Started a business recently? Focusing on product development and route to market has led you to neglect your books of accounts and tax compliance?
Or maybe your business has been operating for some time but last year was so busy that you couldn’t keep track of your accounting and finance functions?
First of all, don’t worry – you are not alone. Second, there is a solution – catch up accounting!
What is Catch Up Accounting?
It’s a process of reviewing poor historic accounting, bookkeeping and financial activities of a company over a period of time and getting them back on track.
Catch up accounting can be a crucial activity for any start-up, SME or long-standing company that has issues within their accounting, bookkeeping, compliance or reporting functions.
Why is it necessary?
Three main reasons.
- The BIR can investigate companies or taxpayers for filing deficiencies for a period of 3 years after a filing year! Compliance with tax filing obligations is an ongoing activity for companies in the Philippines. Avoid financial penalties!
- A company must also ensure that it has filed a completed and accurate audited financial statement or AFS on time each year. This can be quite difficult to achieve if a company’s accounting books are not in order. Remember – the SEC has the power to investigate companies for non-filings!
- A company’s books of accounts should be the basis on which important company decisions are made. Issues with accounts could mean that management is relying on inaccurate financial information. Don’t let this happen – make sure your accounts are in order!
Who should perform the catch up accounting service?
An outsourced accounting, bookkeeping and finance firm such as CloudCfo or a company’s in-house accounting team (if there is one) can do it.
However, it’s generally more practical for an outsourced accounting firm to do the job as it allows the in-house accounting team to focus on the current year accounts.
It can also be more informative for a third party to review historic accounting processes, especially if fraud or incompetence is suspected!
Check out our recent article on the ways in which outsourcing your accounting and finance functions can add value to your business.
So how does it work?
- The catch-up period must be defined. This depends on how long the accounting books have been in bad shape.
- It’s then necessary to collect all historic receipts, invoices, tax documents, business expenses, supplier payments, payroll information and any documentation relating to business transactions.
- Bringing the company’s accounts payable and accounts receivable up to date is always an essential activity within the catch up accounting process.
- All necessary bank reconciliations (matching business transactions with bank statements) should also be performed at this time.
- All information collected must be reviewed, recorded within the company’s accounting books and presented in a way that tells the full story of the company’s finances.
What is the end result?
Once the catch-up process is finished and the accounts are in order, an updated financial report can be generated.
The company can also identify the steps it must take to ensure there is never again a need for catch up accounting!
The company may also be obliged to file back taxes with the BIR or submit reports or other filings to the SEC or LGU.
How long does the catch up process take?
It depends on many factors. How big is the company? How many employees are there? How many vendors does the company have? How long is the catch up period? What information is actually available or missing? What kind of accounting process and system (if any) is already in place?
If you need to perform catch up accounting, there is probably an issue with your company’s internal financial processes.
It might be that the company’s accounting and finance processes do not align with the company’s business model. It might also be the case that there were never any processes implemented in the first place!
CloudCfo, an outsourced accounting, bookkeeping and finance company, are experts in advising on best practices and processes to ensure that your accounting and bookkeeping functions align with your business model.
This might include advising on the use of accounting software solutions, cloud accounting services, outsourced accounting and bookkeeping services, payroll optimization and real value added finance processes to ensure all filings and reporting are performed on time.
CloudCfo also advises on the implementation and execution of new internal accounting and finance protocols.
Here at CloudCfo, we believe the optimal way to perform a catch up accounting service is through online bookkeeping software, reporting tools and cloud accounting technology.
It makes the process much more efficient and transparent and also removes the need for couriers and deliveries of paper documents. It can just be a matter of uploading the historic documents via the internet, entering the information into online accounting solutions and then transforming the information into a real value-added financial report which can be accessed and interpreted by management at any time and from anywhere.