Outsourced accounting means a third-party firm keeps a company's accounts and prepares its reports under a contract. The Law of Ukraine "On Accounting and Financial Reporting in Ukraine" (Закон «Про бухгалтерський облік та фінансову звітність в Україні») expressly allows this: Article 8 lists accounting kept under a contract by a firm operating in accounting and/or audit as one of the lawful ways to organise a company's accounting.
Does the law allow a company to hand its accounting to an outside firm?
Yes. Outsourcing is one of the four forms of organising accounting expressly listed in Article 8(4) of the Accounting Law, and it is entirely above board. The company chooses the form itself: organising accounting falls within the remit of the owner or an authorised body (Article 8(2)).
| Form of organising accounting (Article 8 of the Accounting Law) | Suitable for | Limitations |
|---|---|---|
| Creating an accountant position on the staff or setting up an accounts department headed by a chief accountant | Companies with a large volume of documents | A public-interest entity must set up an accounts department headed by a chief accountant with at least two staff; this rule does not apply to non-state pension funds or collective investment institutions |
| Using the services of an accounting specialist registered as an individual entrepreneur | Micro businesses with simple transactions | Relies on one person: holidays, sick leave, narrow specialisation |
| Having the accounts kept under a contract by a centralised accounts office or by a company, business entity or self-employed person operating in accounting and/or audit | Outsourcing proper: from individual entrepreneurs to large businesses | Needs a well-drafted contract and clear rules for handing over documents |
| Keeping the accounts and preparing the reports personally as the owner or director | Small companies without complex transactions | Not available to companies whose financial statements must be made public or to budget-funded institutions |
One important detail is rarely explained. Under Article 11(1) of the same Law, where the accounts are kept by a firm operating in accounting and/or audit, the financial statements are signed by the client's director and by the director of the outsourcing firm or a person they authorise. The service provider's signature sits on the statements alongside the director's, which is a far deeper level of involvement than a "remote assistant" would have.
What outsourced accounting covers
The scope of work is set by the contract, but the law defines the basic framework: continuous accounting from the day the company is registered until it is liquidated (Article 8(1)), processing source documents, maintaining registers, and preparing and filing reports. In practice the list includes:
- receiving source documents and checking their mandatory details: the title of the document, the date it was drawn up, the name of the company on whose behalf it was drawn up, the nature and scale of the transaction with its unit of measurement, the positions and names of the people responsible, and a handwritten signature or other data identifying the person (Article 9(2) of the Accounting Law);
- maintaining accounting registers, cash books and cash orders, accounting for inventory and fixed assets, and recording transactions in the registers of the reporting period in which they took place (Article 9(5));
- calculating payroll, personal income tax, the military levy and the single social contribution (ЄСВ), and handling HR paperwork;
- preparing and filing tax returns, and registering tax invoices (податкові накладні) and adjustment calculations;
- preparing financial statements; for micro and small companies these are abridged statements consisting of a balance sheet and an income statement (Article 11(3));
- drafting and updating the accounting policy, document flow rules and the procedure for processing accounting data, all of which the company decides for itself (Article 8(5));
- correspondence with the tax authorities, support during inspections and answers to their requests;
- restoring accounting records for past periods and filing amended returns.
If a company must apply international standards, the scope of work is considerably wider. This applies to public-interest entities, public joint-stock companies, authorised credit rating agencies, businesses operating in the extractive industries, and parent companies of groups that include public-interest entities (Article 12-1(2)). The related service here is an audit of financial statements.
Who is liable for mistakes when accounting is outsourced?
Liability is shared, and this is the key point of the contract. The director or owner is responsible for organising accounting, for recording every business transaction in source documents, and for keeping processed documents, registers and financial statements for the required period, which is at least three years (Article 8(3)). The director is also responsible for filing and publishing the financial statements on time and in full (Article 11(1)).
At the same time, the people who drew up and signed source documents and registers are liable for preparing them late and for any inaccurate data in them (Article 9(8)). The outsourcing firm's liability is determined by law and by the accounting services agreement; Article 11(1) says so in as many words. The conclusion is that the contract should set out areas of responsibility, the deadlines for the client to hand over documents, and the procedure for compensating losses. Without those terms, there is nothing to pass penalties on to.
The penalties most often linked to the quality of accounting:
| Breach | Legal basis | Penalty |
|---|---|---|
| Failure to keep accounts or keeping them in breach of the established procedure, entering false data in financial statements, failure to file them | Article 164-2 of the Code of Administrative Offences (КУпАП) | A fine of 8 to 15 tax-free minimum incomes (неоподатковуваний мінімум доходів громадян); 10 to 20 for a repeat offence within a year |
| Failure to keep tax records, breaching the procedure for keeping them, failure to submit auditor's reports or submitting them late | Article 163-1 of the Code of Administrative Offences | 5 to 10 tax-free minimum incomes; 10 to 15 for a repeat offence |
| Failure to keep source documents, registers and financial statements, or to provide them to the tax authority | Tax Code (ПКУ), para. 121.1 | UAH 1,020; UAH 2,040 for a repeat offence within a year |
| Errors in reporting on income paid to individuals and tax withheld, where they affect tax liabilities | Tax Code, para. 119.1 | UAH 1,020; UAH 2,040 for a repeat offence within a year |
| Understatement of a tax liability, assessed by the tax authority | Tax Code, paras. 123.1 and 123.2 | 10% of the liability; 25% if intentional |
| Late payment of an agreed tax liability | Tax Code, para. 124.1 | 5% of the tax debt paid if the delay is up to 30 calendar days, 10% if longer |
| Late registration of a tax invoice or adjustment calculation | Tax Code, para. 120-1.1 | From 10% of the VAT amount for a delay of up to 15 calendar days to 50% for 366 days or more |
While martial law is in force and for six months after the month in which it ends or is lifted, reduced penalties of 2% to 25% of the VAT amount apply to late registration of tax invoices under paragraph 89 of Subsection 2 of Section XX of the Tax Code (paragraph 90 of the same subsection).
It is also worth knowing how self-correction works. If a taxpayer discovers that it understated a tax liability for a past period, it files an amended return and pays the shortfall plus a penalty of three per cent of that amount before filing (Article 50.1(a) of the Tax Code). The gap between those three per cent and the 10–25% under Article 123 of the Tax Code is a practical argument for regularly reviewing periods that have already been closed.
Which deadlines outsourced accounting has to meet
The calendar is the main source of penalties, so the contract should include a schedule of deadlines. The main reference points are set by the Tax Code and the Accounting Law.
| What is filed or paid | Deadline | Legal basis |
|---|---|---|
| Return for a base period of one calendar month | 20 calendar days after the last day of the reporting month | Tax Code, para. 49.18.1 |
| Return for a quarter or half-year | 40 calendar days after the last day of the quarter (half-year) | Tax Code, para. 49.18.2 |
| Annual return, including corporate income tax | 60 calendar days after the last day of the reporting year | Tax Code, paras. 49.18.3 and 49.18.6 |
| Payment of a self-assessed tax liability | 10 calendar days after the filing deadline for the return | Tax Code, para. 57.1 |
| Annual financial statements published together with an auditor's report: submission to the tax authority | no later than 10 June of the year following the reporting year | Tax Code, para. 46.2 |
| Publication of annual financial statements by public-interest entities (except large companies that do not issue securities), public joint-stock companies, natural monopolies on the national market and businesses in the extractive industries | no later than 30 April of the year following the reporting year | Accounting Law, Article 14(3) |
| Publication of annual financial statements by large companies that do not issue securities and by medium-sized companies | no later than 1 June of the year following the reporting year | Accounting Law, Article 14(3) |
The reporting period for financial statements is the calendar year, and interim statements are prepared for the first quarter, the first half-year and nine months (Article 13 of the Accounting Law). Document retention is a separate set of duties: at least 2,555 days for documents and information needed for tax control under Articles 39 and 39-2 and paragraph 141.4 of the Tax Code; 1,825 days for source documents, accounting registers and financial statements of corporate income tax payers and legal entities on the simplified tax system; and 1,095 days for all other documents (paragraph 44.3 of the Tax Code). For dormant companies the work comes down to nil returns (page in Ukrainian), but the deadlines still apply.
Outsourcing or an in-house accountant: how to choose
The decision depends on the company's size category, the mix of its transactions and its reporting requirements; the size of the office has little to do with it. The Accounting Law divides companies into micro, small, medium-sized and large, based on figures as at the date the annual financial statements for the previous year were prepared: meeting at least two of the three criteria is enough.
| Category | Total assets (carrying amount) | Net revenue | Average number of employees |
|---|---|---|---|
| Micro | up to EUR 350,000 inclusive | up to EUR 700,000 inclusive | up to 10 inclusive |
| Small | up to EUR 4 million inclusive | up to EUR 8 million inclusive | up to 50 inclusive |
| Medium | up to EUR 20 million inclusive | up to EUR 40 million inclusive | up to 250 inclusive |
| Large | over EUR 20 million | over EUR 40 million | over 250 |
For micro and small companies, outsourcing usually covers the whole accounting cycle; they are also exempt from filing a management report (Article 11(7)). For medium-sized companies a hybrid model is more common: an in-house specialist handles source documents and document flow, while an outside team takes care of reporting, taxes and methodology. Medium-sized companies may also leave non-financial information out of the management report. Public-interest entities are issuers whose securities are admitted to trading on a regulated capital market or have been offered to the public, banks, insurers, non-state pension funds, other financial institutions (except micro and small ones) and large companies (Article 1 of the Accounting Law). Such an entity must set up an accounts department headed by a chief accountant with at least two staff, so outsourcing can only supplement it; the law makes an exception for non-state pension funds and collective investment institutions (Article 8(4)). For an overview of the options, see accounting services for businesses.
Financial monitoring: how an outsourcing firm differs from a freelancer
Accountants and businesses providing accounting services are designated reporting entities for primary financial monitoring (Article 6(2)(7)(b) of the Law of Ukraine "On Preventing and Countering the Legalisation (Laundering) of Criminal Proceeds, Terrorist Financing and Financing of the Proliferation of Weapons of Mass Destruction"). This means they must carry out due diligence on new and existing clients, apply a risk-based approach and report suspicious transactions to the designated authority regardless of the amount (Article 8(2)(3), (4) and (8)(c) of the same Law). For the client, this is both a requirement to keep documents transparent and a sign that the contractor works within the law.
A related requirement applies to audit: an audit firm may provide statutory audit services only after its details have been entered in the relevant sections of the Register (Article 6(1) of the Law "On Audit of Financial Statements and Auditing Activity"). For public-interest entities, the same Law restricts providing statutory audit services at the same time as keeping the accounts and preparing the financial statements (Article 6(4)(3)), so here accounting and audit are carried out by different firms.
What to put in an accounting services agreement
The agreement is the only document that turns promises into obligations, so it needs to cover much more than the price. Essential sections:
- List of services and scope. Which taxes and tax regimes, how many legal entities and individual entrepreneurs, whether there is foreign trade, VAT or hired staff.
- Document flow rules. Who hands over source documents, in what form and by what date; this determines who is at fault if a deadline is missed.
- Liability and compensation. Article 11(1) of the Accounting Law refers directly to the agreement: the service provider is liable for exactly as much as the agreement says.
- Confidentiality. Companies' financial statements are not a trade secret, confidential information or restricted information, except where the law provides otherwise (Article 14(2) of the Accounting Law). Management data, contracts and employees' personal data are a different matter.
- Handover. The procedure and deadlines for returning the database, registers and archive if the agreement ends.
- Signing authority. Who signs the reports and who deals with the tax authorities on the company's behalf.
A mature contractor is willing to discuss methodology as well as fees: the accounting policy, the form of accounting as a system of registers, document flow rules and staff rights to sign accounting documents. The company makes these decisions itself (Article 8(5)), and an outside accountant should be able to justify them. Another useful test is whether the provider can explain how it tracks the deadlines in the table above and what it does when the client's documents arrive late.
Frequently asked questions
What is outsourced accounting and what does it include?
It means an outside firm keeps a company's financial and tax records under a contract: processing source documents, maintaining registers, calculating payroll and taxes, preparing and filing tax returns and financial statements, setting the accounting policy and supporting the company during inspections. The scope of work and the limits of liability are set in the contract.
Can a Ukrainian company legally hand its accounting to an outside firm?
Yes. Article 8(4) of the Law "On Accounting and Financial Reporting in Ukraine" names accounting kept under a contract by a firm operating in accounting and/or audit as a lawful form of organising accounting. It is one of four permitted forms.
Who is liable for errors in the financial statements when accounting is outsourced?
Liability is shared: the company's director or owner is responsible for organising accounting, keeping documents and filing reports on time, while the people who drew up and signed source documents are responsible for the accuracy of the data in them. The accounting firm's liability is determined by law and by the accounting services agreement.
Which is better: an in-house accountant or outsourced accounting?
For micro and small companies, outsourcing usually covers the whole accounting cycle, not least because such companies prepare abridged financial statements and are exempt from filing a management report. Medium-sized companies more often use a hybrid model, while public-interest entities must set up an accounts department headed by a chief accountant with at least two staff (except non-state pension funds and collective investment institutions).
What determines the scope of outsourced accounting?
The number of source documents per month, the tax regime, VAT status, headcount, any foreign trade and currency transactions, whether international standards apply, and whether past periods need restoring. The same factors determine which Tax Code deadlines the contractor meets every month and which once a year.
How do you move your accounting to an outsourcing firm?
Start by taking stock of where things stand: check that source documents are in place for the periods that still have to be kept under paragraph 44.3 of the Tax Code, reconcile your figures with the tax authorities and record any open liabilities. Then agree the list of services, the document flow rules and liability in the contract.
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