August 2, 2017

The underestimated importance of accounting




Accounting is a centuries-old craft that has changed significantly after the invention of computers and the Internet. While the requirements for office equipment increase, the expectations regarding the accountant run low. Modern software often replaces personal expertise.

This approach is not always successful. For foreign-owned companies in Thailand, accounting is sometimes a minefield. This article explains why a regular review of accounting from the point of view of a German tax advisor can be meaningful.

Legal requirements

The Thai accounting standards are greatly similar to the generally accepted German accounting principles as well as the current international rules. The caution of a prudent businessman is always advised.

Every Thai Limited Company requires proper accounting and an audited annual financial statement. Unlike in Germany, there is no exemption for small companies that need no auditor’s certificate. A dependent branch is subject to these principles as well, even for a non-taxable representation office.

The quality of external accounting services lacks transparency. Often the client judges on secondary virtues such as accessibility at all times, an English-speaking contact person or timely submission of monthly documents and annual financial statements.

Accounting as a steering instrument

Experience shows that externally managed accounting is not always flawless. The observing client sometimes identifies errors at first. Typically discovered accounting errors are corrected at the expense of the customer.

The error detection and correction often require the involvement of the management. This results in a time burden and, therefore, indirectly results in higher cost. The working hours of the entrepreneur are one of the most limited resources. A cheap service, combined with testing and cleanup work from the management, is actually an inefficient, expensive accounting service.

The existing option rights and leeway for assessment are well known to the accountant. However, he has no knowledge of how to use these features efficiently for the benefit of the company. He, therefore, focuses on the safest assumed way, and he follows the methodology of the past. However, well-intentioned does not always mean good. In the end, accounting loses its function as a steering instrument.

Which action is needed?

What are the critical points at which an intervention by the company is required? The Thai Foreign Business Act restricts direct investments from abroad. These restrictions generally require a more complex group structure than necessary from a business point of view.

This often results in a different viewpoint from the German and Thai perspectives. Accounting of the group structure is a very sensitive topic. The consistency principle asserts that any (wrong) accounting decision has to be continued over many years.

In the end, small inaccuracies can develop over the years into big problems. This is often not obvious before the point of disinvestment, which means the sale of the company.

This issue arises not only in the recording and accounting of a company’s shares. The financing of the company is often more problematic. The application of normal Thai accounting principles may lead to a breach of Thai foreign law. If this is not carefully identified in advance, this problem can be hidden in the accounts and gains can gather more and more significance from year to year.

A project promoted by the Thai Board of Investment is typically subject to specific requirements, particularly on the equity side. An accounting policy that does not recognize these requirements will probably not take them into account. Subsequent repair work is difficult and expensive.

The same applies with respect to the overall group accounting policy. This may address financial covenants or a transfer pricing strategy, for example. If the policy is not properly communicated to the accountant or not precisely understood, it is no wonder that unwanted results will arise.

A detailed review of the monthly financial notes is also required in the context of sophisticated tax planning. All things considered tax-wise, the inclusion of the German and international tax laws can help companies avoid expensive contradictions.

German philosopher Johann Gottfried Herder offers the insight that time is a strict accountant who overlooks nothing and never lies. Behind the short-term monthly data and figures stands a commitment for a balance sheet decision that will be relevant to the company even in later years. The attitude of looking down on accounting misjudges its sustainable relevance for a business’s success. The Consulting House provides professional accounting and audit to meet the expectations of international clients.

Comments are closed.