On annual reports

What is an annual report?

Where I come from, you’re required to submit a set of different reports (balance sheet, P&L and various different appendices) to Business Register once a year. I believe it works in a similar way for most Western states.

For several years have we enjoyed the electronic option of submitting those statutory accounts. Works well. Consistent and foolproof, since most cross-checks are performed automatically. So even if you didn’t know your assets have to be equal to liabilities + own equity, you have no chance of submitting a faulty report 🙂 It is also easy and relatively cheap to purchase the reports of your competitors online and weep over their success and prosperity.

The quality and reliability of those numbers are a completely different matter. One could easily overestimate the value of the assets listed or leave out important liabilities and risks and still end up looking credible and professional. Most of the credit decisions are made on basis of those reports+ IRS (Tax Board) data. Let us suppose you fool the both and end up with competitive edge.

People start their business with different sets of goals one of which is definitely to succeed financially and make a decent living. It is acceptable to fail and sometimes this failure results in bankruptcy. Bad things happen even to good people as we all have heard. It is completely another thing to incorporate avoiding tax into your business plan.

Lately, I have witnessed some of the clumsiest attempts to dodge tax. Don’t get me wrong, we all try to read tax legislation and find the ways to reduce our liabilities WITHIN LEGAL LIMITS. Some tax kamikazes still tend to think that law is for stupid and use primitive schemes to avoid the tax man.

Without even going into deeper detail, yes, time to time we all disapprove the inefficient way government uses our tax dollars (euros), but that should be no reason to cheat. Sooner or later you might end up by using those tax dollars inside an institution you had no plan of visiting 😛

It is equally bad to try to fool your creditors by designing your reports to reflect the turnover you do not have and the assets you do not own. Since one only submits the report once a year you could go bankrupt ten times and drag down your creditors in the process.

Fair play does not only apply the Olympics.