Financial and Tax Reporting: What Is the Difference

Financial and tax reporting compared

• Financial statements are prepared under the Law "On Accounting" and NAS (national accounting standards); their composition and deadlines are set by Regulation No. 3567: annual statements no later than 1 March; small businesses file a balance sheet and a statement of financial results.
• Tax returns are prepared under the Tax Code: VAT by the 20th (Article 273), turnover tax and personal income tax (PIT) by the 15th (Articles 470 and 389), corporate income tax annually by 1 March (Article 339).
• Retention: accounting documents for at least five years after the reporting year (Article 29 of the Law on Accounting), tax returns for at least three years after the year of filing (Article 84 of the Tax Code).

Different purposes of the documents

Financial statements show the company's financial position to a broad range of users. Tax reporting serves settlements with the budget.

This explains the differences in recognising income and expenses and in measuring assets.

• different purposes and users
• different income recognition rules
• different approach to expenses
• differences in asset measurement
• different filing frequency

Why the figures differ

Some expenses are recognised in the accounts but do not reduce the tax base. The timing of income recognition can also differ.

Such differences are normal as long as the company understands their nature and can show the calculation.

How to avoid problems

Keep both on a common database, record the reasons for differences and keep the calculations that explain the bridge from one set of figures to the other.

This saves time both during an audit and when responding to a request from the supervisory authority.

Why the same fact is reflected differently

Financial statements describe the economic position of the company, while tax reporting is the basis for settlements with the budget. The purposes are different, so the recognition rules for individual transactions differ too.

It follows that a difference between figures is not an error in itself. An error is a difference the company cannot explain.

Where differences arise most often

Usually these are inventory valuation, recognition of certain expenses, exchange differences and long-term contracts.

It is useful to keep a list of such differences with an explanation for each: it saves time both when preparing the statements and when answering requests.

• differences in expense recognition
• valuation of inventories and assets
• exchange differences
• long-term contracts
• prior-period adjustments

How to avoid conflicting data

Both types of reporting should rely on one accounting database and the same source documents. Keeping separate books "for ourselves" and "for reporting" inevitably leads to contradictions.

It is easier to describe the methodology for differences once in the accounting policy than to explain every period why the figures do not match.

What to check before filing

Make sure that differences between the two types of reporting can be explained, that documents for contentious transactions are in place, and that prior-period figures reflect any adjustments made.

The check takes little time and removes most follow-up questions.

Differences for individual entrepreneurs and companies

For an individual entrepreneur (IE) the two sets almost coincide; for a company differences are inevitable because of more complex transactions and disclosures.

The composition and filing procedure are set by legislation and are periodically clarified, so it is worth checking the requirements before each filing.

Who explains the differences to inspectors

Explanations are given by the company, not by the software used for bookkeeping. That is why the accountant needs a clear logic for the differences and supporting documents at hand.

We usually set out this logic in a separate internal document: it is written once and then used for every request.

The benefit of preparing both sets together

When one provider prepares both types of reporting, differences are controlled at the preparation stage rather than discovered after filing.

This also removes the typical dispute over whose data is correct when bookkeeping and tax calculations are handled by different specialists.

How Leader Audit helps

We prepare both types of reporting, check that they are consistent and explain the differences.

An audit firm with 13 years of practice and more than 220 audits.