The seamless documentation of all tax-relevant processes - procedural documentation - will influence the outcome of every tax audit or Value Added Taxspecial audit in the foreseeable future.
Tax consultant Lars Rinkewitz from our partner ECOVIS KSO is on the same wavelength as us in this statement and is also one of the leading experts in this segment. The following article is from him.
Process documentation - what exactly does that mean again?
The principles for the orderly keeping and storage of books, records and documents in electronic form as well as for data access - GoBD for short - state that procedural documentation must be prepared by all taxpayers with profit income (income from business operations, from self-employment, from agriculture and forestry) and must be presented during a tax audit. This applies irrespective of the sector, size and complexity of the company or the type of IT systems used.
Taxdoo Note: Together with the tax auditor Andrea Köchling (in a non-official capacity), we started the webinar series "Financial administration meets online trading" on 26 June. If you missed the kick-off event, you can watch it again in our blog post. You can see the follow-up dates here.
An improper or even non-existent procedural documentation can lead to considerable difficulties with the tax authorities during a tax audit. In the worst case scenario, extensive additions could be made because the tax auditor rejects the accounts due to formal deficiencies.
In short, procedural documentation must reflect all processes and structures of the company that can have a direct and indirect impact on the accounting.
It is essential that all outgoing sales are recorded in an audit-proof manner...
However, the existing model documentation, in particular from the associations which can be found on the Internet, does not reflect the full range of information required. In most cases, these samples refer exclusively to the receipt of documents. But much more exciting and interesting for the auditors are the questions of the complete and audit-proof recording of outgoing sales.
... and the description of the interfaces...
In addition, all interfaces must be described, especially in online trade. If data is imported into the accounting system via an interface, e.g. from a merchandise management system (WaWi), not only the process is important - i.e. how does the data get from A to B - but also the question: How does the data of an audit-proof WaWi get into the audit-proof financial accounting system?
If data is exchanged via csv file, changes can be made at any time due to a lack of logging options.
This makes it possible to manipulate the data at any time. One can ask oneself whether the existence of a non-audit-proof interface can then have an effect on the revision security of the entire Fakura or merchandise management system. We believe that the question of interfaces will become very important in the future.
If you have your accounts prepared by a tax consultant or other external service provider, the processes and structures of the tax consultant or service provider are also part of the procedural documentation. So ask your tax consultant or service provider whether he has such documentation.
We at ECOVIS KSO have prepared separate procedural documentation for our business processes. This documents, for example, how we prepare the financial accounting or payroll accounting for our clients and what safeguards we have taken to minimise the risk of errors. So if the auditor asks what happens at the tax consultant's office, we forward our documentation to the auditor.
Chances of a meaningful process documentation
The positive aspects of dealing with one's own processes and structures go beyond the mere fulfilment of duties. This is a realisation gained from our experience.
You deal with your business as an entrepreneur. Many processes and structures may not be familiar to you, especially because the company may have experienced rapid organic growth and the organization may not have been able to keep pace. By involving an external third party, e.g. a suitable tax advisor, processes that have been in place for years can be examined from the outside, i.e. without being blinded by the company. Many questions, risks and perhaps also inefficiencies come to light.
This leads to the fact that
- you as an entrepreneur create a new orientation of the processes as well as the structures under efficiency aspects if necessary
- Standards can be set
- uniform work instructions lead to assistance
- new employees find their way around and are trained more quickly
- transparency can be achieved
- and most importantly: risks can be detected and eliminated
With regard to the risks, it should always be said in the context of young companies and e-commerce that the relocation of accounting data abroad, in whole or in part, is subject to approval. The term accounting data is broadly defined by the tax authorities. So if data, such as accounting data like receipts, contracts, invoices, personnel data, is processed and stored abroad in the cloud, permission must usually be obtained from the tax office. This risk often occurs in the course of a process analysis and can be eliminated by an application.
The tax authorities will increasingly request procedural documentation and are already doing so. This is absolutely understandable due to the ongoing digitalisation. How else should auditors gain an impression of the processes and the origin of the accounting data?
You as an entrepreneur should therefore not take proper documentation lightly.
However, with all the additional work that naturally becomes necessary in addition to the operative work, when one is dealing with the documentation of processes and structures, the advantages are also evident. Take the chance to position yourself even better as a company.
About the author
Lars Rinkewitz Tax consultant, graduate in business administration Consulting focus: Process documentation
Or simply visit the Ecovis NRW blog to find out about the latest news from tax consultancy, law and auditing from an entrepreneurial perspective.
Taxdoo is the compliance platform for the digital economy
... and maps the most important tax processes for the leading online traders in Europe. For this reason, we will shortly be making procedural documentation available to all clients.
In addition, we will make GoBD a cornerstone of our blog posts, webinars, seminars and professional articles this year.
If you want to know more about how you Value Added Taxcan efficiently and securely map compliance, financial accounting and much more via a platform, then book your individual and free initial consultation with the compliance experts from Taxdoo!
You are also welcome to register for our regular demo webinar in which we will introduce Taxdoo and our compliance services and answer your questions personally.
P.S.: Taxdoo has been an official partner of DATEV in online trading since the beginning of 2020.