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Losing your accounting books

Do you think that having an antivirus system, mandatory periodic change of access passwords or phishing training make your company safe? They certainly lower the risk but do not protect your data 100%. Unfortunately, the number of hacking attacks is growing intensively from year to year, and their effectiveness also varies. This increase is evident in analyses by Check Point . This growth is presented in the 2023 Cyber Security Report opblished by Check Point:

Źródło: 2023 Cyber Security Report opublikowanym przez Check Point

The above chart indicates the average number of weekly attacks across various industries in 2022. The three most vulnerable sectors are education, military, and healthcare. However, as the report shows, other industries do not significantly differ in the number of attacks compared to the top three, leading to the conclusion that the risk of an attack applies to virtually every organization.
The percentage values in parentheses next to the chart indicate the increase in the average number of attacks for each industry compared to 2021. Unfortunately, not a single sector recorded a decrease in attacks. Every industry experienced a significant double-digit increase, ranging from 19% to as much as 74%. The sectors with the highest growth in attack risk are healthcare (+74%), the retail market (+66%), and sports & recreation (+60%).

A cyberattack can, and often does, result in data loss—not only personal and contact information but also financial data.

What Does the Loss of Accounting Books Really Mean, and Can They Be Restored?
Let’s start from the beginning. According to the Accounting Act, the foundation of an accounting system is maintaining documentation in a complete, up-to-date, chronological, and reliable manner. Accounting records form the basis for comprehensive financial reporting. They enable periodic reporting to Polish institutions and authorities such as tax offices, the Central Statistical Office (GUS), the National Bank of Poland (NBP), the Financial Supervision Authority (KNF), banks, and other institutional stakeholders that cooperate with or oversee entities.
Accounting books also serve as the foundation for preparing financial statements or consolidated reports for the owner, as well as for managerial reporting, which allows the management of an entity to make well-informed business decisions. Incomplete accounting records may lead an auditor to refuse to conduct a financial statement audit, as the final product of the audit includes an opinion on the accuracy and reliability of financial statements based on properly maintained accounting records.

The loss of accounting books can be either total or partial. A total loss means the complete disappearance of all accounting records. Partial loss may mean that the company has lost some double-entry records or that entire sections, such as receivables from related entities or manually recorded estimates, have been lost.

Examining the Work of an Accounting Team. An accounting team’s daily work involves long hours of entering financial documents into the accounting system. These documents stem from invoices, reports, and other records confirming economic events. They can be either in paper or electronic form. The number of documents registered weekly in large entities is massive (with the exact volume depending on the industry). So, is it possible to recover all of them and accurately present the company’s financial position? Based on our experience, the answer is: yes!

One of our clients, a company in the retail and e-commerce industry, fell victim to a cyberattack, resulting in the loss of all accounting data recorded in the system over a 22-month period. These data covered two historical periods that had already been reported to tax authorities, government institutions, and the stock exchange, as well as audited by an external auditor. The last 8 months of the lost data were part of an ongoing period that had yet to be closed or audited. Clearly, the absence of these records made it impossible to conduct a financial statement audit or prepare any legally required financial reports.

Recovering lost accounting records is a complex and time-consuming process. Typically, an in-house accounting team cannot handle this task, as they are already occupied with recording ongoing transactions and preparing current reports. Due to the demanding nature of data reconstruction, companies often seek external support.

The first step is to determine the scope of missing data, including the affected periods and data types. Next, it is essential to identify available records outside the accounting system that can be crucial for rebuilding the financial records. These include: purchase invoices, sales invoices, financial statements, reports submitted to authorities, notarial deeds, commercial contracts, resolutions of governing bodies, JPK KR (Standard Audit File for Accounting Books) files generated from the system and stored in company resources, JPK VDEK (VAT records) files sent to tax authorities, turnover and balance summaries from the system, stored in company resources, MT940 files from online banking, historical reports and analyses based on accounting entries. All these documents are highly useful in the reconstruction process, as they serve either as:

  • Direct records of specific transactions requiring reconstruction, or
  • Control materials ensuring that the reconstructed transactions are complete and correctly valued.

As mentioned above, the first step in recovering accounting records is determining the baseline period—the last accurate period to which we can refer. Most likely, this will be the most recent financial statement audited by an external auditor. Once the opening balance is established, we can proceed with the reconstruction process.
Data is sourced from various internal and external records. Periodic reports submitted to the Central Statistical Office (GUS) and different types of JPK files are particularly useful, as they help reconstruct sales revenues and purchase-related settlements. Other valuable sources include: cash reports, periodic balance confirmations and reconciliations with business partners, paper documents of all kinds, records of fixed asset acquisitions and disposals, reserve calculations and key estimates prepared in independent systems, inventory sheets. All these records serve as the foundation of the reconstruction work.

After an exhaustive analysis, the next step is identifying transactions that need to be re-entered into the accounting system and processing them accordingly. Once data entry is completed, the control process is absolutely crucial. This involves comparing the reconstructed accounting system’s data against available turnover and balance summaries as of a given date or previously prepared financial statements.
Control procedures ensure that the reconstruction process is complete and that the accounting records are accurate and reliable.


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JPCS
Al. Armii Krajowej 12/5
50-541 Wrocław

Spotkajmy się!

JPCS
Al. Armii Krajowej 12/5
50-541 Wrocław