operational practice. However, many companies still have a backlog in the mandatory process documentation and the required processing controls.
Financial authorities – technically upgraded and distance reduced
Companies are not the only ones to benefit from the unstoppable advancement of the digitization of the business world. Since the introduction of their data access rights, the financial authorities have more than made up for their earlier detachment from technical development in field audits with a stronger inclusion of all operational IT systems with tax-relevant information. Unlike in the past, they no longer evaluate data and records from cash registers, merchandise management, materials management, time recording or document archives only for the purpose of determining the applicable taxation. Databases are also used for risk analysis for uncovering weak points and possible manipulation as well as examining accounting for formal correctness – measures which many companies still forgo, despite increased requirements for compliance.
Level 2 audit – the further development of the tax audit
The basis for this development of the audit, known to experts as a level 2 audit, is, first of all, the secure maintenance of digitally analyzable data records during the legally set retention periods. If only for this reason did the German Federal Ministry for Finance announce the Principles of Orderly Accounting and Storage of Accounts, Drawings and Documents in Electronic Form and for Data Access (GoBD) dated November 14, 2014 – (Ref No..: IV A – 4 – S 0316/13/10003). However, the accounting rules were not completely reinvented. Along with adaptations to modern accounting systems, the new GoBD is essentially a compilation of previous guidelines for proper computerized accounting and the now over ten-year old rules for data access rights of the financial authorities.
Nevertheless, companies which are required to keep books and records should not take the current guidelines lightly. Many of the original ideas for correctness, retention and immutability of digital accounting in the GoBD drafts may have been eased in years of contentious debate with the trade associations and the Chamber of Tax Consultants. However, the remaining requirements have effects on business processes, booking behavior and retention obligations which are not to be underestimated. These particularly include the unique identification number for bookings, account allocation notes on paper records and the handling of scanned documents. An additional complication for some negligent companies is that gaps in the process documentation, which has actually been mandatory for years, could in the future result in a rejection of the accounting for the first time. In any case, if the transparency and verifiability of the business processes and the IT systems used are impaired for the field audit as a result.
Of course, no one needs to reinvent the wheel. Help in preparation is offered by the recently published sample process documentation by the Arbeitsgemeinschaft für wirtschaftliche Verwaltung e.V. (Consortium for Economic Administration; AWV), which was developed in close cooperation with numerous chambers of commerce and trade associations. The sample documentation for organized document storage can be downloaded in PDF and Word formats from the website http://www.gobd.de, where many more up-to-date guidelines regarding retention periods, permissible data conversion, timeliness of bookings and automated invoice handling are available at no cost.
Another unmistakable statement on the retention of operational data records also makes the need for adjustment in many companies clear: “If the data, data records, electronic documents and electronic records are not sufficiently protected and therefore cannot be provided, the accounting is officially no longer proper.” The auditing services are supported by another clarification of the retention requirement according to which the requirements of immutability are not met solely by the storage of data and electronic documents in a file system.
New accounting principles: key points
- Controls: Technical and organizational controls (such as capture, plausibility and processing controls, as well as gap and multiple record analysis) should not only ensure the complete and uninterrupted capture and reproduction of all business transactions, but also prevent unauthorized changes without proof of the previous status. The financial authorities will no longer be satisfied in the future with simple claims. Changes to and deletions of electronic postings or records must be logged (example: keeping a history of master and item data in materials management systems).
- Timely booking: The financial authorities consider the recording of cashless business transactions within ten days to be unobjectionable, provided business transactions are correctly allocated to the accounting period (turnover tax advance return!) in which they occurred.
- Account allocation notes: For paper documentation, for both received and sent commercial and business letters, information on account allocation, classification criterion for storage and booking date are required. The document or booking date, the bank statement number and the name (for extensive document accumulation) do not represent a suitable allocation criterion between the document and the record. It is different with electronic documents. Here, the electronic link with a data record which includes the required account allocation notes is sufficient.
- Unique identification number: In the future, the identification and allocation of all subpostings of a business transaction – including tax, collective, clearing and suspense account postings – must be ensured via a standard identification number for the business transaction which is unique to the business year.
- Email: In principle, email messages must also be retained as commercial and business letters. Exceptions: If invoice content or account statement data are included only in the email attachment, and the email message serves only as a “means of conveyance” – in these cases, the retention of the attachments is sufficient. Conversions to other formats are permissible if the machine readability is not restricted and no changes are made to the content. On the other hand, a reduction of existing machine readability, such as PDF/A-3 to image format, is not permissible.
- Replacement scanning: Paper records may be digitized and then destroyed, provided the company-specific rules for unchanged, proper digitization are listed in the process documentation. Color reproduction is only required if the color has an evidential value (e.g. deficits in red, endorsements, processing notes and mark-ups in various colors). Following the scanning process, further processing may occur strictly only with the electronic version. The paper records are to be withdrawn from further processing; no additional notes or additions may be made to them.
- Temporary intermediate formats: Files created during machine processing by the accounting system are no longer required to be retained, provided they serve exclusively as a temporary intermediate storage of processing results and their content is entered in full in the accounting data in the course of further processing.