The 10 most common errors in the annual financial statements

The preparation of the annual financial statements involves some pitfalls. Whether it's a lack of preparation or careless auditing: errors and inaccuracies in the preparation of the annual financial statements can have fatal consequences. This year, there are particularities to consider especially regarding Covid-19.

It can happen quickly that important information is forgotten or errors creep into the preparation of the annual financial statements. After all, this is not an everyday task, which is why even with many years of experience, routine hardly sets in. However, careful and correct preparation of the annual financial statements is worthwhile, as a correct annual financial statement not only prevents liability consequences but also makes a difference in the tax bill. Depending on the size and complexity of the business activity, it is worth having the financial statements prepared by a fiduciary. Those who prepare the annual financial statements themselves should avoid the following mistakes:

1. Inadequate preparation

Subsequent expense vouchers or forgotten depreciation cannot be submitted later. Therefore, good preparation is crucial. Organize  all the necessary documents for the annual financial statements, before you start with the actual preparation. Ideally, keep all receipts during the year organized in electronic form . This avoids the tedious gathering at the end of the year.

2. Deviations not noted

When preparing the annual accounts, the principle of consistency must be observed. This principle prescribes that financial statements must be comparable over time and across sectors. For this reason, accounting and valuation principles must be maintained, and changes in them must be disclosed. Therefore, do not forget to make notes in the appendices on changed estimation methods, types of depreciation, and assumptions of deviations.

3. COVID-19 provisions not reviewed

If your business has been particularly hard hit by the pandemic, but the amount is not yet precisely quantifiable, you might be able to make a COVID-19 provision to secure the future development of your company. It is best to check with the cantonal tax authority for the exact prerequisites and regulations.

4. Formation of an employer contribution reserve not reviewed

If you were spared by the pandemic and were able to achieve high profits in the fiscal year 2020, it might be worth considering forming an employer contribution reserve for the employees' pension. Clarify with the canton by when a payment to the pension institution must be made, as mere bookkeeping consideration is not sufficient.

5. Forgot to justify adjustments

Principles of proper accounting generally prohibit the offsetting of assets and liabilities or expenses and revenues. The gross principle applies. If you make use of the permissible exceptions from the prohibition of offsetting in the financial statements, they must be disclosed and justified.

6. Inadequate insurance information

References to open obligations towards social insurance, accident insurance, and provision must be noted in the balance sheet or the appendices. If your company voluntarily pays employer reserves to the pension institution of the 2nd pillar (such as at high profits), these should also be listed.

7. Wrong structuring

The structuring of the financial statements must have a decay structure. The financial statements must meet the minimum requirements in terms of structure and content. After all, one wants to avoid the tax office rejecting it. The sequences for individual asset and liability items as well as for expenses and revenues must be adhered to.

8. Forgotten details

Whether details on securities for claims against third parties are missing or the formation of hidden reserves has been forgotten, missing information in the financial statements has serious consequences. To prevent insufficient details, you should previously create a checklist of the necessary contents and compare the financial statements with this.

9. Missing information and signatures

The formalities should also not be overlooked when preparing the financial statements. The document must be provided with the signatures according to the commercial register (single signature or joint signature). Moreover, the responsible person (accountant, CFO) must sign. It is also advisable to include the details of a contact person and the audit firm. This is not mandatory but facilitates the later clarification of any ambiguities.

10. Delay

The financial statements must have been prepared no later than 180 days after the balance sheet date. Especially in the case of small firms, this deadline often passes without the financial statements being submitted.

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