Penalties under the Accounting Act

What it means

Penalties under the Accounting Act are fines the tax office imposes for breaches of a reporting entity's duties. Typical cases are failing to keep books, missing or incomplete accounting documents, failing to prepare or file financial statements with the register and not meeting the duty to retain accounting records.

The amount may depend on the company's total assets, with the law setting a percentage rate and an upper limit. Less serious breaches, such as filing late with the register of financial statements, attract lower fines, but they are imposed frequently.

These penalties are separate from fines under tax law. In a tax audit, a company may receive both a penalty for a tax offence and a sanction under the Accounting Act if, for example, documents supporting expenses are missing.

How it works in practice

The most common sanction is for failing to file financial statements with the register on time. A company should be clear about who files them and, after submitting the tax return, check that the statements have actually been published in the register.

Complete documentation is essential. Every entry must be supported by a document with the required particulars, and documents must be kept for the statutory period. With electronic archiving, records must remain legible and unalterable.

When moving to a new accountant or ending the relationship, the complete records must be handed over. Responsibility for the books lies with the company, not the external accountant, so missing documents count against the company in an audit.

What to watch out for

When setting the fine, the tax authority considers the seriousness, duration and consequences of the breach. Repeated breaches or obvious neglect lead to higher penalties, so shortcomings are best corrected as soon as they are discovered.

Where the books are incomplete, the tax authority may assess tax by estimation. Tax determined this way is usually far less favourable than tax based on properly kept books, which often hurts more than the fine itself.