Introduction:
Financial reviews help identify incorrect or missing information in accounting records. Reviews also help in identifying unresolved transactions, pending tax issues, compliance issues, and other issues that may require action by the management. Reviews are important to help detect issues well in advance so that necessary actions can be taken to resolve them.
Salaried persons, business owners, startups, small and medium enterprises, high net worth individuals, employers, and non-resident Indians are some of the persons who can benefit from reviews, as it may help to better understand financial situations, including cash flows and other business information.
Regular reviews can help in identification of issues well in advance so that action can be taken for resolution of the issues. Reviews also help in organizing information to be presented for various reports and taxes.
What is a mid-year financial review?
It is a review of financial and accounting information, including income, expenditure, transactions, book debts, book credits, GST, TDS, payroll, and other financial information.
For businesses, it includes review of financial and management reports. It may also include a review of working capital, inventory, cash flows, and other information.
Exact review procedures may vary based on the business or taxpayer entity. Reviews may include verification of cash and bank balances, TDS, and issues pertaining to salaried persons, partnerships, and non-resident Indians.
Benefits of Conducting an Accounting Review before Year-End
Better to identify and correct accounting issues well before year-end. The accounting review process becomes stressful and time-constrained if it is done during the year-end. Documents and entries related to transactions done by the organization are relatively fresh in the mind and can be located more easily if reviewed during the month of September.
- Identifying Accounting Issues
Examine all bank and cash entries, sales and purchase documents, journal entries, expenses, and checks for any issues.
Some of the issues may include:
-Invoices entered more than once
– Classification of transactions to wrong accounts
-Transactions left unrecorded
-Bank reconciliations not done
– Personal expenses charged to business
-Misclassification of GST/TDS
- Assess Business Performance
A review of the business’s financial performance against the estimates, cash collections and cash flow may provide useful information.
This information may also indicate the need for management’s attention toward certain business expenses and/or working capital issues.
- Review GST Records
It is important to review all purchase and sale documents, records of input and/or output tax credits, GST returns and other relevant records.
Discrepancies between records and returns may exist. Reconciliation of both records may help locate the source of the discrepancy.
- Review TDS and Payroll Records
From time to time, the employer should review payroll records to ensure correct TDS has been deducted, and the challans and return filings are made as required.
Recording and reconciliation of payroll records may also assist in identifying inconsistencies.
Services of a professional accounting firm can be of assistance in maintaining the necessary business records and pertinent documents.
Key Accounting Checks to Perform by September
There are various aspects of a mid-year review of accounts.
Bank Reconciliations and Cash
Bank statements should be compared to the accounting records to determine if transactions have been posted. If not, they should be posted. Examples of adjustments include bank charges, interest, and transposition errors. Reconciliations should also be performed to determine if outstanding checks or deposits have been posted.
Accounts Receivable and Payable
Collections and outstanding payments should be reviewed. Adjusting entries should be considered for credit and debit memos, as well as invoices which are disputed. Outstanding payments should also be considered, as well as advances received and paid.
GST
Purchases and sales records should be reviewed to ensure they have been properly reflected in the accounting records and reconciliations. Consider adjusting records to account for input tax credit, and sales and purchase invoices and credit notes. Review reconciliations of reverse charge transactions, GST payments and returns.
TDS
Review if TDS has been deducted, and if the same has been deposited and recorded.
It is important that supporting documentation is also reviewed.
Payroll
Review and reconcile payroll records to the accounting records, and consider if statutory deductions have been posted.
Fixed Assets
Review if the accounting records reflect the disposal or acquisition of a fixed asset.
Loans
Review and reconcile records relating to loans.
The review of records and associated adjustments should be considered in order to ensure the records are accurate.
financial review
The documentation required is based on the review type (individual/business/employer/NRI).
Financial documents typically consist of
bank statements
sales/purchase invoices
bills
GST records
TDS challans
payroll records
loan records
investment records
fixed assets
receivables/payables
previous financial records
and other book records.
Additionally, NRIs may need to provide documents based on the nature of income earned, residential status, investments, and transactions in India.
The process of reviewing the financial records of an entity is also provided in this manual.
Typical errors include:
Not reconciling bank accounts on a regular basis, usually at the end of the year
Not collecting or pursuing accounts receivable
Not keeping a record of sales invoices
Intermingling business and personal expenses
Not keeping GST records
Not reviewing TDS records
Posting expenses in incorrect heads in the ledger
Ignoring accounting differences, especially when the differences are small
Not updating accounting and tax practices
Records should be reviewed based on the laws that were applicable to that record.
Who will find this mid-year review useful?
This review will be of benefit to:
Individuals with multiple sources of income, e.g., business and employment
Business owners
Start-up and small business owners
Entrepreneurs
Individual Professionals
HNI clients
NRI clients with investments in India
Companies
The same is true for start-up businesses and other growing businesses. Founders and business owners will find ongoing accounting reviews of the business to be of benefit.
Maintaining proper accounting records is essential to running a business.
There are several advantages of seeking the services of a chartered accountant. However, if the business does not engage in several business transactions and is not subject to several business laws, it may be of no benefit engaging a CA.
We can help with:
Review of books of account
Preparation of financial statements
GST accounting and reconciliation
TDS reporting
Payroll accounting
Tax return filing
Preparation for audit
Review of business documents
Reconciling accounting differences
Tax matters relating to NRIs
GST and other tax compliance
We do not prepare books of account; rather, we review the books of account maintained by you. We can assist you in taking accounting decisions. The assistance of a chartered accountant does not absolve you from the responsibility of maintaining accurate records.
Pavan Kumar & Co.
We are a firm of chartered accountants based in Bangalore and have branch offices all over India.
We undertake accounting and bookkeeping for our clients and provide other services such as audit and assurance, tax and regulatory compliance, corporate and transaction advisory, corporate restructuring, GST litigation, and cross-border tax advisory.
We are based in Seshadripuram, Bangalore. We are known for providing accurate and transparent services and committed to professionalism and ethical practices.
We appreciate your business and look forward to serving you.
Frequently Asked Questions
- What is a mid-year financial review?
A mid-year financial review is an assessment of records pertaining to accounting, finance, taxes, and compliance. It identifies issues and helps in resolving them before the year’s end.
- Is it necessary for a business to review their accounts in September?
Reviewing records pertaining to accounts, taxes, and compliance in September helps identify issues well in time for taking remedial action.
- Is a mid-year financial review important for small businesses?
Regular review of records helps in identifying mistakes in bookkeeping and cash flow.
- Can a CA do bookkeeping and financial reporting?
Yes. A CA, or accounting professional, can do review and check bookkeeping, reconciliations, and reporting. They can also assist with tax compliance, accounting, and other related tasks.
- Are accounting and tax reviews necessary for Non-Resident Indians (NRIs)?
NRIs might have business, property, income, and other financial interests in India, which might require them to do accounting and tax compliance reviews in India. The reviews and the extent of compliance are decided based on the rules and regulations in India and the circumstances of the NRI. A qualified CA can give an opinion on the same.
The financial review must consider the taxpayer’s/business’s situation and circumstances. There may be different requirements, deadlines, documentation, and tax consequences based on the taxpayer’s situation and the legislation currently applicable to that taxpayer.
This blog is for general knowledge and must under no circumstance be construed as legal, tax, or investment advice. It is recommended that you consult a licensed chartered accountant for advice relative to your situation.
Our team is ready to assist you with accounting services, tax compliance, GST, and other business advisory services. At Pavan Kumar & Co, we ensure to provide the best services to our valuable customers.