Procedural documentation: bureaucratic madness or a sensible requirement?

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Attention, entrepreneurs! Have you written your company’s internal epic yet? You know what I mean: that legendary procedural documentation in accordance with GoBD, the monumental work of every ambitious German company. No? Then hurry over to that good old Olympia typewriter – after all, all those blank pages are just waiting for you to breathe life into them. With loads and loads of text, that is. As we all know, there’s nothing that amuses entrepreneurs more than hours of documentation detailing the drudgery of everyday working life – purely for the entertainment of the tax inspector. Or is it all quite different? Let’s see together whether, in the end, we might not find a few good reasons to spend a few hours on documentation after all.

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Paul Liese
Paul Liese
hsp Software

Welcome to Germany, the land of regulations. The GoBD – which stands for „Principles for the Proper Maintenance and Retention of Books, Records and Documents in Electronic Form, and for Data Access“ – already sounds like an epic administrative saga spanning at least 47 volumes. No wonder these guidelines have bestowed upon us yet another bureaucratic gift: procedural documentation. This is intended to describe in precise detail how tax-relevant processes are carried out within the company. From the very first receipt right through to final archiving, nothing must be missing – ideally including every mouse movement and coffee break.

The official definition requires „the organisationally and technically deliberate process […] from the creation of information through to its indexing, processing and storage, its unambiguous retrieval and machine-readability, protection against loss and tampering, and reproduction“. You read that right: you’re even supposed to document the safeguards against loss and tampering. For example, simply forbid your computers from going haywire and ‘artistically’ reinterpreting the accounts. Straightforward, isn’t it? Tick that box – brilliant. Personally, I’d very much like to meet the SME owner who thinks this is a sensible idea. Most will rightly regard the documentation as yet another meaningless administrative formality, gathering dust on a shelf somewhere between the privacy policy and the health and safety instructions.

Against what reality is the GoBD measured?

Just picture this: there’s the managing director, who’s long been stretched to the limit, sitting in the office in the evening and writing pages and pages about how an invoice is entered into the system, where it is filed, and who is responsible for the USB stick containing the backups. Naturally, everything is neatly organised to comply with the strict GoBD requirements. Ultimately, the procedural documentation must be „clearly structured“ and is intended to serve as a handbook for digital accounting processes. If we’re honest, it might just as well be titled: „How to inflate everyday, taken-for-granted matters into an epic set of rules“. Bureaucracy at its finest, really.

And who are we going to all this trouble for? For the star of this farce: the tax inspector, of course. Because he wants to save money on expensive novels and magazine subscriptions, yet still have something to peruse before he goes to bed. That’s probably why most documentation is written in such a boring way. Why else would the tax auditor specifically ask for the GoBD procedural documentation as soon as the audit is ordered, or at the very latest when the audit begins? Exactly. Apart from tax inspectors, nobody reads this massive tome of their own free will anyway. Within the company, the documentation serves at best as a doorstop – though, of course, only until the next audit.

The things you hear from companies about procedural documentation!

  • „Pure harassment!“ Many people are convinced that procedural documentation is a bureaucratic monster that offers no added value whatsoever and is designed solely to harass businesses.

  • „Nobody cares!“ The tax inspectors are the only ones who want to read the documentation. So why go to the trouble if nobody in-house is interested?

  • „The main thing is that we’ve written something down.“ Some people think it’s enough just to be able to print something out if the tax office asks. The content doesn’t matter – who’s going to look that closely anyway?

  • „Better to take a risk than to invest.“ Some entrepreneurs are real gamblers and bet that they won’t get caught out. Until they do.

The fun comes to an end, if not before, then certainly when the tax audit takes place

You may well think the GoBD is utterly ridiculous and decide to skip the procedural documentation. But reality will catch up with every business sooner or later. If, during a tax audit, the procedural documentation is missing and certain facts are therefore impossible to trace, the tax office will mercilessly demonstrate what it means by ‘formalism’: In such a case, it’s entitled to treat the accounts as formally deficient. In the worst-case scenario, it will simply estimate how much turnover or profit the company should have generated. And before you know it, you’ll be paying more tax because the authorities have adjusted the figures upwards due to a lack of documentation. Congratulations. Skipping the documentation isn’t really that economical, is it? It’s actually quite expensive, isn’t it?

Of course, it’s amusing to imagine auditor Müller settling down by the fireside in the evening with a steaming cup of tea to get through his procedural documentation. How he devours every page, every chapter, and gets completely absorbed in the processes as if they were a gripping crime thriller: „Oh my God, how does the backup process end?! I can’t bear it!“ Unfortunately, the truth is less entertaining; after all, the purpose of procedural documentation isn’t to benefit the authorities, but the companies themselves.

Anyone who recognises the added value doesn’t need the obligation at all

Let’s be honest: procedural documentation is by no means a voluntary pastime for pedantic management teams, but is clearly and unequivocally required. It is a legal obligation. Anyone who keeps their accounts electronically must draw up an internal „manual“ of accounting processes. The GoBD guidelines issued by the Federal Ministry of Finance are unambiguous and leave no room for interpretation. They have been in force since 2015, and the tax authorities pay close attention to them. During tax audits, auditors routinely ask to see the documentation so that they can gain a quick overview of the digital processes. If the documentation is unavailable or inadequate, this compromises the traceability of the accounts. This is a formal shortcoming that can lead to serious consequences.

However, none of this should matter in the first place. This is because forward-thinking, future-oriented companies create procedural documentation for entirely different reasons: they use digital tools to make their documentation interactive and engaging, and then utilise it as a powerful tool in their day-to-day work.

The key benefits for businesses:

  • Optimised internal processes: The need to describe all processes in detail turns out to be an opportunity to take a close look at one’s own business processes. Often, many processes can be standardised and simplified, whilst at the same time structures and areas of responsibility are defined more clearly. Many companies report from their own experience that these changes have enabled them to reduce their costs.

  • Enhanced IT security and data integrity: The procedural documentation must also set out technical aspects, such as how data security is ensured, who has access to which systems, and what authorisation schemes apply. This deliberate focus on IT security helps to identify and rectify vulnerabilities. As a result, your sensitive financial data is better protected.

  • Traceability and legal certainty: Everything important is set out in black and white. In day-to-day operations, staff know exactly which procedures apply, and new colleagues can get up to speed more quickly. Above all, however, your company complies with legal requirements and is on the safe side in the event of a dispute. Documentation creates transparency and can form part of an internal control system (ICS) for tax purposes. In case of doubt, this can even reduce criminal liability risks, as it demonstrates that the company is committed to ensuring processes are carried out correctly.

  • Smoother tax audits: Comprehensive documentation of your procedures reduces the risk of tax inspectors rejecting your accounts or having to estimate your profits. It also makes it easier for the inspectors to understand your IT-supported processes, which can help to minimise the need for detailed enquiries and in-depth audits. In short: the audit proceeds more smoothly.

At the end of the day, procedural documentation is therefore far more than just a bureaucratic nightmare or light reading for bored tax inspectors. It is a tool that ensures order, consistency and security in your processes. The fact that you are giving the tax authorities exactly what they want to see during an audit is merely a nice side effect. Companies that keep their documentation up to date can face a tax audit with far greater confidence and have a clear overview of all their internal processes. So it is not mere formalism after all, but rather an attempt by the legislator to encourage companies to become more resilient and stable.

Conclusion: Process documentation is not a bad joke, but a powerful tool

As an entrepreneur, you might be able to laugh off certain phrases and details, but there’s one thing you’d be better off not doing: dismissing procedural documentation as a bad joke. Firstly, this could lead to a rude awakening at the next tax audit. And secondly, you’d be missing out on a powerful tool that delivers tangible added value. Of course, the benefits won’t make the red tape disappear. However, with fully digital tools such as Opti.Tax, you can create comprehensive, audit-proof and up-to-date procedural documentation step by step. Our experience shows us that only businesses with procedural documentation always have the last laugh.

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