What do we not know about accounting books?

This article addresses the following questions:

• Can a Polish company maintain its accounting books in a foreign language?
• In which currency can transactions of Polish companies be recorded in the accounting books?
• What is worth remembering when implementing a group policy in a Polish company?

Maintaining accounting books for a Polish company is a complex task, requiring considerable expertise and often giving rise to numerous doubts. Among the issues requiring further clarification, questions about criminal sanctions frequently arise: entrepreneurs approaching statutory auditors want to know what penalties companies face for the lack of an accounting policy or for failure to keep accounting books in accordance with the Accounting Act. At the same time, the number of queries and concerns regarding the possibility of keeping books outside Poland, often in a foreign language, is increasing. Our experts are frequently asked – mainly by representatives of parent companies from the United Kingdom, the USA, Germany or the Netherlands – for professional opinions and explanations concerning the process of implementing group accounting policies (group rules) in a newly established subsidiary in Poland. It is therefore time to take a closer look at all these issues and clarify the most important problems related to them.

Financial reporting not only for special occasions

In the eyes of statutory auditors, accounting books are an element of an organisation that is useful on a daily basis. Taking the activities related to their maintenance seriously helps finance and accounting departments organise internal processes, which results in high-quality financial reporting. 

But what is such accurate reporting actually needed for? Is it not an end in itself? As auditors, we support the view (although this may be a minor professional bias) that properly maintained books provide a true and fair view presented in broadly understood financial reporting; appropriate accounting principles, established from the outset of a company’s operations, translate into more efficient work of accountants and easier preparation of cash flow statements or tax settlement reports. A sound accounting system and reliably maintained accounting books therefore guarantee not only greater security for the company’s management, but also reduce the risk of potential errors and audit adjustments identified during the audit of financial statements. 

Proper maintenance of accounting books is therefore intended not only to protect those responsible for managing the entity against the application of Article 77 of the Accounting Act (AA)¹, but also to serve as added value for the organisation. 

Given this, it is worth considering whether accounting books can be kept in a way that facilitates the recording of business activities. This issue is related to increasingly frequent questions asked of auditors about keeping books in a foreign language, a foreign currency or outside the country. In this regard, both the Accounting Act and the position of the Accounting Standards Committee (hereinafter: ASC Position) will be helpful.

Keeping accounting books in a foreign language

With regard to keeping the books of a Polish entity outside the country, it should first be noted that – although accounting books are maintained by the entity – it may, in accordance with the law, entrust their maintenance to:

• entrepreneurs engaged in the provision of bookkeeping services within the meaning of Article 76a(3) of the Accounting Act, or
• entrepreneurs providing bookkeeping services from another Member State – i.e. entities defined in the Act on the rules governing participation of foreign entrepreneurs and other foreign persons in economic transactions within the territory of the Republic of Poland², that is entrepreneurs from an EU Member State other than Poland or a member of the European Free Trade Association (EFTA).

If the books are to be kept outside the entity’s registered office or place of management, the head of the entity is obliged, in brief, to:

• notify the competent tax office of the place where the accounting books are kept within 15 days of their transfer;
• ensure that the accounting books and accounting evidence are accessible to external supervisory authorities.

From the above rules it follows that there are no obstacles to keeping accounting books outside Poland – provided that such activities are carried out in a country belonging to the EU or EFTA. 

Despite this, as is often the case in practice, it is necessary to analyse whether, by deciding to keep books abroad, it will still be possible to meet other statutory requirements. For example, Article 9 of the Accounting Act requires accounting books to be kept in the Polish language. Unfortunately, regardless of how one looks at it, Polish is not the simplest language, which is why economic transactions entered into the books by external accounting service providers are often recorded in English.

It is worth noting here the ASC Position, which indicates that merely entering data from an accounting document into the financial and accounting system is not equivalent to keeping accounting books, unless it is directly associated with:

• deciding how the document should be classified for recognition in the accounting books;
• verifying the correctness of entries of events recorded in the books.

The final classification of the entry and control over it would therefore complete the requirement of maintaining the books. Does this mean that the entry itself (e.g. in English) would be exempt from the rules on keeping books if the two conditions listed above were still met? This assumption should be approached with scepticism, especially since elsewhere in the ASC Position we read that certain data constitute the minimum requirement for accounting books and must be prepared in Polish. These include information such as:

• account names,
• descriptions of types of transactions and posting instructions,
• names of economic operations and the content of reports corresponding to the informational content of accounting books (journal, general ledger and subsidiary ledger entries, trial balance, inventory).

However, certain simplifications may be considered – for example, in the case of a large number of transactions, abbreviations or codes already used by foreign entities within the capital group may be applied locally. Of course, provided that such a list of abbreviations, symbols or codes is implemented locally, expressed in Polish and attached to the accounting books.

Accounting books of Polish entities in a global perspective

Polish regulations restricting the possibility of keeping books in other languages and using foreign currencies certainly do not inspire optimism among entities operating internationally, as their global decisions often aim to centralise certain activities and transfer them from controlled companies directly to a single external outsourcing service provider – for example in payroll or accounting and bookkeeping.

In such a situation, companies operating in multiple countries must consider the difference between recording accounting entries physically performed – for example in India, but on the server and within the system of the local (Polish) company – and a situation where an external company records transactions solely on its Indian servers and in its own system (i.e. where only that third party, and not its Polish client, has control over the accounting books). 

Moreover, there remains the issue of the language in which books are kept; for this reason, external accounting service providers increasingly have representatives in Poland who speak Polish. There is no doubt that the situation in this particular area of accounting is dynamic, and the coming years may bring many changes regarding the transfer of accounting (reporting) obligations by Polish enterprises to external and foreign entities.

The obligation to keep accounting books properly should be treated seriously

Irrespective of the above inconveniences for companies and their branches, it is also worth mentioning the implementation of group policies: often the policy of a capital group is to be implemented and applied in a subsidiary, i.e. locally. This is particularly relevant in the case of an accounting policy. 

Fortunately, provided that group rules comply with Polish regulations, such a policy only needs to be implemented in Poland in accordance with the requirements of Article 10 of the Accounting Act. However, it is worth becoming well acquainted with them, as statutory auditors often encounter situations where a company does not have its own accounting policy, but only a group policy which has not been adapted to Polish accounting regulations and, as a result, does not meet all statutory requirements (e.g. it lacks a description of how accounting books are maintained, including the chart of accounts or a description of the accounting system).

In other words, in order to achieve the best results when maintaining accounting books of a Polish company, entities should keep them on the basis of an accounting policy prepared in line with their business model and subsequently updated periodically, because – in accordance with Article 10 of the Accounting Act – the head of an entity operating in Poland is obliged to establish in writing and, if necessary, update the accounting policy documentation. 

¹ This refers to a fine and imprisonment, inter alia, for failure to keep accounting books or for keeping them unreliably.

² Journal of Laws 2018, item 649 – Act of 6 March 2018 on the rules governing the participation of foreign entrepreneurs and other foreign persons in economic transactions within the territory of the Republic of Poland.