AARL Deputy Chair Lilita Beķere: Accountants have a huge responsibility, but there is little state support

Conversation with Lilita Beķere, Deputy Chair of the Board of the Association of Accountants of the Republic of Latvia.

The government is constantly inventing a new order of things, new amendments to the laws, which must be followed at all times. Now there will be something new again - from January 1, 2022.

This time they are not amendments to the law, but a completely new Accounting Law will come into force. The old law was drafted in the early 1990s and has been constantly patched and improved. It cannot be said that there is anything radically new in the new law. It will now be clearer. The novelty is that the focus has shifted from paper accounting to electronic accounting. In the old law, paper accounting came first and then came the electronic way, but now this emphasis is reversed. Company managers are also given greater opportunities to determine how accounting is performed in the company. Implementing a sound accounting policy in the company will make many things easier, such as document circulation and approval, invoicing, electronic invoices.

The new law includes a section on who is entitled to keep accounts in a company. As of July 1 of this year, the legal norm on the licensing of outsourced accountants has been in force. The new law specifies who is entitled to receive a license and in which cases this license can be revoked.

What lies behind the idea that the state wants to set by law that remote access to accounting programs must be provided for audit purposes?

There is no such norm in the new Accounting Law, but it can be found in the Law on Taxes and Fees. There is Article 15, which sets out our responsibilities as taxpayers. It states that the taxpayer must provide the tax administration with access to any paper-based and electronically processed and stored business-related information and data carriers, as well as other information that affected or could affect the calculation and payment of taxes, and provide the tax administration with the relevant data carrier to read the data necessary for the performance of control measures, as well as to obtain a functionally identical copy of the relevant data carrier. There is no such requirement in the Accounting Law, but the Law on Taxes and Fees is primary, so this requirement to provide access follows from it.

The regulations of the Cabinet of Ministers on accounting are still being approved. These new regulations, if approved in the current version, will set out the requirements for the use of accounting software, for example, only accounting software whose right to use has been certified in accordance with the Copyright Law. In practice, this means that there must be a contract for the use or purchase of the program with the developer or the transfer of copyright to the company if the accounting program has been developed by the company itself, for example, an employee of the company or a specialist has been invited to perform the obligation provided for in the company contract.

A number of requirements have also been defined that accounting software must meet.

What difficulties or risks can this pose for entrepreneurs and accountants?

Businesses are already not allowed to use unlicensed programs. The company must have a contract for the use or purchase of the program with the developers of the accounting software.

Difficulties in complying with the new requirements may arise from the fact that there are many specific terms in the IT industry with which the accountant might not be well versed and familiar. This can cause fear and confusion. And, unfortunately, when choosing an accounting program, business managers try to put this responsibility on accountants. The accounting program must be chosen that is suitable for the needs of the particular company. Only the head of the company can say what data and in what section he wants to see. And then, together with the accountant and the program developer, understanding the functionality of each system, a decision can be made to purchase an accounting program.

What the legislator wants to say with the new requirements is to avoid unauthorized deletion and correction of data as much as possible, because everything in accounting must be traceable. Not only for the controlling authorities, but also the company itself must be sure that the data is not distorted, and know who and what activities have been performed in the accounting program.

What can you do - the world moves further and further in the use of new technologies. On the one hand, it should be simpler, but unfortunately, we often see the world becoming more and more complex. In the past, there was a possibility that someone could break into the company and steal documents; now all information is on your computer, accounting software, servers and clouds. The risks today are quite different. For example, the risk that hackers could access company information. There have been cases in practice, possibly because not enough attention has been paid to protecting your data, and programs and passwords have not been updated. If any security holes appear, there is a risk for the company that its data may be stolen. Data protection safeguards must now be treated very seriously.

What happens if a company's accounting software is hacked and data is stolen? The information becomes publicly available, but there are also cases where hackers blackmail the company for a ransom. The entrepreneur may lose a considerable amount of money to recover the stolen information, but even by paying there is no guarantee that the data will be recovered in its previous form. The company's operations can be paralyzed and financial losses become inevitable.

Information may also be used for an adverse takeover of assets - to take over a company, to acquire shares. Can this type of information be leaked when a company communicates with public authorities?

That should not be the case, but of course, some stories have been heard. There are several types of accounting. The first is financial accounting, which is regulated by law. It includes the registration of the company's business transactions. It must account for the assets and liabilities of the enterprise. Based on the accounting data, the accountants prepare the financial statements. This data is publicly available to third parties.

The second type is management accounting. This section does contain trade secrets. These are cost calculations, pricing, company budget execution, etc. This information is a trade secret that is not available to third parties. The State Revenue Service has recently been asking the question of how a company forms the price of its products. In my opinion, this is not appropriate, as this section already applies to information that is protected under the Trade Secret Protection Law.

There is also tax accounting, which is not publicly available, but is visible to the State Revenue Service (SRS). We are all taxpayers and we have a duty to pay taxes. In cases when the SRS comes for an inspection in the company, the company is obliged to provide all information that shows how taxes have been calculated and paid. In the past, the SRS physically came to the companies and looked at all the documents. Now it doesn't happen anymore - the SRS has become much more skilled and requests this data from entrepreneurs in electronic form. It is also much easier for entrepreneurs to send the data electronically. In my work, there has been no case when the SRS requests access to the system. This would, of course, worry entrepreneurs because you never know how honest the person on the other end is.

In cases where any signs of criminal offenses are seen, the SRS may request such access to accounting data. If such information falls into dishonest hands, then of course there are risks. Whenever we give something to outsiders, there is a theoretical risk that such information could harm the company. In preparing any financial statements, the accountant must also consider how to present the information required by law to be presented correctly and accurately. Information about the company's partners or purchase prices is only internal.

There is a new Accounting Law, there are Cabinet regulations, there are a number of other laws that apply to accounting. Isn't it too confusing? How to navigate these piles of legislation?

Yes, accountants never get bored. We have to keep learning because otherwise we will no longer be competitive. The laws that apply to us are many and varied. In Latvia, the laws are tangled. It's no secret to anyone. Yes, and then there are the regulations of the Cabinet of Ministers. They cannot extend the provisions of the law. The rules must be based on the law. If this principle is not violated, then it is possible to navigate. The biggest threat to the profession is that many accountants do not read the laws and regulations to understand the situation, but look for answers on Facebook.

In any case, life is never boring for accountants, it is full of constant change. We keep learning all the time.

Is an impeccable reputation now required of accountants? It seems to be in the Law on the Prevention of Money Laundering...

Yes, those who provide accounting services must have a good reputation.

Accountants have a very big responsibility, but do we get support from the state? Not always. It is good that at least licensing was introduced, thus streamlining the market at least a little bit.

Certain requirements must be met in order to obtain a license. In the past, anyone could be an accountant, and anyone could be outsourced, even though the law already stated who is allowed to be an accountant. This is another stumbling block in Latvian legislation - we make demands, but we do not control their fulfillment. An attempt has now been made to tidy up this area in such a way that certain requirements are set for a person to be able to provide an accounting service. About what effect it will have - let's wait and see. What doesn't kill us makes us stronger…