The Accounting Closing Process: A Peru Consultant’s Explanation

We approached our Peru Accounting Consultant for insight into undertaking the accounting closing process in Peru. As the end of the year approaches, companies are preparing their yearly financial statements. While preparing these statements, it is important to be mindful of requirements and regulations that apply to companies earning income in Peru. Market outlook for Peru 2023. Learn some important facts for entrepreneurship in Peru. Financial statements are the base to calculate income tax. In Peru, the income tax is contributed to the National Customs Superintendence of Tax Administration (Superintendencia Nacional de Aduanas y de Administración Tributaria, or SUNAT).  In this article, we present 5 important tips to correctly conduct the yearly accounting closing process in Peru, according to our Peru Accounting Consultant. 

Tips on closing accounts from our Peru Accounting Consultant

In Peru, the closing process generally includes

• Settlement of the income and expense accounts
• Making the corresponding entries regarding workers participation and income tax, if applicable to determine the period’s result.
• Making distributions of the result established by the corporate or statutory regulations of the entity
• Closing the permanent accounts of the Statement of Financial Situation, charging and paying credit and debit balances.
• Identify accrued income

The income tax is applied to income effectively accrued in the year and refers to income the company is already entitled to. In this sense, it is important to review the contracts and operations and verify whether or not to factor the charged amounts into the income tax calculation for the present year. 

During the closing period, be wary of a common mistake that can occur when classifying invoices. Invoices that are received in the following year but correspond to purchases or services of the previous year can get mixed up between these two exercise periods.

According to the accrual principle, income and expenses must be declared in the period in which they are produced. In addition, there an accounting technical criterion named criterion of correlation, which should be taken into account when classifying expenses. 

The criterion of correlation states that expenses and income should be declared in the fiscal year to which they are attributable. In this sense, expenses and income don’t get mixed up in periods in which they do not correspond. The aim of this criterion is to provide the most accurate information in financial statements.

Our Peru Accounting Consultant recommends doing your research regarding potential tax exemptions. According to Peruvian tax law, there are items that despite being considered as income, are not taxed due to benefits from international agreements or local regulations. 

The SUNAT website also outlines a number of exemptions for tax on imports. It is recommended that businesses get guidance regarding any international treaties that Peru is involved in that may benefit their import and export activities, as well as other regulations that apply to their industries.  

The causality of expenses applies to all expenses your business has incurred. This principle states that expenses used for income generation or to protect the source of income generation of the company can be classified as deductible expenses, this means that they will contribute to reducing the tax to be paid. 

Deductible expenses are used as the base to calculate income tax and can help manage large tax contributions.  

Since the year 2000, the International Accounting Standard Board (IASB) created the International Financial Reporting Standards (IFRS) which allows accounting to be understandable and comparable internationally. In Peru, all businesses supervised by the Superintendence of the Stock Market (SMV) and that are listed on the Lima Stock Exchange are obliged to apply IFRS since 2011. Businesses engaging in international activities or dealing with international partners benefit from utilizing international standards as it allows for stability and standardization of practice across countries. 

If applicable, provide the Technical Study of Transfer Pricing. This study certifies the market value assigned to transactions, and includes transactions between ‘business groups’. 

If business A transfers an item to business B, and both businesses belong to the same business group they might be required to submit a transfer pricing study depending on the value of the transactions.  

The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.

Source Link