At the end of last year and early 2024, the Commercial Register has taken active steps to make the business environment more transparent and increase accountability by warning companies with outstanding obligations to file annual reports that they may be deleted from the register or fined. Indeed, the first companies have been deleted from the register and a few hundred companies have paid fines.
The statistics aired before the parliamentary Financial Affairs Committee in mid-January did not paint a very responsible picture – only 54% of companies in Estonia filed their annual report on time in 2022 and about 20% of companies have failed to do so entirely.
For us as providers of accounting service, the issue has been on the table in the past. But the time when filing an annual report was more the interest of the accountant than the managing director is now probably gone for good. The warnings of deletion and fines have also served as a wake-up call for clients who were out of the picture for a long time.
Estonia has been touted as a country where it is easy to set up companies and go into business. But it has been more remiss about the follow-up activities – bookkeeping and winding up the company if the business was not successful. Inevitably, the question hangs in the air – perhaps the Commercial Register could be purged of the “empty shells”?
In order to facilitate accounting and, above all, tax collection, a business account function has been created in one commercial bank, where tax accounting is automatically generated. Why not think further from here - could the annual report also be created automatically? Nor should we forget developments in e-invoicing, which today is unfoundedly considered the domain of state enterprises but which actually would lead to the next level in Estonian businesses’ accounting. It’s time to wake up the e-tiger.
Good accounting has to keep up with a company’s own growth, and the opposite is also true – during a crisis, we must examine whether what was essential in the past still is that way today. Raising efficiency through integration, e-invoices and using a service provider instead of a staff employee are all topical issues for businesses, an area where good solutions and balance can be found.
A new trend that can be identified is greater focus of clients on making internal processes more effective. In accounting, too, a systematic approach and automation are sought. We are getting more inquiries for reviewing accounting program settings, for building previously manual reports into accounting software as automatic functions.
I’m glad to see that clients feel that accountants are their partners and accounting software is a tool that can be modified, developed and replaced. Experience tells us that switching to different software shouldn’t be feared – it’s important to think about what the needs and goals are.
Yet it can’t be said that cutting back on service or looking for internal efficiency is enough for all clients. Some (start-up) businesses have unfortunately had to close shop. That clearly impacts accounting service providers.
A market situation where high interest rates have slowed investments has led to a waiting game among clients or the exhaustion of internal reserves, meaning that difficult decisions have to be made, layoffs or a reorientation of business. There is a sense of a generational shift taking place in the business world.
For some time now, the question of shortage of auditors has consumed the media. The rising prices of goods and services, due mainly to inflation, has inflated the volumes of many companies and the thresholds for audit requirements have not been keeping up with the reality (they were last raised in 2016).
As a market participant, I understand both sides – I know from my own colleagues that there is more demand for service than can be fulfilled and secondly, when looking for an auditor for our own clients, we have to send out queries to many before a job can be placed. It is particularly arduous to find an auditor for companies whose business involves crypto to a significant degree. As a practical solution, the Ministry of Justice has granted an opportunity to extend the deadline for filing reports for companies who have not found an auditor. The Auditors’ Association and the Ministry of Finance have made a proposal to raise the thresholds for audit and financial review, which should be discussed in Parliament this spring.
The lack of auditors has actually revealed a bottleneck in how companies manage their finances – a good CFO and skilled accountant know, notice and understand what options they have for more precisely planning cash flows, changing the dates of the financial year or looking for an auditor early.
The question of sustainability and auditing of sustainability reports has also received more coverage. Accounting solutions must also start considering companies’ interest in calculating and measuring their environmental footprint. Although this does not directly impact financial indicators, the flow of information that companies must start analysing and collecting from their own procurers is significantly more voluminous. I recommend that business operators get up to speed with ESG topics now and not hesitate to ask their auditor about it.
Accountant or service provider – it all starts and finishes with a well-organised and systematic accounting system. There’s no difference whether we’re talking about an accounting office or in-house accountant – in both cases the yardstick is quality.
The market for accounting service is currently unregulated in Estonia, and there are thus essentially two ways of recognising good accounting – testing the accountant’s knowledge and performing a careful background check or trusting the quality label issued by the Association of Estonian Accountants (there are now 19 such service providers) or senior accountants with a professional certificate, lead accountants (level 6 and 7). Accountants should therefore also take care of recognising their own level. And a skilled accountant also makes the audit process more streamlined.
From the service provider’s view, the most important topics are the continuing training of employees and assessing candidates’ skills when recruiting new staff. The recession and drying-up of start-ups has made it slightly easier to find skilled workforce but the salary pressure has not gone away yet, for inflation in years past and this year is much higher in Estonia than it is in neighbouring countries, and employees still have expectations of salary raises.
If you have similar challenges and questions, please contact our specialists.
