This article addresses the following questions:

• To whom may a company operating in Poland outsource its accounting?
• What criteria do auditors apply to assess where books are kept?

Auditors conducting audits of financial statements of entities leveraging global accounting solutions often encounter situations that, at first glance, seem problematic from the perspective of Polish accounting law, but fortunately – after an in-depth analysis and a factual exchange of information between the auditor and the entity undergoing the audit – turn out to be entirely acceptable. These precedents can relate, for example, to keeping the accounting books of a company operating in Poland outside the country’s borders. Let's take a look at one such case, which perfectly illustrates why diligence is so crucial in financial audits and why professional audit firms, such as RSM Poland, always emphasise efficient and precise communication with clients.

Where can a Polish company actually keep its books? The Indian dilemma

During the audit of the financial statements of a client – a company operating in Poland – RSM experts encountered an intriguing fact. It turned out that the audited entity utilised the services of a shared services centre (SSC) located in India. Furthermore, all accounting transactions were entered and processed by this service provider in English.

Our first thought was: "Wait a minute – is this actually compliant with the Polish Accounting Act?" Article 11 of this very Act clearly states that a company may entrust the keeping of its accounting books to another entity conducting such activities within the European Union. At first glance, it seemed that in the case of this client, we were dealing with a potential non-compliance with the Accounting Act, which could undermine the reliability of the entity's entire financial statements.

Audit of an entity using foreign outsourcing: digging into the process

Professional auditors, of course, are never satisfied with predetermined conclusions. RSM Poland experts prioritise a thorough understanding of financial processes. Therefore, upon identifying a potential issue, we first asked our client for a detailed analysis of the processes – in line with their accounting outsourcing approach.

We were primarily interested in:

• where key accounting decisions were actually made,
• who was authorised to approve accounting entries,
• where the control centre for the process was located.

The point was not where the people entering data into the books physically sat, but where the body responsible for the process and decision-making was located.

After receiving from the client a detailed memorandum describing the entire process – from the receipt of documents, through their verification and approval, to their entry into the system – it became evident that although the data was physically entered in India, all key activities (related to decisions, approvals and control) were carried out at the management level of the company itself, which is located within the European Union (specifically, in Poland).

Key takeaways – when outsourcing bookkeeping, the nature of the activities matters most!

This situation perfectly illustrates that a professionally conducted financial audit is not about clinging to a literal interpretation of the regulations, and that a proper understanding of the context and the essence of the processes is key to successful cooperation between the entity and its statutory auditors. Although in the case of this client, the physical entry of the data took place outside the EU (and in a language other than Polish), thanks to our team's inquisitive approach and thorough analysis, we determined that the company's management board, which exercised full control and made all material decisions, operated within the European Union, and the mere fact that entries were made in English did not mean that that the books were kept unreliably.

Thus, the accounting books of the audited entity, in their essential aspect, were kept within the EU, and the initial non-compliance with the Polish Accounting Act turned out to be so insignificant that, after internal consultations, we concluded that it had no impact on the assessment of the reliability of the books.

This proves that – in order to get the full picture – an auditor must be as much an analyst as a detective.