Similar to the human organisms, businesses and their internal organizations require a regular health check. As humans are often occupied with their daily concerns and aspirations, so are managers with profit maximization and business strategies. More subtle regulatory constraints and organizational processes are neglected. Nonetheless, the risks of even the tiniest violation can have considerable effects on your overall business, since the potential costs can easily threaten the survival of an entire company.
These risks include:
- Loss of funds or materials
- Tarnished reputation with the Public
- Business loss
- Missed goals
- Financial misstatements
- Incorrect or untimely management information
- Fraud or collusion
It is therefore of primordial importance for a successful business to have not only an effective business strategy but also a functional accounting system (for more information, read our article on Accounting in China).
What is a Company Health Check good for?
An internal control system is a set of procedures, which ensures your compliance with external regulations and internal policies, and guarantees financial efficiency. At the same time, it also services to minimize internal risks, which could compromise your business and your company’s objectives. Important issues concern deadlines for the submission of financial statements, tax filings, internal data management, moral hazard and potential fraud (the most common mistakes are listed here).
1. Meeting Deadlines
As everybody knows, missing a deadline can be easy, especially when there are many and you and your team are under stress to meet a whole range of different objectives as well. This is especially true during the annual compliance review when your accountants are required to submit a variety of documents while keeping track of daily business operations. Missing a deadline may not only entail hefty penalties but also additional work and costs.
It is therefore highly recommended to contact auditors as early as possible and also consider a pre-audit to make sure that your financial statements are correct and everything is prepared in time.
2. Internal Data Management
For facilitating a smooth audit and compliance review, a sound data management is essential. An inefficient storage of financial data can considerably slow down your accounting team and increase the risk of incomplete or unlawful financial statements and tax filings.
A regular health check, similar to an inventory, helps you review your existing data management and ensures that your managers stay on top of complex transactions and changing tax requirements. It also facilitates the access to important information to make sound business choices.
3. Moral Hazard and Fraud
The purpose of an internal control system is not only to ensure that your financial data is complete, in compliance with regulations, and well managed, it also aims to minimize the risk of moral hazard and fraud.
An inefficient internal control system can easily create wrong incentives, which might lead to the falsification or non-collection of financial data. What is more, it might also increase the risk of fraud, either by your own employees or your business partners. Evidently, this can cause your business enormous damage and augment tax and legal risks.
Benefits of a Company Health Check
An ECOVIS Beijing Company Health Check covers two areas: tax compliance and financial efficiency. The tax health check makes sure that your data is in compliance with current tax regulations and that deadlines are met on time. Fines or penalties can easily reach the fivefold amount of outstanding tax payments plus an annual late payment penalty. The financial health check ensures that your internal control system is functional and aims at optimizing data management and the prevention of moral hazard and fraud. Overall, it also makes your financial situation more transparent and facilitates sound management decisions. What is more, a health check does not only minimize risks, it also helps you to identify potential tax saving measures and other superfluous costs, such as inefficient remuneration packages, fraudulent bonus calculations or dysfunctional budgeting.
ECOVIS Beijing is a consultancy specialized in accounting, audit, tax and legal advisory. Our accounting and tax departments have over 10 years of experience in advising foreign companies on internal control and tax compliance. If you have further questions, please contact email@example.com
Grace Shi is a partner at ECOVIS Beijing China. She has over 12 years of experience in accounting, auditing, and tax advisory services in both international accounting firms and large Chinese corporations. She has an international MBA and a US Global Finance Master’s degree. Since 2001, she is a Chinese Certified Public Accountant (CPA) and, since 2002, a Chinese Certified Taxation Agent (CTA). Mrs. Shi is one of the founders of ECOVIS R&G Consulting Ltd. (Beijing). She has perfect skills in written and spoken English and Chinese. For more information, please contact: firstname.lastname@example.org
Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter, give us a call +49 (0) 6221-9985639 or contact us directly via email@example.com