Internal Audits Fix Financial Accounting Problems –

Provisions and Tax –

WHEN BUSINESSES ACQUIRE database management and tracking systems such as SAP- or Oracle-based systems, closing balances from the previous systems used are transferred as opening balances to the new system.

After a number of years, and a change of guard at management level, the understanding and specific knowledge required to determine how those opening balances were made up. The old closing balance records are destroyed or get lost.  If a specific inquiry is directed at these opening balances, many businesses have problems in providing the detail. A common problem.

The problem is about to get worse. Many accounting provisions are not allowed as deductible tax expenses until the actual expense or loss provided for actually occurs in the tax year in question. It happens that these provisions created by previous BO/CFO s and transferred from old to new systems may end up getting a life of their own as tax-deductible expenses, which should not be claimed. A blatant tax-deduction error.

What tax provisions may create these problems? The problem children are

• postretirement funding provisions,

• maintenance provisions,

• bonus provisions,

• obsolete stock provisions,

• price variance provisions,

• doubtful debt provisions,

• credit note provisions,

• returnable container provisions, and

• early settlement discounts.

In accordance with Circular 230 Disclosure