The Accounting Standards – a few issues which no one talks about

No matter if the company applies National Financial Reporting Standards for Small and Medium Enterprises (NFRSSME) or International Financial Reporting Standards (IFRS) or any other accepted accounting standards, a system for their proper and systematic implementation is necessary to be established.

The standard usually defines the principles and rules that have to be followed and observed, as well as describes certain models, but does not give an exact recipe for the technical implementation. In other words, from purely pragmatic point the standard does not give a precise decision which specialized software or developed model in a spreadsheet should be used so its requirements are met.

Modern accounting software provides functionalities to set established rules and models (currency assets and liabilities revaluation, amortization & depreciation accrual, assets devaluation etc.) but these do not cover all needs at all. Accountants usually use a set of spreadsheets, developed by them, to satisfy one or other requirement of the accounting standard. For example, a correct application of Standard 11 Construction Contracts requires a model to be developed for every contract, which must be filled in with data periodically so that the current income for the relevant period is determined.

The topic here can be extended to the necessity of additional data and registers that accompany the work of the accountants. For example, it is better if the accountants record any tax difference separately (often done via separate accounts for the so-called “non-recognized for tax purposes costs”, but this is not a good practice which provides limited results), so that a correct and unambiguous tax financial result is determined, and as a consequence the accountants should maintain a model for determining tax assets and liabilities resulting from temporary differences. If the accounting software does not support amortization of prepaid expenses and incomes, the accountants have to maintain a separate register for this purpose. If the accounting software does not support a model for amortization of financing for fixed assets, another separate register has to be kept.

Thus, the accounting software turns out to be only part of the components that the accountants use in their work. The accountant has to develop and keep separate registers for each item, which is not covered by the accounting software, so that the requirements of the accounting standards, as well as the tax legislation, are met accordingly.

The problem arise from the fact that the accountants deal with this on their own and they usually use spreadsheet, which is related to two main drawbacks:

1. Every single accountant is trying to develop a model, which lades to a loss of time in technicalities, often the technical performance is not of a good quality and has errors which later have impact on the model application; as often the accountant does not develop all models, but part of them the accountant applies by general knowledge, which leads to incorrect application or lack of information of the model implementation.

2. Excel is excellent software, but when used in complex systems, this turns into a bad practice.

Probably the industry needs an universal and easy-to-set-up software, adapted for the Bulgarian conditions, which should be easily accessible by accountants and should fulfills all requirements in an optimal way.

My practice in NOVACON : Years ago I developed an Excel application, which I repeatedly amended over the years and each change led to major problems with updating the old tables, as this application was multiplied in the project directories of each one of our clients. For several months already, we are using an own web-based application that covers most models and, as this is explicitly written software for this purpose, many things were improved and automated (e.g. quick and easy filling of Enclosure 6 of the VAT Act ), including updates are immediately performed, regardless of the number of the accounting projects.

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