The lack of clear regulations – a big challenge
The challenges appear quite often in our business. Personally, the biggest challenges had to do with finding a fiscal solution for an insufficiently regulated or unregulated case. The challenge is even greater when there are several contradictory regulations for the analyzed aspect. Analyzing each and every word (or even a coma) from a law text, while considering the possible interpretations for the same legal text, represents a challenge for me. But the professional fulfillment is enormous, when I find the best fiscal solution.
It is also very interesting and challenging the link between accounting and tax legislation, the way the accounting transactions recorded according selected accounting policies are treated from a fiscal point of view.
Being an accountant in Romania – not a stress-free job
Unfortunately, the job of an accountant is often perceived as data processing, a routine which adds no value for the company, but rather consumes resources in order to observe legal requirements; in other words, is seen as... a kind of „fifth wheel of a coach”.
It’s about time to change this perspective, because the accounting profession can become „an art” when it is practiced with dedication and, above all, with responsibility. There is creativity in this field, as well.
Why do I say this? Because a good accountant must keep pace with numerous legislative changes, both in accounting and taxes, taken as a whole. Another argument is that a good accountant has to be a support for management when it comes to take operational decisions. He/she should provide the best solutions for optimal usage of company resources and cash-flows optimization, in a timely manner.
From my experience, I noticed a major difference between a professional accountant that uses legal leverages for optimal usage of company resources, who proposes the application of possible fiscal incentives and an accountant who strictly limites his/her activity to the „standard” processing of primary documents and issuance of reports. I know medium-sized companies that have contracted „cheap” services from accountants who are not certified by professional bodies in the field, companies which sooner or later have paid impressive fines and penalties, due to years of non-compliance with accounting and tax legislation.
The continuously changing fiscal legislation puzzles the accountants in Romania
Frequent legislative changes confuse both accountants and business environment considering also that the accounting and tax rules have become extremely complex, especially in the last years.
The different accounting reporting packages, specific for either a very simplified accounting system, or for a simplified accounting system, or for a developed/complex one, harmonized with the European legislation or prepared in accordance with international financial reporting standards (IFRS) give serious trouble to the accountants. Moreover, from an accounting perspective, companies can opt for a financial year different from the calendar year (because of data consolidation requirements at the parent company level), whilst the financial year is limited to the calendar year, from a fiscal point of view.
What adds up to this complex accounting rules and policies is the multitude of fiscal requirements very specific to each type of tax: VAT, excise, corporate tax, withholding tax, local taxes and payroll taxes and contributions. It is very difficult not to “omit” at least one of them… but it is still possible.
All companies suffer from the lack of constant regulation frame
I think that every one is affected, especially as all the changes need to be implemented at very short notice. Large companies and multinationals have to allocate significant resources in order to quickly adapt to the new requirements the ERPs which operate large volumes of transactions. Despite that, these companies have the flexibility to adapt faster to these changes. In large companies, there is a tendency to have experts specialized on narrower fields such as: specialist in accounting policies and procedures, specialist in indirect taxation, specialist in direct taxation. This specialization allows an in-depth analysis of the new rules that appear in the field, thus diminishing the risk of wrongfully interpreting and adapting the new rules to the specific activity of the company.
Small and medium-sized companies, however, cannot afford to hire more people specialized in different fields. It is true that the SMEs have not the same level of complexity and volume of transactions as the large companies, but legislative changes have to be correctly and timely implemented in these cases as well. „General practitioners” are preferred for this segment of SMEs. Exactly like in medicine, first you go to a medical general practitioner who can direct you to a medical specialist, if deemed necessary (especially for atypical cases).
Everybody knows that if you go to a very good medical general practitioner, everything can work out fast and good. It is exactly the same in our job: if an accountant of SME doesn’t know how to apply the new regulations, he/she needs the advice of a “generalist” financial advisor.
Outsourcing – A solution against the menace of fines
The fines and penalties/interests in case of delay vary according to the type and duration of the deviation from the legal norms and they are detailed in the texts of law. I don’t think it is the case to go into details.
Important to be mentioned here is the fact that fines/penalties/interests for breaking the law can represent significant amount of money and can even determine the insolvency of small companies.
Outsourcing payroll services could be the solution. This way, the responsibility for the correctness of the computation and declaration of payroll taxes and contributions is delegated to a specialized company.
If outsourcing accounting/payroll services, the responsibility for proper computation and submission of tax returns, within the limits of the information provided by the client is taken over by the professional service provider.
In case of potential fines, penalties or interests, for non-compliance with accounting and tax legislation, it is hard to imagine that the company would be able to recover the money from the accountant/chief accountant hired with labour contract. This issue is quite different if the accounting and payroll services are outsourced. Specialized companies will bear these amounts if the non-compliance has occurred exclusively from their fault, these companies having signed compulsory professional risk insurance policies.
This is essential for the manager of a small or medium-sized company. The manager gets rid of stress of observing the legislation and can then focus on the daily operational activities of the company. As I mentioned before, it is also important to whom the outsourcing of the accounting and payroll services is done. Small, unknown accounting companies are often preferred because of their low fees, but these fees do not usually represent a guarantee for the quality of services.
There are further costs that can be also avoided: costs of professional training for the employees responsible with accounting/payroll/tax compliance, costs needed to update the accounting and payroll software, plus other similar costs.
Symptomatology for necessity of outsourcing accounting and payroll or personnel administration
Experience showed us that companies think about outsourcing these services when encounter problems such as:
- a tax audit ended with penalties/fines;
- personnel fluctuation in the accounting department;
- confidentiality rules in payroll have been broken and there are tensions between employees;
- strict confidentiality required regarding the level of salaries/benefits of top-management;
- the manager suspects irregularities in the financial statements received, the data from various reports do not reconcile or the reports are received with delay.
About the author: Mihaela Danalache, partner Ensight Management Consulting
Mihaela Danalache has a professional experience of over 22 years in accounting and taxes, of which more than 17 years in business consulting. She has skills in financial management, redesign of financial processes within business transformation projects (reorganization, restructuring, implementing integrated information systems) auditing, accounting assistance, tax assistance. She is chartered accountant, tax consultant and financial auditor.
Until 2005, when she joined as a Partner the consulting company Ensight Management Consulting, she held management positions in leading multinational companies: CEO of TMF Gontard, Director of the KPMG Accounting and Payroll Services department.
Mihaela Danalache graduated the Faculty of Finance and Accounting from the Academy of Economic Studies in Bucharest, and obtained the Certificate in International Business at the University of Bristol (United Kingdom) and also graduated the Executive MBA program in International Business at Ecole Nationale des Ponts et Chaussees in Paris (France).