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    COMMON ERRORS WHEN PREPARATION OF FINANCIAL REPORTS
    15:36 - 04/10/2024NEWS,

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    In the process of preparing Financial Statements (FS), ensuring the accuracy and transparency of financial information is always the top priority for accountants and businesses. However, despite complying with regulations and accounting standards, errors can still occur, affecting the quality of the reports and undermining the confidence of stakeholders. From misclassifying assets, omitting revenue, to failing to adequately set aside provisions, even the smallest errors can lead to serious consequences. Particularly in the increasingly complex economic environment and stricter demands for financial transparency, identifying and correcting these errors becomes essential.

     

    Errors due to miscalculations

    • Miscalculations that lead to incorrect recognition of asset values, receivables, liabilities, expenses, or other items.

    • Mathematical or formula errors during the preparation of FS.

    • These errors can be identified by re-checking the numbers and calculations against the original data and supporting documents. Cross-verifying figures between reports and schedules helps detect calculation errors.

    Misapplication of accounting policies

    • Misunderstanding or incorrect application of accounting standards.

    • Applying outdated accounting standards instead of the new ones that are already in effect.

    • Inconsistent application of accounting policies across periods.

    • Cross-checking current accounting standards with the methods used to recognize and handle items in the financial statements is crucial. Continuously updating changes in accounting policies is vital to avoid such errors.

    Failure to record economic transactions

    • Failure to record fixed asset purchases, leading to unrecorded assets in the books.

    • Failure to recognize revenue and receivables from sales transactions.

    • Omitting other financial or economic transactions affecting the FS.

    • A thorough review of economic contracts, invoices, vouchers, and related documents ensures that all transactions are fully recorded. Furthermore, comparing data from different functional departments (sales, purchases, warehouse, finance) helps prevent missing information.

    Fraud in accounting

    • Deliberately misreporting revenue, expenses, or other items to distort financial results.

    • Using company funds for personal purposes without proper recording or accounting discrepancies.

    • Intentional tampering or falsification of accounting figures to conceal dishonest acts.

    • Signs of fraud can be detected through independent audits, cross-referencing data from multiple sources, or spotting irregularities in the financial statements.

    Errors during the preparation of Financial Statements (FS) not only distort the true "health" of a business but also affect other related parties, including tax authorities, banks, and investors.

    For businesses, inaccurate FS can lead to severe consequences. Firstly, it significantly diminishes the company’s reputation in the market, leading to a loss of trust from investors, partners, and customers. Investors often hesitate to invest in a company with non-transparent FS, making it difficult for the company to raise capital for business expansion.
    Secondly, based on inaccurate information in FS, the management may make incorrect business decisions or errors in managing, planning, and controlling the company’s operations. This can lead to financial losses and missed growth opportunities.
    Additionally, in cases of intentional or negligent errors, the company could face serious legal issues, administrative penalties, and even criminal prosecution.

    For other stakeholders, such as tax authorities, inaccurate FS can result in the under-reporting of taxes, leading to loss of government revenue. For credit institutions such as banks, FS are a crucial basis for assessing a company’s repayment capacity. Dishonest FS can lead to incorrect lending decisions, increasing credit risks, and causing financial losses. For investors, FS is a primary source of information for making investment decisions. Misleading information in FS distorts the actual picture of the company, leading to ill-informed investment decisions and eroding investor confidence in the market.

    In Vietnam, errors in financial statements remain common both in terms of the number of companies and the severity of the errors. This calls for appropriate solutions to minimize these mistakes and help users of FS make accurate decisions.
    One of the causes of errors in FS stems from accountants themselves. Therefore, companies need to improve the skills and qualifications of their accounting staff to meet the requirements of preparing and presenting FS in accordance with current accounting standards and regulations.
    Moreover, companies need to adopt effective solutions when using independent audit services. Specifically, businesses should be cautious in selecting independent audit firms to conduct financial audits, focusing more on the quality of the service rather than the cost of the audit.

    Accurately and truthfully preparing financial statements is an extremely important task for any business. FS not only reflect the company’s actual financial position but also serve as the basis for making management and strategic decisions. When FS are accurately prepared, it helps the business properly evaluate its performance, allowing for more efficient adjustments in operations and resource allocation. Conversely, if FS are dishonest or contain errors, the company may face severe consequences such as losing investor, business partner, and regulatory trust. Additionally, preparing truthful FS also protects the rights of shareholders and other stakeholders, while creating favorable conditions for attracting investment, securing bank loans, and expanding business activities in the future.

    References:

    1. Penalties for Incorrect Financial Reporting (accgroup.vn)

    2. https://tapchitaichinh.vn/han-che-sai-sot-trong-bao-cao-tai-chinh-cua-cac-cong-ty-niem-yet.html

     

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