600.079 Accounting | Unit 1: Fundamentals
© Chair of Economic and Business Management
Accounting
Unit 1: Fundamentals
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Chair of Economics and Business Management
Authors: Feichtinger
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600.079 Accounting | Unit 1: Fundamentals
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Content
Principle of equality ................................................................................................ - 4 1 Introduction to factory accounting .................................................................. - 4 1.1 Corporate areas ................................................................................................... - 4 1.1.1 Costs and performance accounting ......................................................... - 7 1.1.2 Financial accounting (external accounting system) ............................... - 7 -
2 Accounting terms and functions ...................................................................... - 9 3 Corporate financing ......................................................................................... - 11 3.1 Internal financing ............................................................................................... - 12 3.1.1 Financing from depreciation .................................................................. - 13 3.1.2 Financing from accruals ......................................................................... - 13 3.1.3 Self-financing........................................................................................... - 13 3.1.4 Financing through capital release.......................................................... - 13 3.1.5 Financing through economisation ......................................................... - 13 3.2 External funding................................................................................................. - 13 3.2.1 Equity financing ...................................................................................... - 14 3.2.2 Debt financing ......................................................................................... - 14 3.2.3 Mezzanine financing................................................................................ - 14 -
4 Legal basis ....................................................................................................... - 16 4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Corporate code (AT: UGB) ................................................................................ - 16 Federal fiscal code (AT: BAO) ........................................................................... - 17 Tax laws .............................................................................................................. - 18 Legal forms of a company ................................................................................. - 18 4.4.1 Limited liability company ........................................................................ - 18 4.4.2 Public limited liability companies .......................................................... - 19 4.4.3 General partnership ................................................................................ - 19 4.4.4 Limited joint-stock partnership .............................................................. - 19 4.4.5 Company under civil law ........................................................................ - 19 4.4.6 Silent partnership .................................................................................... - 19 4.4.7 Acquisition and business cooperative .................................................. - 20 Legal regulations on accounting and accountancy ........................................ - 20 4.5.1 Accounting requirements ....................................................................... - 22 Accounting ......................................................................................................... - 22 Determining the taxable profit .......................................................................... - 22 4.7.1 Double entry accounting (§5 or §4 para. 1 income tax act) .................. - 23 4.7.2 Revenues and expenses statement (§4 para. 3 income tax act) .......... - 23 4.7.3 Lump-sum payment (§ 17 income tax act) ............................................. - 23 Accounting and disclosure of the balance sheet ............................................ - 23 4.8.1 Retention obligation ................................................................................ - 24 -
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4.9 Annual financial statement................................................................................ - 24 4.9.1 Overview of the companies concerned ................................................. - 25 4.10 Stock-taking and inventory ............................................................................... - 25 -
5 Principles of proper accounting (PpA) .......................................................... - 27 5.1 Formal principles ............................................................................................... - 27 5.2 Material principles ............................................................................................. - 28 -
6 Bibliography ..................................................................................................... - 30 -
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Principle of equality
For reasons of readability, no gender-specific formulations have been used in these documents. It
is expressly stated that the masculine forms used for persons are to be understood for both genders.
1
Introduction to factory accounting
The factory accounting system provides information on the processes of a company by generating
monetary information on directly or indirectly triggered, tangible or intangible, movements of goods
and preparing it according to the recipient of this information. The production process, which is
constantly repeated in the company, requires recording, planning, control and monitoring, which is
supported by the factory accounting system.
1.1
Corporate areas
A fundamental distinction can be made between two different types of flows in the company:
•
•
Cash flow
Flow of goods
Illustration 1 Operational flow of goods and payments1
1Source: based on Manfred Gutternigg, Clemens F. Honeder (1994). , p.1
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The former is also referred to as the nominal flow of goods, while the flow of goods is referred to as
the real flow of goods. Accordingly, the recording of the two flows also differs: the nominal goods
flow is recorded by a so-called pagatoric statement and the real goods flow by an imputed statement. The imputed statement reflects the internal flow of data or information. As a result, it is possible to differentiate between external (financial accounting) and internal (factory accounting)
accounting systems.2
Illustration 2 Structure of factory accounting 3
The same distinction is made between "commercial accounting", or factory accounting, and "costs
and performance accounting", also known as factory accounting. Both accounting systems are partially interlinked. In addition, a distinction can also be made in the accounting system between functional aspects, such as financial accounting, cost accounting, operating statistics or budgeting. 4
Illustration 3 Sub-areas of the accounting system 5
2 Manfred Gutternigg, Clemens F. Honeder (1994). , p.1 ff.
3Source: based on Manfred Gutternigg, Clemens F. Honeder (1994). , p.3
4 Quick, R.; Wurl, P. D. h. H.-J. (2017).
5 Source: based on Reichhardt, M. (2017). , p.10
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Another possible classification is to distinguish between the area that collects relevant, operational
key performance indicators ("accounting") and the area that evaluates this generated information for business purposes ("controlling"). Accounting is primarily assigned to the first category. 6
The accounting system primarily fulfills the following tasks:
Illustration 4 Tasks of the accounting system 7
The control, planning and documentation tasks are the core areas of the accounting system. These
areas will be discussed in more detail below.
01. Documentation: By seamlessly recording all of a company's business transactions, documentation forms the basis of the accounting system
02. Information: The preparation of information, depending on the recipient, to provide all parties
with a legitimate interest in the financial situation of the company
03. The aforementioned steps allow the company management to plan the future of the company
(e.g. new investments, product changes, savings, etc.).
04. The control function makes it possible to make a comparison between the target and actual
situation and thus derive the need for action
05. As soon as the need for action has been identified and further steps have been considered
through detailed planning, decisions can be made by the management level
06. The fulfillment of the aforementioned tasks of the accounting system allows the company to
be optimally managed towards set goals
Illustration 5 provides an overview of the activities of the accounting system that serve as instruments of corporate management in order to meet the requirements presented above.
6 Reichhardt, M. (2017). , p.10 f.
7Source: based on Manfred Gutternigg, Clemens F. Honeder (1994), S.3
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Illustration 5 The accounting system as an instrument of corporate management 8
1.1.1 Costs and performance accounting
Cost and performance accounting is primarily used to prepare business decisions and is therefore
not defined by law. It can be adapted to individual company requirements and designed accordingly.
The purpose is to record, distribute and allocate costs incurred by a company in the course of providing services. This makes it possible to map the performance process in the areas of cost element,
cost center and cost object calculation. The main focus here is on cost control and the calculation of
economic efficiency (for more detailed information on this, see the documents for the lecture General
Economics and Business Administration I).9
1.1.2 Financial accounting (external accounting system)
Commercial accounting, also known as financial accounting, is primarily intended to meet external information requirements. On the one hand, this is done by using it as a basis for tax assessment
and, on the other hand, by the fact that accounting provides an important source of information for
all economic entities that maintain a business relationship with the company. These can include, for
example, credit institutions, suppliers or owners. In addition, accounting must enable the preparation
of a balance sheet and a profit and loss statement at the end of the year, which form part of the
annual financial statements, which is why there are normative requirements for their implementation, which will be discussed in more detail below. 10Illustration 6 provides an overview of the external accounting system and the relationships between accounting and the balance sheet and profit
and loss account.
8Source: cf. Michel, R. et al. (1985). , p.25
9 Quick, R.; Wurl, P. D. h. H.-J. (2017).
10 Quick, R.; Wurl, P. D. h. H.-J. (2017).
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Illustration 6 Overview of the external accounting system 11
11Source: Reichhardt, M. (2017). , p.18
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2
Accounting terms and functions
Accounting is therefore a part of the accounting system and is responsible for the systematic and
complete recording of all accounting transactions. Its main task is to determine the annual success
(by means of the profit and loss account) and to determine the assets and liabilities (by drawing
up a balance sheet). Within accounting, a distinction can be made between different systems,
namely commercial accounting and cameralistic accountancy, whereby the former can be further
divided into simple and double entry accounting. This is illustrated in Illustration 7 is given.
Illustration 7 Accounting systems 12
The actual recording of business transactions takes place in so-called ledgers, whereby data records
are summarized according to the same characteristics and grouped into similar accounts.
Cameralistic accountancy
Cameralistic accountancy is a public administration accounting system. It is therefore important for
municipalities, for example, although they are also increasingly using double entry accounting.13
Simple accounting
In commercial accounting, the assets position is shown on the balance sheet on the one hand and
the profit and loss position on the other. In contrast to double entry accounting, simple accounting
only records the inventory figures over the course of the year.14
Double entry accounting
With double-entry accounting, on the other hand, profit is determined in two different ways. On the
one hand, equity is compared and on the other hand, expenditure and financial returns are compared. This is implemented by accounting for each business transaction with at least two entries in
12Source: Reichhardt, M. (2017). , p.13
13 Reichhardt, M. (2017). , p.12f.
14 Reichhardt, M. (2017). , p.12 f.
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the corresponding accounts. Double entry accounting is the only permissible procedure for companies that are required to keep accounts (see also chapter 4).15
In order to be able to talk about financial accounting, some key terms are briefly explained in the
following section.
Assets
In accounting, assets are understood to be all the tangible and intangible goods used by a company
to generate output. They are typically divided into fixed assets and current assets. Fixed assets
consist of those assets that are intended to serve the company permanently or over a long period of
time. Within fixed assets, a further subdivision can be made between intangible fixed assets (e.g.
patents), tangible fixed assets (e.g. machinery, land) and financial assets (e.g. shares). Current
assets include all assets that are not fixed assets. These include all capital assets that are not intended to be used for business operations on a permanent basis or over a long period of time (e.g.16
inventories, receivables, securities, cash holdings, bank balances).
Capital
In the case of capital, a basic distinction can be made between debt and equity. Debt capital, i.e.
debts or liabilities, are claims of external economic entities against the company itself. In this context, equity represents the difference between assets and liabilities. Another term for equity is "net
assets".17
Profit
Generally speaking, profit refers to the surplus generated in a given period. In business terms, a
distinction can be made between nominal capital preservation (profit is made when equity has increased), real capital preservation (profit is made when equity has increased by more than the rate
of inflation) and substance preservation (increase in the value of the company in the cash flow calculation).
Loss
Loss is another term used in the accounting system. It represents the decrease in a company's equity
in an accounting period caused by the operating company. In the income statement, the loss is the
negative difference between expenditures and financial returns. In the balance sheet, the loss is the
negative difference between assets and liabilities (see following chapters).
15 Reichhardt, M. (2017). , p.12f.
16 Manfred Gutternigg, Clemens F. Honeder (1994), p.5 f.
17 Reichhardt, M. (2017), p.28 ff.
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3
Corporate financing
In the previous section, the difference between debt and equity was introduced as a concept in
accounting, as a source of information on a company's funds. In order to go into more detail about
the origin of a company's capital, the following chapter introduces corporate financing. This refers to
the provision of capital for the company. This can take different forms and can be systematized using
the following criteria.
•
•
•
Origin of the capital
o External funding
o Internal financing
According to the legal interpretation of the investors
o Equity financing
o Debt financing
According to the duration of the capital provision
o Short-term (< 1 year)
o Medium-term (1-5 years)
o Long-term (> 5 years)
o Indefinite
The golden rule of accounting states that long-term assets should be financed with long-term capital
and short-term assets with short-term capital.
A fundamental distinction can be made in financing between equity and debt financing, as well as
between internal and external funding. The function consists of the procurement of financial resources and subsequently the preparation of a financial plan and the optimization of the capital
structure. In the case of internal financing, the funds come from the company itself (profits, accruals). In the case of external funding, these come from sources outside the company (e.g. loans from
banks). The distinction between the financing types of equity and debt financing is made on the basis
of whether they belong to equity or debt capital. Deposits by a shareholder are therefore classified
as equity financing, as they increase equity. A loan from a bank, on the other hand, is classified as
debt financing as it belongs to debt capital. The types of financing also differ in the following points:
•
•
•
Right to have a say
Profit sharing
Liability
This is due to the fact that shareholders usually have a say in the company and are liable with the
capital contributed, whereas in the case of debt financing by a bank, there is usually only a right to
repayment of the debt and the corresponding interest. Table 1 provides an overview of different types
of financing. All information in this section has been taken from the sources listed here and can be
looked up there if required. 18;19;20;21;22
18 Gabler Wirtschaftslexikon, https://wirtschaftslexikon.gabler.de/, (accessed: 10.02.2022).
19 Gräfer, H. et al. (2011).
20 https://studyflix.de/wirtschaft/intro-investition-finanzierung-grundlagen-1008, (accessed: 09.02.2022).
21 Kugler, S. (2018).
22 Zantow, R. (2006).
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Table 1 Overview of financing types
External funding
•
Equity
financing
•
•
Debt
financing
•
•
New participating interests (in the case of limited companies (Ltd.),
e.g. new shareholders
and thus an increase in
equity)
Increase in deposits
Leasing of production
equipment (value of the
leased asset paid off in
installments but can be
used in full immediately a form of "borrowing")
Factoring
Loans
Internal financing
•
•
•
•
Retention of profits (=self-financing, i.e. no distribution to
shareholders, but reinvestment)
Depreciation and amortization
Asset reallocations
Accruals (are formed to be
able to pay out debts or costs
that arise in the future) Example: Pensions, these funds remain in the company but are to
be paid out at a later date
Mezzanine financing is a form of external funding that cannot be clearly categorized as either equity
or debt financing. In the case of mezzanine financing, it depends on which financial instrument is
used (convertible bond, option bond, hidden partnership, subordinated loan).
3.1
Internal financing
As mentioned above, internal financing does not require external capital providers. Instead, capital
that is already available within the company is used. A distinction can be made between the following
forms of internal financing:
Illustration 8 Forms of internal financing
Financing from asset restructuring includes accruals, depreciation, capital releases and economizations. Financing through capital appreciation includes open self-financing and hidden self-financing.
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3.1.1 Financing from depreciation
With this form of financing, investments are made with the revenues from depreciation. As the company retains the depreciation for the time being, it is available as cash and cash equivalents.
3.1.2 Financing from accruals
Accruals are defined as expenditure that is recognized in more than one period. As already shown
in Table 1 these can be pensions, for example. These must be paid out at a later date and therefore
represent an expenditure. For the current period, however, they represent capital for the company.
The capital that will be needed later but is not currently being used is therefore utilized.
3.1.3 Self-financing
Self-financing is one of the types of financing that is achieved through an increase in assets. As
mentioned above, it is achieved by retaining generated profits, whereby a distinction can also be
made between open and hidden self-financing. Open financing involves financing from profits that
are not paid out to owners, while hidden self-financing creates reserves by undervaluing assets or
overvaluing liabilities.
3.1.4 Financing through capital release
Various strategies can be used for financing from capital release. One possibility is to accelerate the
internal asset turnover (ratio of turnover to total capital). This means that the company generates
more turnover with the same amount of capital employed and therefore has more cash and cash
equivalents available. Another option is the sale of assets (= divestiture), in which the company
releases capital by selling assets that are not required for operations (such as unused land). Reducing capital formation is another option. There are various ways of doing this, such as shortening or
reducing receivables or "just-in-time" production to reduce stocks of inventory (which is accompanied
by a reduction in tied-up assets).
3.1.5 Financing through economisation
Financing through economization is about improving resource efficiency and thus saving material,
time and money.
3.2
External funding
In the case of external funding, capital is generated from outside the company. In other words, cash
and cash equivalents flow in from sources outside the company. A distinction can be made between
different forms of external funding. In the case of external funding, the company's liquidity is burdened by interest or dividend payments.
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Illustration 9 Forms of external funding
3.2.1 Equity financing
Equity financing is also referred to as participation financing. It is a form of financing in which the
investor takes a participating interest in the company by injecting capital. This entitles them to dividend payments and a say in the company's affairs, but they must also bear the risk of loss. A subform of equity financing is "private equity", in which equity is provided off-market by financial investors. Other forms include employee participation, venture capital and business angels.
3.2.2 Debt financing
In debt financing, the investors act as the company's creditors. The company becomes indebted to
the lender (e.g. bank) by borrowing or taking out a loan, although there are further differences in
terms of the time horizon.
3.2.3 Mezzanine financing
As already mentioned, mezzanine financing is a hybrid form of equity and debt financing. Some of
the characteristics of Mezzanine financing include a long time horizon, low co-determination rights
and repayment obligations. This form of financing offers advantages and disadvantages. One advantage is its long-term nature, as this increases the company's credit standing and means that
additional loans can be taken out at better conditions. As the lenders usually waive their right to a
say, there is also a high degree of flexibility with regard to the usage of the capital. Despite the long
terms of mezzanine financing forms, there is still a time limit after which the capital must be repaid
in full. Due to the waiver of co-determination rights, the interest on this form of financing is usually
higher than with other forms, which is why the company should have a stable cash flow. With this
form of financing, a further distinction can be made between the following types:
•
•
Convertible bond
A convertible bond is a fixed-interest security, whereby the bond can be converted into shares
in the company at a fixed price during the term. A bond is a debt security that can be raised
through a loan on the capital market.
Option bond
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•
•
•
The option bond is also a form of security which - in addition to the right to interest - grants
the holders special rights. These rights usually involve the option to acquire a certain number
of shares at a fixed price.
Hidden partnership
This form of financing is very similar to equity financing, with the difference that the investor
waives the right to a say. In return, however, the investor's liability in the event of a loss is
limited to the amount of his deposits.
Subordinated loan
This is a form of loan in which the creditors rank behind the other creditors, which means that
in the event of insolvency, the receivables of creditors of a subordinated loan are only repaid
after all others have already been paid out. The associated risk is rewarded with a higher
return, which means that the company pays significantly more interest on such a loan than
on a bank loan.
Participation certificates
A securitized profit participation right is a document that securitizes rights of various kinds
(such as the profit participation right to net profit) in a company regardless of its legal form
and thus, in contrast to a share, certifies the company's rights. Participation certificates can
be issued as bearer instruments, registered instruments or order instruments.
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4
Legal basis
All information in this chapter is taken from the relevant legal text and the Business Service Portal of
the Austrian Ministry of Economic Affairs and is therefore not cited further below. 23; 24 For further
information, please refer to the sources listed in the bibliography. As commercial accounting is a
mandatory aspect, a number of regulations must be observed, depending on the given company
circumstances. The main sources for this are25
•
(Austrian) Corporate code (AT: UGB)
•
(German) Commercial code (DE: HGB)
•
The tax laws:
o
Income tax act (AT: EStG)
o
Corporate income tax (AT: KStG)
o
Value added tax act (AT: UStG)
•
Federal fiscal code (AT: BAO)
•
Stock Corporation Act (for public limited liability companies)
•
Limited Liability Companies Act (for limited liability companies)
•
Principles of proper Accounting (PpA; AT: GoB)
•
International Accounting Standards (IAS, IFRS) for consolidated financial statements
•
Judgments of courts
•
Findings from business research
In the following, the most important points contained in the three most important legal texts (such as
corporate code, federal fiscal code, tax laws) will be dealt with briefly before the various legal forms
of the company are explained in order to provide the basic knowledge for the legal principles of
accounting and accountancy from chapter 4.5 are created.
4.1
Corporate code (AT: UGB)
The Austrian Corporate Code (AT: UGB) is based on the German Commercial Code (DE: HGB).
Although the two codes were developed separately after the end of the Second World War, the
central provisions are still comparable. The corporate code (AT: UGB) was still referred to as the
HGB until 2007, when it was renamed the corporate code (AT: UGB). The corporate code (AT: UGB)
no longer includes the concept of a merchant, which means that the corporate code (AT: UGB)
automatically extends to other forms of business such as sole proprietorships or traders. As with the
commercial code (DE: HGB), freelance professionals (such as doctors, lawyers, etc.) and farmers
23
https://www.usp.gv.at/steuern-finanzen/betriebliches-rechnungswesen/buchfuehrungspflicht-und-buchfuehrungsgrenzen.html, (accessed 02.02.2022).
24
https://www.ris.bka.gv.at/GeltendeFassung.wxe?Abfrage=Bundesnormen&Gesetzesnummer=10001702,
(accessed: 02.02.2022).
25 Reichhardt, M. (2017). , p. 21 f.
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and foresters are excluded. The latter were originally to be included, but this was prevented by strong
lobbying on their part. 26;27
The corporate code (AT: UGB) is divided into several books:
•
First book: General provisions (terms and scope of application, business register, company,
etc.)
•
Book Two: General partnerships, limited joint-stock partnerships and silent partnerships (establishment of a company, rights, powers, etc.)
•
Book Three: Accounting (general regulations, accounting, inventory setup, scope of application, annual financial statements, valuation regulations, etc.)
•
Book Four: Business-related transactions (general provisions, seizure of account balances,
right of retention, purchase of goods, forwarding transactions, etc.)
•
Fifth book: Maritime trade
The third book is of particular interest for this course, as this section sets out many of the framework
conditions of the external accounting system, which will be discussed in more detail below.
Business register
The business register is a central, public directory in which important information about numerous
companies can be found. The primary purpose is to provide business transactions with an opportunity to obtain relevant information about the registered companies. All Austrian capital companies,
partnerships and co-operatives are registered. Sole proprietorships can register voluntarily or are
obliged to do so (based on turnover), see chapter 4.5.
4.2
Federal fiscal code (AT: BAO)
The Federal Fiscal Code (AT: BAO) regulates the entire tax procedure. This includes provisions for
the levying of taxes, how they are to be assessed, determined and collected, as well as how dealings between tax authorities, parties and other persons are to be handled. In this context, the term
"person liable to pay tax" is important, i.e. a person who is considered to be liable to pay tax in a tax
submission procedure (Section 77 (1) federal fiscal code), which entails a number of rights and
obligations. The rights include the right to be informed of the law §133 federal fiscal code, the right
to be heard §115 para. 2 federal fiscal code, and many more. On the other hand, there are obligations, such as
•
Duty of disclosure and truth (§119 federal fiscal code)
•
Notification obligations (§§120 to §121a federal fiscal code)
•
Keeping books and records (§§124 to 132 federal fiscal code)
•
Obligation to provide supporting documents (§132a federal fiscal code)
•
Submission of the tax return (§§133 to 140 federal fiscal code)
•
Assistance with official acts (§141 federal fiscal code)
26 Billomat, https://www.billomat.com/lexikon/u/unternehmensgesetzbuch-ugb/, (accessed: 02.02.2022).
27
Kollmann, J.; Zolles, S., https://www.wu.ac.at/fileadmin/wu/d/i/taxlaw/events.main/nat.events/Sym-Unternehmens_SR/2016/02_Sym-Untern-2016-PPP-Kollmann_Zolles.pdf, (accessed: 02.02.2022).
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•
4.3
Duty to cooperate in tax authorities' audits (§147 federal fiscal code)
Tax laws
The tax burden on company profits in Austria varies depending on the legal form, the amount of
profit generated and the distribution of profit or withdrawal of profit by owners. A rough distinction
can be made between income tax and corporate income tax.
Income tax is levied on the income of natural persons and thus also on the profits of sole proprietorships and partnerships, as well as on all remuneration that natural persons receive from companies through their cooperation or by making capital or assets available. The following types of income
are subject to income tax:
•
Income from agriculture and forestry
•
Income from self-employment
•
Income from commercial operations
•
Income from employment
•
Income from capital assets
•
Income from letting and leasing
•
Other income (speculative transactions, sale of participating interests, etc.)
Income tax is calculated according to a progressive scale.
Corporate income tax is levied on the income of legal entities (public limited liability companies,
limited liability companies, foundations, regional authorities such as federal, state and local authorities, etc.). See also section 4.4). The tax base here is, by and large, the annual profit reported in the
annual financial statement.
4.4
Legal forms of a company
In addition to sole proprietorships, there are a number of company forms available in Austria for
running a business. A partnership can be formed by persons who pursue a common purpose. The
company forms that are available to choose from differ in aspects such as
•
Formation modalities
•
Body structure
•
Liability structure
•
Area of application
•
Scope of application unter tax and social security law
The various forms are briefly explained below.
4.4.1 Limited liability company
A limited company (Ltd.) has its own legal personality (= ability to acquire rights, enter into liabilities,
right to sue). The formation of a GmbH requires the conclusion of a partnership agreement or the
declaration of formation of a partnership (in the case of an individual). The limited (AT: GmbH)
comes into existence as a legal entity upon entry in the business register and the minimum capital
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stock is EUR 35,000, - which must be raised through capital contributions from the shareholders.
Shareholders are not liable for the liabilities of the company beyond this capital contribution. The
supreme body of the GmbH is the general meeting of shareholders, which is also responsible for
appointing the managing director. The management of the GmbH is assumed and represented by
one or more managing directors.
4.4.2 Public limited liability companies
A public limited liability company (AT: AG) is also a legal entity with its own legal personality. When
a public limited liability company (AT: AG) is founded, articles of association must be agreed and
entered in the business register. The share capital amounts to EUR 70,000 and must be raised
through the subscription of shares by the shareholders. Shareholders are not liable for the company's liabilities. The mandatory bodies of an AG are
•
•
•
Management Board
Supervisory Board
Annual General Meeting
The shareholders' will is formed by the Annual General Meeting, which also elects the members of
the Supervisory Board. The AG is managed by the Management Board, whose members are appointed by the Supervisory Board.
4.4.3 General partnership
A general partnership (AT: OG) is founded by concluding a business agreement and registering it in
the business register. In contrast to the aforementioned capital companies (AT: GmbH, AG), no
capital stock is required. A general partnership (AT: OG) also has a legal personality and the shareholders are personally liable without limitation and jointly and severally for the liabilities of the company. Each shareholder of an OG is authorized to act as managing director.
4.4.4 Limited joint-stock partnership
The limited joint-stock partnership (KG) is structured in the same way as an OG, but in addition to
the general partners with unlimited liability, there are also limited partners. These are only liable for
the amount entered in the business register and are generally not authorized to act as managing
directors or representatives.
4.4.5 Company under civil law
A civil law partnership (AT: GesbR) can be founded for any permitted purpose and has no legal
personality. It cannot be entered in the business register and the shareholders are generally jointly
and severally liable for the company's debts. In the event that the its turnover exceeds the accounting
limits (EUR 700,000 twice or EUR 1,000,000 once - see following tables), it must be entered in the
business register.
4.4.6 Silent partnership
In a silent partnership (AT: StGes), a silent shareholder participates in the business of another party
and makes an asset deposit that is transferred to the assets of the other party. He thus participates
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in the profit and loss of the company. A silent partnership is not authorized to manage or represent
the company.
4.4.7 Acquisition and business cooperative
Co-operatives (AT: Gen) are combines that serve to promote the acquisition or economic efficiency
of their members. In practice, they take various forms:
•
•
•
•
•
•
Credit cooperative
purchasing cooperative
Sales cooperative
construction cooperative
residential cooperative
Etc.
The co-operative's executive bodies are involved:
•
•
•
Management Board
Supervisory Board
Annual General Meeting
In this form of company, the managing director is responsible for managing and representing the
company.
4.5
Legal regulations on accounting and accountancy
The tax accounting obligation is primarily derived from the corporate code (§§ 189 ff corporate
code), as a corporate accounting obligation also requires a tax accounting obligation (§124,
AT: federal fiscal code). For sole proprietorships, with the exception of the liberal professions and
farmers and foresters, Section 189(1)(2) corporate code defines the turnover thresholds above which
an accounting obligation comes into force. The same regulations apply to partnerships (general
partnerships (AT: OG), limited joint-stock partnerships (AT: KG) with at least one natural person as
a shareholder with unlimited liability) and partnerships under civil law (AT: GesbR). The lower
threshold value must be exceeded twice in succession, after which the accounting obligation comes
into force following the expiry of a so-called "buffer year". Accordingly, if a company exceeds the
thresholds defined in Section 189 (1) no. 2 in 2019 and 2020, it is obliged to prepare accounts from
2022. If the upper turnover threshold (also known as the qualified threshold) is exceeded, the obligation to prepare accounts comes into force even if it is exceeded once and without the buffer year.
These turnover thresholds are shown in the following Table 2 summarized below.
Table 2 Turnover thresholds
Threshold value
Lower sales
Qualified/ upper
threshold
threshold value
700,000 euros
1,000,000 euros
After two consecutive overruns
If exceeded once
[EUR]
Accounting obligation
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For capital companies (AT: GmbH, AG) and for public limited (AT: GmbH & Co KG), where no
natural person has unlimited liability, accounting obligations apply that are independent of turnover and activity. The following Table 3 shows the forms of factory accounting for commercial enterprises in accordance with §23 income tax act (AT: EStG).
Table 3 Forms of factory accounting
Legal form
Sole proprietorships
and
partnerships (AT: KG,
OG)
Capital companies
(AT:
GmbH,
AG), public limited (AT: GmbH
& Co KG)
Turnover limit
Type of accounting system
Up to 35,000 euros
turnover
in
the current
year
Optional: Small business
flat rate, revenues
and expenses statement or voluntary
double entry accounting (§4 para. 1
EstG)
Up to 220,000 euros turnover
in the previous year
Optional: Basic flat-rate
accounting,
revenues and expenses
statement or voluntary double entry accounting
Up to 700,000 euros turnover
Optional: industry-specific
flat
rate,
revenues/expenses
statement or voluntary double entry accounting (§4 para. 1
EstG)
If EUR 700,000 is
exceeded
twice or EUR
1,000,000 is
exceeded
once
Double entry accounting
according to § 5
EstG mandatory
No lower limit
Double entry accounting
(according to § 5
EstG) always mandatory regardless of
turnover
If the accounting obligation is waived, the same conditions generally apply, but without the buffer
year. Exceeding these limits automatically leads to a bookkeeping obligation (in addition to the
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accounting obligation) in accordance with §5 income taxt act (AT: EstG). Entry in the business register does not play a decisive role in the accounting obligation.
4.5.1 Accounting requirements
The accounts must be kept in accordance with the following legal requirements (Section 190 (1) et
seq. of the Austrian Commercial Code (AT: UGB):
•
When keeping the books and other required records, the entrepreneur must use a living language. If abbreviations, numbers, letters or symbols are used, their meaning must be clearly
established in each individual case.
•
Entries in books and other required records must be complete, correct, timely and orderly.
•
An entry or record may not be changed in such a way that the original content can no longer
be determined. Nor may an alteration create any uncertainty as to whether an entry or record
was originally made or was made at a later date.
•
The entrepreneur may use data carriers for proper accounting and for the storage of his
business letters (§ 212 para. 1). In this case, the complete and orderly reproduction of the
content of the documents mentioned in § 212 para. 1, as well as the faithful reproduction of
the original, must be guaranteed at all times until the expiry of the statutory retention periods.
If such documents are transmitted electronically, their legibility must be ensured in a suitable
form. If the documents are only available on data carriers, the requirement of faithful reproduction does not apply.
4.6
Accounting
As already mentioned, factory accounting is not mandatory for internal information purposes. Financial accounting may be mandatory for companies under certain circumstances (see Table 3). Accounting is the basis for preparing the balance sheet and the profit and loss account. To demonstrate the financial situation of a company, certain companies are obliged to prepare an annual
financial statement or consolidated financial statement at the end of a financial year (see corporate
code (AT: UGB)). The annual financial statements must contain a balance sheet and a profit and
loss statement, thus enabling a company's economic efficiency to be compared with that of the previous financial year.
4.7
Determining the taxable profit
As already mentioned in the previous section 4.5and in the Table 2 and Table 3Depending on their
legal form (AG, GmbH, sole proprietorship, etc.) and the turnover generated, companies are obliged
to use different forms of accounting systems (as a reminder: an accounting obligation under company law also requires accounting under tax legislation). The various forms of profit determination
under tax legislation will be briefly discussed in detail below. The exact legal bases for this are §§ 4,
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5, 17 and 76 of the Income Tax Act (AT: EStG), as well as §§142 ff of the Federal Fiscal Code (AT:
BAO).
4.7.1 Double entry accounting (§5 or §4 para. 1 income tax act)
Double entry accounting is characterized by the fact that every business transaction is recorded in
a book of first entry (journal) and a general ledger in the G/L accounts and posted to the account
once as a debit and once as a credit (this will not be discussed in more detail here, as Unit 2 deals
with these topics in more detail). In addition, profit is always determined twice by preparing a balance
sheet on the one hand and a profit and loss account on the other. The book of first entry records
business transactions in chronological (chronological) order, while the general ledger records them
in the same order.
4.7.2 Revenues and expenses statement (§4 para. 3 income tax act)
A revenue and expenditure account is recommended for small traders (provided they do not exceed
the accounting limits in the tables provided), as well as for doctors and lawyers. Revenues are
deemed to exist when an amount of money is received for a performance. An expense exists
when there has been a decrease in the means of payment. Both are generally only taken into account after the payment has been made.
4.7.3 Lump-sum payment (§ 17 income tax act)
Under certain conditions, companies can opt for a lump sum. A distinction can be made between the
following forms:
•
•
•
4.8
Flat-rate profit distribution (profit is distributed as a lump sum, can also be distributed as a
partial lump sum)
Industry flat rate (e.g. hospitality industry, food trade, artists, etc.)
Small business flat rate (for persons liable for tax with income from business or self-employment with annual turnover < 35,000 euros - flat rate for operating expenses)
Accounting and disclosure of the balance sheet
Companies that are obliged to prepare accounts must "keep records" of company-related transactions and thus disclose the financial situation of the company (§190 ff. corporate code). This also
means that these companies must prepare a balance sheet and a profit and loss account each year
as part of double entry accounting. The balance sheet lists the company's business assets and thus
represents the inventory. It is compared on the assets and liabilities side, with the assets side listing
all assets while the liabilities side provides information on the funds used (e.g. debt or equity). Illustration 10 shows an excerpt of such a balance sheet, although this will not be discussed further here,
as more detailed information on the topic of balance sheets will be presented in the next units of this
course.
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Illustration 10 Simplified representation of a balance sheet 28
4.8.1 Retention obligation
The books kept by the company, together with the inventory, the opening balance sheet, the annual
financial statements including management reports, business letters received, copies of business
letters sent and vouchers for postings in the books to be kept, must be kept in an orderly manner for
seven years from the date of preparation. This time frame is extended if required by court or official
proceedings. In the case of electronic storage, these must be made available in the event of an audit
(§§ 131, 132, federal fiscal act (AT: BAO). However, under certain circumstances, the retention obligation can be extended to twelve years for documents relating to land (even 22 years under certain
circumstances) (Section 18 (10) value added tax act (AT: UStG).
4.9
Annual financial statement
The annual financial statements consist of the balance sheet and the profit and loss account and
must comply with the principles of proper accounting (see following chapter) and be prepared in a
clear and concise manner in order to give a true and fair view of a company's assets and earnings.
Companies required to prepare financial statements must prepare the annual financial statements
for the previous year within 9 months of the current financial year. Hidden capital companies and
corporations, as well as private foundations, must prepare the annual financial statements, including
the notes, the management report and, if applicable, a corporate governance report (large public
limited liability companies), as well as a report on payments to government bodies (e.g. large companies in the extractive industry) within five months of the current financial year and submit them to
the supervisory board, if one exists. The supervisory board of an capital company (AT: AG) has two
months to review the annual financial statements and to declare and report on them before they are
adopted by the general meeting. In the case of a limited company (Ltd.), the Annual General Meeting
must examine and approve the annual report within eight months of the current financial year.
In the case of limited joint stock partnerships (AT: KG and hidden KG), the annual financial statements and management report must be audited and reported on by an auditor.
28 Source: Reichhardt, M. (2017). , p.30
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4.9.1 Overview of the companies concerned
Preparation of an annual financial statement:
•
Sole proprietorships and partnerships subject to financial reporting requirements
•
Capital companies
•
Hidden capital companies
•
Co-operatives (for certain size characteristics)
•
Combines (for certain size characteristics)
•
Other legal entities in accordance with special laws
Submission of the annual financial statement to the Commercial Register Court:
•
Capital companies
•
Hidden capital companies
•
Branches of foreign capital companies (Ltd. etc.)
•
Co-operatives (for certain size characteristics)
•
Other legal entities in accordance with special laws
In addition, large public limited liability companies are obliged to publish their annual financial statements in the official journal "Amtsblatt zur Wiener Zeitung".
4.10 Stock-taking and inventory
A stock-taking must be carried out once a financial year. This is an inventory of all of a company's
intangible assets and liabilities, organized according to predefined criteria. The result of this listing
is called an inventory. A more detailed description of the process can be found in §191 f. coporate
code (AT: UGB); here we will provide an overview of common forms and methods of implementation.
Forms of stock-taking:29
•
Periodic inventory system: Inventory 10 days or before the balance sheet closing date, rather
small to medium-sized companies
•
Inventory postponed in time: stock-taking carried out on a day within the three months before
or two months after the balance sheet closing date
•
Continuous inventory: continuous stock-taking, only possible with a suitable system, once a
year to compare debit and actual stock levels
Types of stock-taking:30
•
Physical inventory: physical stock-taking by counting and valuing items (tangible assets)
29 Reichhardt, M. (2017), p.24 ff.
30 Reichhardt, M. (2017), p.24 ff.
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•
Book inventory: Determination of receivables, cash at bank, liabilities, etc. in book form (account statements, etc.)
•
Inventory sampling: under certain conditions, a simplified inventory determination using
mathematically or statistically recognized methods is permissible, whereby random samples
are taken and extrapolated (must comply with PpA)
•
Fixed value method: for parts of the assets whose stock is relatively constant (property, plant
and equipment, raw materials and supplies), stock-taking only every 3 years
•
Group valuation: approximately similar intangible assets can be grouped together and recognized at an average value
•
Subledger for fixed assets: (subledger for accounting) enables fixed assets not to be recorded individually
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5
Principles of proper accounting (PpA)
In order to develop the content of the annual financial statements from the accounting transactions,
it is necessary to take into account the legal regulations and observe the principles of proper accounting (PpA). These include both formal and material aspects, which will be discussed in more
detail below. The PpA is referred to several times in legal provisions, such as in §195 corporate
code: "The annual financial statements must comply with the principles of proper accounting."
However, although it is referred to several times in legal texts, the term PpA is not officially defined
anywhere. This was and still is partly the case in order to give the law some flexibility. The following graphic, shown in Illustration 11 breaks down the PpA according to formal and material principles; the approach used corresponds to the framework concept of the International Accounting
Standards (IASB), which are, however, broken down differently.
Illustration 11 Structure of the principles of proper accounting 31
5.1
Formal principles
The regulations in the PpA are intended to ensure that all records in the books are complete, systematic and reliable. They are primarily set out in §§190 ff. corporate code (AT: UGB) and for tax
purposes in §§ 131 and 132 federal fiscal code (AT: BAO). Some important aspects will be briefly
explained in more detail:32
•
Records must be kept in living language
•
The meaning of abbreviations, numbers, letters and symbols must be fixed
•
The annual financial statements must be prepared in euros and in German
•
keeping the books in such a way that a knowledgeable third party can obtain an overview
of the company within a reasonable period of time
•
Business transactions must be traceable
31 Source: Wagenhofer, A. (2019), p.54 ff.
32 Wagenhofer, A. (2019), p.54 ff.
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•
Entries in the books, as well as other records, must be complete, correct, timely and orderly
•
Completeness requires that all business transactions are recorded and all items are included in the annual financial statements
•
The principle of completeness results in the continuity of balance sheet presentation (§201
para. 2 no. 6 corporate code (AT: UGB): the opening balance sheet of a financial year must
match the closing balance sheet of the previous financial year
•
Entries are deemed to be correct if they comply with the law
•
The valuation must be arbitrary (accountancy must be based on certain assumptions, for
example in the valuation of accruals)
•
Entries must be made in a timely and orderly manner (both in terms of time and subject
matter)
•
To ensure that all requirements are met, there is the so-called principle of evidence: no
posting without evidence (vouchers lead to entry in the books)
5.2
Material principles
The material principles of the PpA relate to the content of the annual financial statements and thus
also to the content of the books:33
•
Framework: the preparation of the annual financial statements is subject to the reporting
date principle
•
The items in the annual financial statements must be accounted for and presented taking into
account their economic efficiency = economic approach → is intended to prevent the legal
circumstances from being used to prepare an accountancy that runs counter to the actual
circumstances
•
Materiality refers to the fact that no information may be omitted or added that could influence
the observer of the annual financial statements to make incorrect decisions (Section 189a
no. 10 corporate code) (application e.g. for accruals, consolidations etc.).
•
The classification principles include the gross principle §196 (2) corporate code (items on
the assets side may not be offset against the liabilities side, with exceptions)
•
Formal continuity (formal balance sheet continuity) ensures that the presentation in the
annual financial statements of capital companies is maintained over the years (Section 223
(1) corporate code)
33 Wagenhofer, A. (2019), p.54 ff.
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•
Recognition principles govern all aspects that must be included in the books and annual
financial statements (intangible assets, liabilities, etc.)
•
Accountability is based on whether an expense corresponds to an equivalent value that
can be capitalized (is given by the future benefit for the company; identical for revenues→
complex for intangible assets) - this generally also results in completeness (accounting obligation)
•
Measurement principles are based on the going concern concept (section 201 (2) no. 2
corporate code), even if this can never be predicted with certainty
•
In accordance with material consistency, accountancy and valuation methods may not be
changed in order to ensure comparability (section 201 (2) no. 1 corporate code)
•
In accordance with the principle of group valuation (Section 209 (2) corporate code), there
are exceptions for certain financial assets
•
As part of a fixed valuation (Section 209 (1) corporate code), certain intangible assets may
be valued at a constant value (e.g. property, plant and equipment that is subject to minor
changes in value)
•
The principle of prudence is openly defined in §201 (2) Z4 corporate code and includes the
realization principle and the principle of imparity (both contain guidelines on when expenditures and financial returns are to be included in the accounts)
•
The realization principle takes the time of profit realization as the time at which the performance is realized - a profit is therefore considered realized when the delivery or performance
has been rendered in accordance with the contract and can be invoiced.
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6
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