Accounting audit as a form of accounting crime prevention

The accounting crime is regulated in article 310 of the Criminal Code and can result in five to seven months. This means that the accounting audit is essential to avoid errors that can lead to the imposition of a sanction or a prison sentence. This article tells you what accounting crime consists of and what advantages accounting auditing brings to avoid negative consequences.

What is an accounting crime?

Article 310 of the Criminal Code establishes that anyone who being obliged by the tax law to keep commercial accounting, books or fiscal records will be punished with a prison sentence of five to seven months:

• Absolutely fails to comply with the said obligation in the regime of direct estimation of tax bases.
• Keep different accounts that, referring to the same activity and financial year, hide or simulate the company’s true situation.
• Do not record business, acts, operations or economic transactions in the mandatory books or record them with figures other than the real ones.
• Make fictitious accounting entries in the mandatory books.

If the accounting crime is committed by a legal person, according to article 310 bis of the Penal Code, the following penalties may be imposed:

• A fine equal to or double the amount defrauded or unduly obtained, if the individual’s crime has a prison sentence of more than 2 years.
• Fine of double to four times the amount defrauded or unduly obtained if the crime committed by the natural person has a prison sentence of more than 5 years.
• Fine of 6 months to one year, in the cases of article 310.

Along with the previous, additional penalties may be imposed on the legal person, such as the loss of the possibility of obtaining subsidies or public aid or the right to obtain tax or Social Security benefits and incentives for a period of three to six years. You may also be prohibited from contracting with the public administration.

For there to be an accounting crime and not an administrative infraction, two elements must be present:

• The intent or intent to breach.
• That the fraud, in some forms of accounting crime, exceeds 240,000 euros per financial year.

How to prevent accounting crime in companies

The Penal Code establishes the need for companies to comply with an obligation of vigilance to prevent accounting crimes from being committed. Failure to comply with this obligation implies the birth of criminal liability and the imposition of the penalties that we have seen in the previous section.

To prevent accounting crimes in the company, accounting auditing is essential. The accounting audit aims to certify that the accounts presented by the company are accurate and, therefore, there is no risk of committing an accounting crime. The accounting audit is carried out in several steps that are the following:

• Study of the company’s balance sheets, both quarterly and annual, income statements, changes in equity, cash flow statement and evolution of income and other relevant data from an accounting point of view.
• Comparison of interannual data. Next, a comparison of year-on-year data is made to have a complete picture of the evolution of the company over time. In this way, you can find important changes in the business and understand their cause.
• Customer evaluation. Customers are essential for any company as they are the source of income. In the accounting audit, an analysis of the number of clients is carried out to know if it grows or decreases and to know the relationships that the company has with the clients.
• Supplier assessment. Along with the above, suppliers are valued to know their quality and the expense they represent for the company.
• Valuation of assets and liabilities. This action helps to know the book value of the company. Its characteristics, nature and evolution are analysed.
• Study of cash flows or cash-flow. The cash flows allow knowing the organisation’s evolution in terms of sales and in terms of the status of the debt. That is, a study of money inflows and outflows is carried out.
• Detail of the last exercise. This study detects if there is any problem that has been occurring recently or that may be evolving.
• Audit report. Finally, a report is prepared in which the conclusions are drawn based on all the information that we have seen previously and solutions to the problems that have been found are proposed.

What benefits does an accounting audit bring to your company?

Performing an accounting audit periodically in your company provides benefits such as the following:

• Good image. A sound accounting that complies with all applicable regulations will give workers, investors, collaborators, suppliers, or public administrations a good image.
• Avoid fines and penalties. As we have seen, a breach of accounting regulations can lead to the commission of a crime, so a regular accounting audit avoids fines and penalties.
• Avoid errors. An expert accounting auditor can detect errors in the accounting that have been made without intention so that the necessary measures can be taken to correct them.
• Time-saving. All of the above saves time for the company since, for example, committing an error involves investing time to correct it, so with the accounting audit that error can be avoided before it is made. In this way, the people who are part of the company can focus on the business and add value.

The risk of committing an accounting crime exists for any company, so taking preventive measures can mean providing security and transparency, so that the company focuses on generating business while leaving compliance with accounting regulations in the hands of an expert accounting auditor.