While onboarded recently client claimed that their books of accounts are up to date. Based on which we agreed on the scope of work to review Financial Statements. However, after reviewing the financial data, we identified significant issues that could result in both financial penalties and missed opportunities for savings.

The Issues We Discovered

Upon reviewing the client’s financial data, it became apparent that the client’s internal accountant had used a cash basis of accounting instead of the accrual basis required by International Financial Reporting Standards (IFRS). This is a critical difference: the accrual basis of accounting provides a more accurate representation of a company’s financial position, recording revenues and expenses when they are earned or incurred, not when cash is exchanged.

The inaccuracies didn’t stop there. The client’s sales for the period were not accurately reported, and essential details for tax compliance were also misstated. These accounting errors can have severe consequences, especially when it comes to compliance with tax laws and reporting requirements.

The Risks: Penalties, Lost VAT Credits, and Double Taxation

Due to the inaccuracies in their financial reporting, the client faces several risks:

1. Potential Penalties from the Federal Tax Authority (FTA): The incorrect details in their books could lead to an inspection by the FTA, resulting in heavy penalties. Misreporting or failing to comply with local tax regulations is a serious risk for any business, and it can lead to significant financial losses.

2. Inability to Claim VAT Input Credits: Because the accounting records were incomplete and inaccurate, the client has missed the opportunity to claim VAT input credits on purchases made from vendors. This means the company has effectively lost money, paying VAT that could have been refunded or credited back to them.

3. Corporate Tax Overpayments: Due to not applying proper cutoff procedures at the end of the accounting year, the client could end up paying higher corporate tax or even face the risk of double taxation on certain transactions. These are issues that could have been avoided with proper accounting methods and procedures.

The Solution: Redoing the Accounting and Maximizing Savings

As part of our role as consultants, we now need to go back and redo the accounting for the entire year to correct the errors and bring the books in line with IFRS. While this process may seem time-consuming, it presents significant benefits for the client:

· Accurate Financial Data: With our expertise, we can ensure that the company’s financial statements are corrected and compliant with accounting standards.

· Tax Savings: By redoing the accounting and applying the correct methods, we will enable the company to claim VAT input credits, reducing their overall tax liability. This can result in substantial savings that were previously lost due to improper accounting.

· Avoiding Penalties: By correcting the mistakes, we help the client avoid potential penalties from the FTA, protecting them from financial risks and helping them maintain compliance.

· Minimizing Corporate Tax: By applying proper cutoff procedures and ensuring accurate year-end accounting, we can help the client avoid overpaying corporate tax or double taxation, resulting in better tax efficiency.