An audit of financial statements serves as a crucial tool to verify whether a company's financial statements accurately represent its financial position. In practice, however, we repeatedly encounter errors that reduce the credibility of the statements, distort the financial result, and can lead to legal or tax complications. In this article, we provide an overview of the most common accounting deficiencies that we encounter during an audit.
1. Outdated contracts with management bodies and partners
One common problem is contracts that do not reflect the current status of changes in management remuneration or competencies. Similarly, contracts with business partners are often outdated for extended periods, resulting in ambiguities in the substantiation of costs and revenues. The solution is a regular review and updating of contractual documentation, which increases transparency and reduces risks during inspections or disputes.
2. Absence of accounting policies
Many companies still lack internal accounting policies or have outdated ones. Yet, policies are key for a uniform approach to accounting for provisions, asset valuation, or document archiving. Without them, accounting relies heavily on individuals, resulting in inconsistent reporting and higher error rates. Developing or updating policies according to the company's needs should be a standard part of the bookkeeping process. Internal policies also serve an interpretative function, especially in cases where general accounting regulations do not cover specific situations. These may involve accounting cases of insignificant value, extraordinary nature, or exceptional circumstances where it is necessary to prioritize economic substance over formal presentation. In such situations, an internal policy provides a clear framework for consistent and defensible accounting.
3. Weak internal controls
In many companies, accounting and payment processing are concentrated in the hands of a single person. Although seemingly efficient, the lack of segregation of duties significantly increases the risk of errors, fraud, and loss of credibility. A quality control system should include at least basic elements such as document approval, retrospective review of invoices, or regular internal audits.
4. Deficiencies in asset records
Another recurring problem is incorrect recording of fixed assets. Often, documents related to asset acquisition are missing, assets that no longer exist are recorded, or, conversely, the company uses assets that are not adequately accounted for. Incorrect depreciation schedules or incorrect classification of assets into groups can negatively affect the financial result and the tax return. Regular physical inventory verification and reconciliation of accounting records with the physical state are, therefore, essential.
5. Insufficient documentation of accounting transactions
A common deficiency is the recording of transactions without sufficient supporting documents, such as missing contracts, purchase orders, delivery notes, or confirmations of service acceptance. This problem is particularly typical for external services (e.g., marketing, IT, consulting). A relevant document should support every accounting entry. Without it, the transaction is questionable from an accounting perspective.
An audit does not have to be a dreaded event for companies if accounting is transparent and consistent.
Common deficiencies, such as outdated contracts, missing policies, or weak controls, can be eliminated by regularly updating processes. Precise accounting is not only a legislative obligation but also a vital tool for building trust with investors and partners.
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