Does finance need to participate in the review of the contract? What are the mat
2024-03-28
47 CommentsMany accountants are involved in the process of reviewing contracts in their work. Generally, contract review is the responsibility of the company's legal department, especially in large enterprises that have professional legal departments. If a company does not have a legal department, then the finance department must step in to review contracts on behalf of the legal department. The focus of financial contract review is on the examination and verification of financial clauses within the contract. Today, let's discuss the issues related to financial personnel reviewing contracts and the specific process involved.
Why is it necessary for finance personnel to be involved in contract review?
1. Contracts often involve a lot of tax-related knowledge, and a lack of strict review can lead to tax risks:
(1) The contract does not specify the type of invoice, making it difficult to obtain a special invoice in the end;
(2) The contract does not specify the items and tax rates for invoice issuance, resulting in obtaining an invoice with a lower tax rate;
(3) Mixed sales contracts are not clearly distinguished, leading to overpayment of taxes;
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(4) The delivery method is not well defined, causing taxes to be paid in advance.
Finance needs to consider the above matters in advance to avoid overpaying taxes and causing losses to the company.
2. Without reviewing the contract, finance personnel cannot accurately perform accounting calculations. The principles of the accrual basis of accounting, the recognition of assets and liabilities, and other issues all stem from the contract. Only by controlling the contract can finance personnel keep the accounts clear.
3. Without reviewing the contract, finance personnel cannot conduct financial analysis and internal control effectively. The contract is the starting point for cash, accounts receivable, and inventory control. For example, if the collection period of a sales contract is much longer than the turnover period of accounts receivable, is it necessary to sign this contract? The company is currently short of cash flow, what kind of settlement method is more advantageous? What is the creditworthiness of the other party, and will there be bad debts?
4. Start with the contract for good budget management. If the contract has been signed and the payment is over budget and blocked, finance personnel must review the contract.
What are the key points to note in financial contract review?
1. Review of contract amounts
The main focus is on whether the contract amount matches the corresponding resource items and is controlled within the corresponding project limits, whether the excess part has gone through the corresponding approval procedures; whether the amount information in the contract body is calculated accurately, whether it is consistent with the contract annex materials, and whether the amounts in words and figures are the same; for framework contracts, pay attention to whether the framework contract amount is reasonable and whether there is a cap on the amount, etc.II. Audit of Settlement Clauses
The primary audit focuses on whether the settlement terms of the contract comply with the enterprise's credit management regulations, especially the management requirements for advance payments, payment progress, and acceptance payments. For example, some enterprises stipulate that, in principle, no advance payments should be made for the procurement of equipment and materials, and the payment for goods should be made in batches according to the progress of execution. The specific payment ratio is determined based on the credit level of the cooperating partner. In case of special circumstances that require advance payments, special approval from the management level is required before proceeding. The settlement method of the contract (such as bank transfer, bank bills, cash transactions, etc.) must comply with the enterprise's relevant regulations. If the enterprise explicitly stipulates that electronic settlement methods such as bank transfers should be used, cash settlement should not be specified. Except for situations like head offices and branches, or when a third party is entrusted to receive payments, the account name of the payee mentioned in the contract should be consistent with the name of the contracting party.
III. Audit Regarding Tax-Related Matters
The main audit is to check whether the tax burden undertaking and invoice issuance clauses agreed upon in the contract comply with the requirements of national tax laws and regulations. If the type of invoice is clearly stipulated in the contract, the type of invoice must be consistent with the content and nature of the contract business. The audit should be conducted in conjunction with the location of the cooperating partner's organization, the place where the labor occurs, and the business content as the criteria; for invoices involving value-added tax (VAT) business, it should be indicated whether to issue a VAT special invoice or a regular invoice, as well as the included tax rate. If the type of invoice is not clearly stipulated in the contract, it should be vaguely stated with phrases such as "Party B must provide a formal tax invoice that complies with tax law and meets Party A's financial requirements." Finally, special attention should be paid to the scope of use of administrative and public institution receipts. If the enterprise cooperates with administrative and public institutions for business matters within the scope of their responsibilities, the other party can provide special receipts of administrative and public institutions for accounting; if the cooperation content involves business operations such as advertising, publicity, and training that exceed the scope of responsibilities of government administrative and public institutions, the other party should provide a formal tax-controlled invoice that complies with tax law requirements.
IV. Audit of Special Matters
For lease contracts, it is necessary to determine whether the lease form complies with the enterprise's asset management standards. For example, some enterprises stipulate that no form of financing lease is allowed without approval; for core equipment involving enterprise market competition, assets should not be obtained through leasing; the economic feasibility of the operational lease method should be assessed. For related party transaction contracts, it should be audited whether there are related party transactions involved, and whether the amount of related party transactions complies with enterprise regulations; if it is a related party transaction, whether the contract amount is within the remaining annual related party transaction limit. For donation and sponsorship contracts, the focus should be on auditing the tax-related matters of the transaction. According to the enterprise income tax deduction requirements, non-advertising sponsorship expenses and non-public welfare donations should not be deducted before enterprise income tax. For contracts involving deposit or guarantee clauses, the issuance method of the deposit or guarantee receipt should be audited.
V. Handling of Stamp Duty
In addition to the above audit content, enterprise contract financial auditors are generally also responsible for the calculation of contract stamp duty. Based on the nature of the contract business and the type of contract, the appropriate stamp duty tax item should be selected. For some special projects, it is also necessary to provide audit opinions, such as for lease contracts, adding "After audit, this contract is an operating lease contract" in the contract approval opinion, etc.
Therefore, a reminder to all financial personnel is that contracts are the legal protection for enterprises to carry out various activities, and most of the enterprise's actions are based on the signing of contracts. Therefore, strict audit of business actions at the contract signing stage can play a role in preventing and regulating enterprise business actions. For example, the type of invoice, tax rate, issuance time, content, and specifications in the contract, especially for special matters such as mixed sales and technology transfer, should be planned in advance.