What's hot in Q1 2022
The Accounting Law and the Cabinet of Ministers’ Rule No. 877 came into force on 1 January 2022. The new Act tidies up the terminology, widens the range of subjects and brings in changes relating to supporting documents. Key changes affect a CEO’s duties and responsibility for adopting a control system that must be described in the company’s accounting policy.
Section 31, paragraph 2 (2) of the Accounting Law stipulates that the head of the company has the obligation to ensure the development and maintenance of an accounting control system as well as compliance with control measures.
Control measures are taken to control the accuracy and credibility of financial accounting, the preservation of the property of the Company and the accuracy of tax calculations. The measures must confirm that the information provided by accounting records is truthful, comparable, timely, significant, comprehensive and complete. (Section 5 (1) of the Accounting Law).
Paragraph 10 of Cabinet Regulation No. 877 sets out the types of accounting control measures which should be established by the head of the Company to prevent fraud and breaches in preserving the company’s property, to control the accuracy of its financial records and tax calculations, to prevent accounting data errors and the loss of accounting information.
In accordance with the Cabinet Regulation, a control system must include at least two types of controls. One of the main types is stocktake which includes drawing up an inventory of movable and immovable assets as well as cash and inventory balances, reconciling the stocktake results with the accounting data, analysing or investigating the causes of any discrepancies found, and updating the accounting data. The second type of control is reconciliation of the company’s balances with those of suppliers, credit institutions or other payment service providers. For example, a company may reconcile all accounts on a quarterly basis with an independent source, such as bank statement.
The Law recommends to introduce and include other types of control in the company’s control system.
As one of the control measures, the right of the responsible employees to access information according to their competence should be defined and ensured, so that an employee who has the right to perform operational transactions and prepare a supporting document is not granted the right to approve, verify, record and include the transaction in the financial statements.
The head of the company must introduce the “four eyes’ principle, so that at least two employees would participate in the performance of certain functions. The head of the company must also appoint a person responsible for the safekeeping of the company’s cash and tangible assets, who controls the access rights to the company’s property.
In order to obtain assurance that the requirements of the Law and other regulations have been complied with in the accounting records, the head of the company may introduce regular inspections by appointing a responsible employee, allocating responsibilities and setting specific control measures.
The head of the company is also responsible for the conservation, archiving and permanent storage of the company’s data, therefore it is important to include in the control system such measures to prevent loss of information included in accounting records. Examples could be restricting access to accounting data, appointing of employees responsible for the conservation of the originals and copies of accounting documents until their transfer to the company’s archives, as well as determining the procedure for the preparation and storage of backup copies of accounting data.
The article provides an insight into what KPMG Baltics SIA considers to be key changes in tax legislation in the 1st quarter of 2022. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
Jevgēņija Ivušina, Manager, Tax, KPMG in Latvia
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