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Annual accounts & audit reports: The advantages of a fast delivery by companies

05/08/2020

The preparation of annual accounts by companies and the issuance of audit reports by auditors are in an improvable situation as regards the deadlines and dates when they are submitted. On occasions, the annual accounts are prepared after three to six months have passed after the closing date of the financial year. As a result, this encumbers the audit completion work and the issuance of the corresponding report by the auditor, which is irremediably deferred by the same length of time. In certain situations, some companies do not even have their annual accounts prepared by the administrative body until near the end of the legal deadline for approving them, in June of the year following that of the accounts, or until the deadline is near for filing the declaration of the corresponding corporate tax, and for depositing the accounts with the Commercial Registry, all at the end of July.

This practice is not optimal, given that the stakeholders, i.e. the various interest groups or, what amounts to the same, the people and entities interested in the progress and situation of the company, will not have up-to-date information close to the current date in order to be able to take decisions. Simply speaking, the information available that is gathered from the annual accounts is historic and can serve as a guideline, but the current panorama in the company might have changed significantly. The clearest example, even though it is an extreme and exceptional situation, is seen from the coronavirus pandemic. This crisis is having a highly significant impact on the progress of companies, causing activity to be paralysed, a drastic reduction in sales, the accrual of losses and difficulties in recommencing activities and returning to a financial-economic balance.

Leaving aside this exceptional event, what is indeed habitual is the speed with which economic events occur in current society, with an important impact on the progress and situation of the companies. Therefore, the annual accounts actually prepared more than three months after the closure of the financial year, and audit reports issued as from such date, can only be considered to be information from the past, not at all optimal for taking decision in the current market and society, where the speed and punctuality of information is a priority.

For companies, closing accounts immediately, preparing annual accounts in a short period of time and contributing to the immediate conclusion of the auditors’ work, meaning the corresponding audit report can be issued quickly, implies added value and numerous advantages, of which the following are of note:

  • Availability of completely and almost up-to-date accounting and non-accounting information for management to take accurate decisions, thus contributing to the improvement of targets and results.
  • The review and adjustment of the business plans and provisions established at the start of the financial year, based on solid grounds and achieving efficiency.
  • Freeing up time in the first half of the financial year to devote to tasks related to the closure of the accounts of the previous financial year, and to collaborating with and attending to the work of the auditors, being able to concentrate efforts almost from the start of the commencing financial year on day-to-day tasks, with no continual delays or heavy workloads.  
  • Efficiency and a positive image in respect of third parties, due to the transparency and fast availability of the annual accounts and audit report, close to the dates to which they refer.
  • Possibility at any time of being able to interim financial statements, at a particular date, including with a certain degree of verification on the part of the auditor through a short review report and work or procedures agreed regarding them, facilitating processes and speed in the obtaining of third-party financing or other support.

For auditors, this would also involve significant advantages, of which the following are of note:

  • Implementation of ongoing auditing throughout the financial year by analysing and reviewing processes, controls, operations, transactions and accounting balances at various stages, for example, every 3 or 4 months, including taking advantages of online advances and connections to clients.
  • Continual contact with the audited company, adapting the audit processes for this, logically emphasising the stage near the end of the financial year; all this would allow these processes to be minimised after the closure, with the intention of achieving a swift conclusion of the work and issuance of the corresponding audit report after also receiving the prepared annual accounts.

All of this would contribute to more efficient work of the auditor, distributed throughout the financial year, and better knowledge of the audited company and its current problems, largely doing away with the excess workload of the team of auditors from February to June following the financial year to be audited. This period is feared by and unpopular with those intending to enter the profession, in an advanced society where the reconciling of professional and family life (as could not be otherwise) takes on greater importance. In short, it would increase the quality, efficiency and added value of the information of the companies and their annual accounts, the work of the auditors and that of the audit reports.

Juan José Cabrera, partner at Auren Auditores Spain