Compliance Training: Maintaining accurate Books and Records

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Information about Compliance Training: Maintaining accurate Books and Records
Business & Mgmt

Published on February 15, 2014

Author: b2b-compliance



This is a Compliance Training on maintaining accurate company books and records.

Maintaining accurate Books and Records Compliance Training © 2014

TOC – Accuracy of Books and Records Which are the legal requirements on books and records of the company? Training objectives What does accuracy, completeness and topicality mean in the context of recording transactions? Which are daily situations around books and records that raise concern from a compliance point of view? © 2014 2

3 Legal background Numerous national and international rules oblige the company and its governing bodies to diligently keep accounts and records on business transactions. © 2014

General statutory provision (Germany) e.g. Germany: § 238 Abs. 1 HGB • Every merchant is obligated to keep accounts and to show clearly in them his commercial transactions and his financial position pursuant to generally accepted accounting principles. • The bookkeeping must be maintained in such a way that a qualified third party can derive from it within a reasonable timeframe an overview of the business operations and the position of the enterprise. • The business transactions must be comprehensible from their beginning to end. © 2014 4

Key message – comppo The information in the company’s books and records must accurately reflect the company’s assets, financial position and earnings at all times. © 2014 5

Specific requirements on information quality Three core requirements on books and record: Topicality Accuracy Completeness © 2014 6

7 Example 1 - Accuracy Compliance violation #1: As an employee working in production, it is your responsibility to inspect the quality of a product every 30 minutes. As there usually are no defects, and since you are under time pressure due to another task, you enter the next three results of the inspection in advance. Violation of the principle of accuracy. Information obtained in such a manner does not provide a truthful representation of the transaction. © 2014

Example 2 - Completeness Compliance violation #2: A customer has sued you because a machine that you sold does not deliver the contractually promised performance. You decide not to post a provision for this risk, so as not to negatively affect the earnings for the period. Such conduct violates the principle of completeness. The information in the company’s accounts does not provide a complete picture of the business situation. © 2014 8

9 Example 3 - Topicality Compliance violation #3: You are having difficulties keeping within your budget at the end of an accounting period. You therefore leave a supplier’s invoice “in the drawer” for two more weeks so that it will not be entered in the books until the following accounting period. This conduct violates the principle of topicality. The information is not promptly recorded and entered in the books once the business transaction was effected. © 2014

Proper documentation is a key requirement Documentation is an overall requirement Topicality Accuracy Completeness © 2014 10

11 Compliance violation #4: In the case of one customer, bonuses and commissions are offset against marketing and advertising cost allowances. The various claims are only partially, but not sufficiently, documented in agreements. Only a single employee, who is responsible for the calculation, is familiar with the matter and the agreements. This case does not comply with the principles of proper documentation. The business transactions are not sufficiently documented and verifiable for a qualified third party. © 2014

The role of the individual employee What role does the individual employee play in guaranteeing compliance with respect to the company accounts and records? © 2014 12

Consolidation principles of company information All information gets consolidated Financial Statement Main and side ledgers Invoices, Purchase Orders, Customer contracts etc. © 2014 Information 13

The duty of the individual employee Every single employee records business processes that will be included in the company’s official accounts. Every single employee is responsible for making sure that the records in his/her work area are accurate, topical and complete. © 2014 14

Root causes for compliance violations Root causes of compliance violations Lack of diligence • Business transactions are not recorded in sufficient detail or are not documented in writing. Intent • Business transactions are intentionally depicted differently in the company records than the nature of the transaction would require. © 2014 15

Examples for ignorance / want of diligence Examples for lack of diligence 1. Example Supplier invoices are entered in the books even though they do not comply with the formal statutory requirements. 2. Example 3. Example Due to a lack of staff, supplier invoices are not paid until weeks after they are received. Operating expenses are not sufficiently documented, for example the hosting of functions or customer events. © 2014 16

17 Examples for intent Examples for bad intent 4. Example Supplier invoices are intentionally “left in the drawer” and entered into the books much later so as not to negatively effect the earnings for the period. 5. Example 6. Example Maintenance expenses are entered on the asset side of the balance sheet in order to report higher profits for the period. As the marketing budget has not yet been exhausted, a supplier is asked to send a fictitious invoice intended to serve as an advance payment for services in the following period. © 2014

Summary of key messages Summary: Key Learnings All business transactions must be reported in a way that complies with applicable laws and accounting requirements. The information in the company’s accounts must be accurate, complete and topical. The transactions must be documented in a verifiable manner. The company cannot accept any violations of rules, regardless of the motivation behind such actions. If in doubt, find out which specific internal and external rules apply to your work area. © 2014 18

End of training This training material and more Compliance trainings are available for download at B2b-compliance is the web resource center for Compliance training material and Compliance policies. © 2014

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