The annual stocktaking of assets and liabilities is a legally prescribed obligation and entrepreneurs are obliged to conduct it at least once a year at the end of the business year. An inventory is very important in meeting the basic requirement in financial reporting. The stocktaking shows the true and objective financial position of the company. Although stocktaking is more challenging in the coronavirus era to maintain distance, work from home, and potentially fewer people in the workplace, entrepreneurs have a responsibility and obligation to organize the stocktaking in such circumstances.
WHO AND WHEN MUST MAKE AN ANNUAL LIST OF ASSETS AND LIABILITIES
The inventory determines the actual balance of assets and liabilities and according to the determined actual balance, it is necessary to harmonize the balance of assets and liabilities with the business books. This is prescribed by Art. 15. of the Accounting Act, which states that the entrepreneur is obliged to list all assets and liabilities and state their values in quantities and monetary amounts, and to harmonize the stocktaking with the inventoried actual balance:
- At the beginning of the business,
- During the business year (at the latest at the end of the business year),
- In case of status changes,
- In case of opening bankruptcy proceedings or initiating liquidation proceedings,
- By order of the tax authority in the process of supervision and,
- In the event of changes in the prices of goods (unless information on the value of goods in stock can be provided in the accounting records).
The obligation to conduct an annual stocktaking of assets and liabilities is thus required to be performed by all entrepreneurs, all taxpayers, all budget users, and all non-profit organizations, and those engaged in simple bookkeeping.
WHAT THE ANNUAL CENSUS OF ASSETS AND LIABILITIES SHOULD LOOK LIKE
The annual inventory of assets and liabilities should include all assets and all liabilities stating individual values in quantities and monetary amounts. Then, it is necessary to harmonize the bookkeeping situation with the inventory, make an assessment of the quality and value of assets (damage, etc.) and enter receivables and liabilities.
The annual inventory of assets and liabilities is recorded as of 31 December and is performed before or after 31 December, noting that the stock of inventories from the date of the stocktaking should be reduced to the balance sheet date.
If the census was conducted before 31 December, the situation determined by the census should:
- increase for all entries (purchases, refunds, etc.) from the day of the actual census to 31 December and
- reduce for all outputs (expenses, sales, etc. disposals) from the day of the actual census until 31 December.
If the census was conducted after 31 December, the situation determined by the census should:
- reduce for all entries (purchases, refunds, etc.) from 31 December to the day of the actual census and
- increase for all outputs (expenditures, sales, etc. disposals) from 31 December to the day of the actual census.
ORGANIZATION AND CONDUCT OF INVENTORY
The procedure and how taxpayers will conduct the stocktakings are not prescribed by law. It is up to the entrepreneur to determine the stocktaking procedure, start and end deadlines, the establishment of the census commission, members of the commission, the deadline for compiling the report on the conducted census, etc. In practice, we can often and as an optimal solution for many entrepreneurs.
Furthermore, the inventory commission should have at least one chairman and two members, and these can be persons who are employees, but also persons who are not employees of the company. The members of the commission should not be persons who handle or are in charge of the property is listed, but it is recommended that they be present during the census.
It should be noted that the members of the commission are responsible for the accuracy and reality of the stocktaking and the differences identified, and the timely conduct of the inventory, which they confirm with their signatures. Liability of commission members who are employees of entrepreneurs may be related to violation of work obligations in connection with the census and the obligation to compensate for damage caused by the improper census, arising from employment contracts and provisions of the Labor Act and the general act of the entrepreneur.
The Stocktaking Commission should:
- determine the actual amount of assets (counting, weighing, measuring, etc.),
- determine the quality, usability, and current assets, and enter obsolete, non-current, and damaged assets in special stocktaking lists,
- enter in the inventory lists the determined balances and value of assets,
- identify differences (surpluses and deficits),
- determine the reasons for the differences between the actual and bookkeeping situation,
- make suggestions for dealing with identified differences,
- enter changes in the census lists from the day of the census to the end of the year,
- compile and submit a report on the conducted census within the prescribed deadline.
Signing lists are considered accounting documents, and since the commission must determine the quality and usability of assets, commission members must be qualified, professional persons, and to assess the quality and condition of certain specific types of assets can always hire professional external associates.
The stocktaking should include all assets and liabilities: long-term intangible and tangible assets, long-term financial assets, long-term receivables, deferred tax assets, inventories of raw materials, small inventory, packaging, car tires, production in progress, semi-finished products, finished products, goods and dr., money, short-term financial assets, short-term receivables, short-term liabilities, long-term liabilities, other people’s assets.
INVENTORY REPORT
After the census, the inventory commission, ie the census, compiles a report on the census, which contains:
- opinion and proposal of the commission on dealing with the identified differences,
- opinion on the handling of inventories and other assets that are damaged or otherwise unusable,
- opinion on suspicious, disputable, and obsolete receivables and liabilities,
- proposals of measures for elimination of identified deficiencies in material and financial operations,
census lists, and,
- remarks and statements of employees who manage/handle assets for which deficits or surpluses have been identified.
The report on the conducted census shall be submitted by the person authorized to manage the census or by the central commission to the management or the competent body of the undertaking for consideration and decision-making on the results of the census.
RECORDS OF INVENTORY SURPLUSES AND DEFICITS
The management or some other competent body of the entrepreneur considers the report on the conducted inventory and decides on:
- dealing with identified surpluses and deficits,
- recording the list of identified surpluses and deficits,
- impairment and write-off of receivables/liabilities,
- collection and payment of overdue receivables/liabilities,
- impairment and write-off of tangible assets,
- mud, decay, breakdown, and breakage,
- responsibilities of individual persons for the resulting differences and charging of persons responsible for the identified deficit and measures to be taken,
- actions to be taken to reduce/eliminate the occurrence of differences in the future, and
- other facts related to the census.
The decision on dealing with census differences together with the census lists is submitted to the accounting for posting and calculation and payment of taxes, and the census results are recorded in the business books of the entrepreneur based on the decision of the Management Board or other competent authority.
In this process, it is very important to pay attention to the proper tax treatment of established differences.
Surpluses determined by the annual inventory of fixed and/or current assets are most often the result of accounting errors. For such determined surpluses, the obligation to pay VAT does not arise because such a surplus does not have the characteristics of turnover. The tax liability will arise only at the moment when the surplus is placed on the market or delivered to the customer.
For all deficiencies identified in the census, the entrepreneur must determine the responsibility of a particular person. Deficits of goods for which a certain person is not charged are subject to taxation, but the exceptions are the situation of mud, waste, breakage, and breakdown, up to the amount determined by the decision of the Chamber of Commerce and Industry. The obligation to calculate VAT on the shortage of goods determined by the inventory arises at the time when the deficit is determined (Article 36, paragraph 8 of the Ordinance on VAT).
