Martin Oxley sent this out for the Foreign and Commonwealth office and we are pleased to assist in its propagation.
Dear Quoracy.com subscribers,
Poland presents an attractive nearshore growth opportunity for Britain Plc. In line with the new UKTI strategy presented to government recently by Lord Green, Minister of State for Trade and Investment we are introducing a step change in the way UKTI supports British business growth.
We are taking a very proactive approach on behalf of government to provide a range of bespoke services to enable British SME’s to significantly enhance exports and also work with large corporations to win major overseas contracts and expedite their growth in market.
With our new Ambassador HMA Robin Barnett and the Embassy team we are engaging to support strong growth oriented business agenda in Poland.
With this in mind I am pleased to attach a brief outline of the services which UKTI has developed to support British business in Poland. I very much look forward to meeting you over the course of the coming weeks to discuss with you how we can assist you with your specific company needs.
I am very happy to visit you or alternatively you would be most welcome to visit us and I will provide you a tour of our excellent event facilities at the Embassy.
Quoracy.com would also like to take this opportunity to congratulate our dear friend Martin Oxley on his recent new appointment to the FCO in Warsaw, and to wish him every success working with Her Majesty’s new Ambassador to Poland, His Excellency Robin Barnett. We wish you and your team many successes and a lot of fun.
I was recently reminded of something my old gardener told me about ivy. I had been surprised at how slow some lovely variegated ivy that had been planted by my fence was coming on, and his words were as follows:
With ivy, the first year it is put in, it does nothing, it just sulks at having been put in a new place. The second year is starts to spread out horizontally along the ground by the bottom of the fence, and in the third year it starts to grow upward, like a curtain.
Wise words, from someone who knew his onions. And his ivy. It seems to me that this is a great analogy for many new businesses. Entrepreneurs obviously look for a rapid return on capital employed. They want their profits and the cash back to invest in the next thing. But nature takes its course with some businesses just like it does with the ivy, and you cannot rush it.
The first year, you have set up costs, people are getting used to each other in a new team with a new product, new identity. This is like the ivy “sulking” – just establishing a new root system and adapting to the chemistry of the soil and the direction of the light.
The second year you start to see sales pick up but the prices are not that good yet and also the volumes don’t allow the contribution to cover fixed costs. You get growth but you don’t get the profit. It is like the ivy growing along the ground by the bottom of the fence. It is obviously going somewhere, but you aren’t getting the effect of it yet.
The third year you reach a certain critical mass, you break even you start to nudge into profit, your cash flows turn the corner and you start paying back your seed finance. This is like the ivy making its curtain up the fence.
If the ivy survives at all, it will certainly produce the coverage in time. The same with these new businesses. They simply need to be nurtured and for nature to be allowed to take its course. If the soil is right, the light is there, and the water, the plant healthy, then it will do what it is programmed to do in its own time. Micro-managing it will not help. Restructuring the team which is only starting to gel will not help. it will be like transplanting the ivy at the end of the second year for failing to raise – it will only go through its sulking and creeping years all over again in the new position.
Warsaw Skyline - TGC's new office is near the left side.
TGC corporate lawyers have sent in the following reminder of legal responsibilities of directors in Poland that are often overlooked. Please take a moment to ensure you know the following if it impacts on you.
Dear Quoracy.com subscribers,We would like to draw your attention to the liability of members of the management board in Polish companies, as regulated by a number of legal acts. Management board members bear civil liability, criminal liability, liability for tax obligations, liability to the Social Insurance Office and liability resulting from specific provisions (e.g. resulting from the Accounting Act – Journal of Laws of 2009, no. 152, position 1223).According to the provisions of the Commercial Companies Code (Journal of Laws of 2000, no. 94, position 1037) members of the management board bear civil liability for actions taken on behalf of the company already at the stage of establishment of the company, i.e. from the date of signing of articles of incorporationof the company. This applies even before registration of the company with the State Court Register.It should be noted that members of the management board bear civil liability towards the company, among other things, for any damages inflicted upon the company in result of the management board members’ activities or omissions contrary to the articles of incorporation. Furthermore, they are jointly and severally liable for the company’s liabilities when enforcement proceedings against the company have proven ineffective.
Criminal liability of members of the management board arises as a result of a property damage caused to the company.
Apart from civil and criminal liability, members of the management board are jointly and severally liable for tax arrears, as well as for lack of (timely) payment of contributions to social insurance. It has to be noted that this type of liability lasts even after deletion of the company from the State Court Register.
In most cases members of the management board may protect themselves against responsibility for the company’s liabilities on condition that they undertake appropriate preventive activities in due time.
We will be happy to give you any detailed information with regard to the liability of the management board members, as well as circumstances of release of the liability.
For further information please contact our expert:
Agata Pastuchow-Brzezińska Director of Corporate Department
T: +48 22 653 3649
E: apastuchow
We are moving!From 1st May 2011our new Warsaw office address and phone numbers will be:Crown Tower ul. Hrubieszowska 2, 01-209 WarsawTelephone: +48 22 295 3300 Fax: +48 22 295 3301
I am writing to relate a story based on true events which came to light last week when one gentleman came into one of our offices and spoke to me. To keep matters confidential, I won’t say the country – the same can happen in any country – or identify anything about this company the gentleman had – even the sector. It can happen to many sectors.
This gentleman had given his company bookkeeping and tax affairs to an outsourced book-keeper for his business in that particular country. He used outsourcing back home in his own country (I’m not saying where that is either) and he appreciated the benefit of being able to have his bookkeeping professionally handled by experts without needing to employ anyone, worry about holiday cover, etc etc.
Some time ago this gentleman had included our firm in his search, and we gave him a price entirely fair for a company with our niche in the market, that is, internationally trained people, with English, with proper quality assurance, supervision and back-up. In other words, a peer-reviewed, branded service tailored absolutely to the needs of West European businesses in the middle tier coming to start up in East Europe, and also very good for businesses not exactly in the middle tier and from places outside West Europe.
That means that the fee offered was not nearly as high as a Big Four service would cost, but certainly higher than a purely local service.
Now I’m not knocking the purely local services – many of them are very good, but for purely local clients as they don’t tend to be claiming proficiency in foreign languages or have the ability to engage cross-culturally with the client (a source of just as many miscommunications as the language barrier on its own). They are not a great fit with the international client, and often their cheaper price becomes a false economy as frustrations rise on both sides of the desk.
The problem in this case wasn’t lack of English – this gentleman’s chosen bookkeeper spoke English, apparently.
But she was in business just on her own. With no back-up employees, probably very little insurance, probably very few resources to turn to, and very few overheads hence enabling a price no quality firm could ever compete with. That was the price that tempted this gentleman to take her bid over mine.
But since then, it became apparent that this bookkeeper was not entirely what she seemed to be.
Neither this gentleman nor myself are qualified psychiatrists, and we could only speculate on what might have gone wrong, or been wrong all along with this person. The fact is, though, that mental illness happens in the human population. We’ve probably all had employees or acquaintances who have had a mental illness, and in a larger company they quickly get noticed by colleagues, and steps taken to look after them and safeguard the clients’ affairs. When they are on their own, no such controls exist.
Suffice it to say this lady no longer was answering emails or picking up the telephone when he was calling, and when he rang from another number she didn’t know, she put the phone down when she heard his voice – the person entrusted with his company’s books and records and processing a VAT reclaim for more money than she would normally earn in many years. As you can see, the situation is now much harder – and therefore more costly – for us to repair than if he had simply given us the work in the first place.
It simply doesn’t pay to use these Bargain Basement Bookkeepers. You know what you get if you pay peanuts, and if a price looks too good to be true, it probably is.
Tempus fugit - is it time for your proforma audit?
For businesses which have never been audited but which are growing up quickly to meet the audit thresholds in a year or two, you may wish to consider having your first audit done while it is still voluntary to do so, and the results, if less positive than expected, can at least be kept private.
Once your business has exceeded the audit thresholds (very typically in Europe this means for a private company about 50 employees, 5 million Euros turnover and 2.5 million Euros of gross assets, and it means 2 out of those three conditions – we just stated actually the Polish ones verbatim, (with the proviso that they also state a set PLN amount to avoid subjectivity for businesses that are on the cusp), but most countries are not far off that – even the Czech Republic which really needs much smaller thresholds)
Clearly this doesn’t apply at all to public limited companies, ie. the “S.A.”, “a.s.”, UK plc or German AG style companies which must be audited regardless of size – in some jurisdictions even if they are dormant – but for private limited liability companies most jurisdictions have size criteria like the ones just given – for Slovakia about 60% of the sizes given, so please note that this is divergent from the Czech ones, which are far too high for that country and result in proportionally fewer audits, which is a bad thing for corporate governance in that country.
While you are under the limits audit is voluntary. And you can have an unofficial audit whereby the audit comes and does for you all the normal work he would do if officially appointed, but it is only pro-forma. “Pro-forma” is Latin for something like the idea of “as if” so the auditor will work and report as if they had been properly appointed, but it is really a dry run for you. You do not appoint them as statutory auditors in the minuted general meeting, you do not have to file the report as the audit was voluntary, and you get all the benefit of the audit without the risk, and on top of all of that, I can get you these pro-forma audits for only 75% of the cost of a statutory audit, because the Firms we associate with want to promote good voluntary governance practice in the economy.
If you wait for your first audit until it is an obligatory one because you’ve outgrown the size criteria – and as we come out of the recession that will happen to some of you next year hopefully sooner than you dare hope for now – then if the auditor finds something wrong then the report of the auditor could be “modified” – I’ll do a separate article on what sorts of “modifications” exist and what they mean in accountancy speak, but it’s not good if you get one.
It will not help if you need a loan, and it will probably trigger a lot of interest on the part of the tax inspector. But you’ll have to publish it anyway, if there isn’t time to do the remedial work a good auditor should outline to you in time for your statutory deadline.
Now auditors get cajoled, encouraged in a friendly way or even outright threatened by desparate managers and owners to overlook things or change to an opinion that doesn’t match the facts, and there is nothing that can be done in those circumstances. Auditors are not generally anywhere near as afraid of their client as they are of their regulator, but more than that we are educated throughout our professional lives to be independent in our outlook, and so the only way to get out of some modified opinions is to do the remedial work the auditor recommends or make the adjustments that they recommend.
There’s no point in changing to another auditor you think will be more pliable – they must write to the old auditor and ask if there are any reasons why they cannot act. The best thing to do, if you are not sure how well your company will stand up to an audit is to have your first one a year or so before you need to. Then if the audit shows up a lot to be desired, you have a whole year to put it right and nobody will ever know because auditors are bound by confidentiality – it isn’t us who even publish our reports, it’s the responsibility of the client. The report is given to its addressee, which is always the shareholder, and some other corporate governance boards if they are in existence.
So it’s well worth thinking about, especially if your business has been growing fast and maybe has outgrown its systems.
An excerpt on appointment of auditors from one of the leading Polish newspapers Rzeczpospolita.
There are a few articles here on one large page, one of them dealing with what an audit report is and what it’s supposed to contain. This is anodyne and will be what you would expect from your own country, if it is in line with IFAC standards.
Another article talks about what the audit thresholds are. I’m going to write a separate article on audit thresholds comparing different countries in our region, but Poland has the fairly sensible levels of any SA, and for an Sp. z o.o. it’s 2/3 of the following: 1) Turnover 5 million Euros in the preceding year, 2) gross assets of 2.5 million Euros in the preceding year and 3) 50 employees on average in the year. The article offers a PLN interpretation of these levels for this calendar year end. I do not really want to reproduce that as not every company has calendar year and it is also not hard to work it out whether your Company in Poland has mandatory audit or not, and if you’re not sure, ask me and I’ll tell you for free.
The most interesting article in this audit related supplement, though, is probably the one which states that in line with article 64 paragraph 1 part 4 of the Act on Accounting, if the management needs to appoint an auditor it should be in time so that he/she can observe any material inventory counts.
So what that means in practice is that you’re probably OK if you have no stock or fixed assets. If on the other hand you do have these and they were due for a count, the auditor is risking big trouble if they come in and give an opinion on the figures not having attended the count. If this is of interest in your case, please look up the much larger on that subject below.
In the worst case there will be Companies who did their stock-counts without the observance of an auditor and they later discover they need to appoint one. Three alternative things can then happen. The first is that you chance on an ethical but unhelpful auditor, who refuses to take on an audit if the stocktake is already done. If you only meet such auditors, then you won’t be able to get the audit done and you’ll be in breach of the Act if you were over the size criterion or are a joint-stock company.
The second option is where the auditor says I can do this, but later pulls a qualification on you because of not having been able to attend the counts. You then have to file an audit report which isn’t 100% clean, and then live with the fact that you may not be able to declare a dividend and that the tax office will come breathing down you necks wondering what is going in. I don’t think it’s ethical for an auditor to lead the client into taking them by not being clear that they intend from the moment they are hired to give a modified audit report, but some people seriously justify it to themselves that it’s the client’s fault for not coming early enough.
Then there is the option where the auditor is both helpful and ethical, in that they take part in other procedures designed to make good the absence of an actual attendance at the time of the stocktake. Some auditors can use their business understanding and imagination to gain the assurance they need professionally without needing to do the whole stocktake over again. You may need to shop around to find these ones. I can certainly help you find people who approach their work in that more constructive period though.
In the very worst case, you may need to do the stock take again, but beware, you cannot do that officially after one month from year end anyway, and it involves extra work on the reconciliation afterwards, which will be on the shoulders of your chief accountant.
If you’re late appointing, don’t delay it any more – that’s the moral of the story!
Quoracy Consulting & Publishing 
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