Accounting documentation

What it means

Accounting documentation comprises all of a company's accounting records: accounting documents, books, the depreciation plan, stocktaking lists, financial statements, annual reports, the chart of accounts and internal policies. Together they give a complete picture of how the company kept its books and on what basis.

The Accounting Act sets how documentation must be kept, what particulars records must contain and how long they must be retained. Documentation may be on paper or electronic, provided its authenticity, legibility and protection against alteration or loss are ensured.

In a tax audit or statutory audit, every entry in the books must be supported by documentation. The inspector can trace from a document through the general ledger to a line in the financial statements and back, and every missing link weakens the evidential value of the accounts.

How it works in practice

The foundation is the internal accounting policies covering document flow, signing rights, stocktaking, valuation and depreciation. These policies form part of the documentation and show inspectors that the company's accounting is well thought out and consistent.

Documents, books, inventory lists and other records are kept for the statutory periods, with financial statements and annual reports generally kept for ten years after the end of the year they concern. Payroll records and some personnel records are kept considerably longer because of pension entitlements.

When retaining documents electronically, files must remain accessible and readable for the entire retention period, even if the software or provider changes. When ending cooperation with an accounting firm, it is important to take over the complete documentation, including exports from the software.

What to watch out for

Incomplete, unverifiable or destroyed documentation can lead to fines under the Accounting Act and, in a tax audit, to disallowed expenses or VAT deductions. In extreme cases the tax authority may estimate the tax, which is usually unfavourable for the company.

Retention periods under accounting and tax rules may differ, and if the time limit for assessing tax is extended, documents may need to be kept longer. Before shredding old records it is wise to check that no audit or dispute concerning them is under way.