Bookkeeping: What the IRS Expects

The first part of the Federal Ministry of Finance’s statement addressed the retention and timely recording of receipts; further requirements are outlined below.

Documentation

In general, no entry should be made without a supporting document. The traceability between the entry and the supporting document must be ensured by assigning an account code on the document, or alternatively through organizational measures that allow business transactions to be verified within a reasonable time. For electronic documents, this can be achieved through electronic links. Paper documents should be secured through sequential numbering, sequential filing, timely recording, or the sequential assignment of barcodes followed by scanning. The taxpayer must secure the IT system against loss, untraceability, destruction, and theft.

Immutability of Data

Electronic documents must not be modifiable. Care must also be taken to ensure that the IT system used guarantees that all information can no longer be suppressed, overwritten, or altered. It is not permissible, for example, to refrain from saving entries until the annual financial statements are prepared and beyond, thereby leaving them open. This is because, in theory, all entries could then be altered without being logged.

Electronic recording of paper documents

Paper documents may be stored in electronic form by scanning. After scanning, they may only be destroyed if they are not required to be retained in their original form under non-tax regulations, such as notarial deeds, customs documents, and securities. It should be noted that in civil proceedings, only original documents are often considered sufficient evidence. In case of doubt, the original should therefore be retained.