At present, the normative act that regulates structure and content of expenses for representation purposes is the order of the Ministry of Finance of Ukraine “On Approval of Norms of funds for representation purposes of budgetary institutions and procedures of their expenditures” of14.09.2010, № 1026 (hereinafter - Order № 1026).
Content of representation expenses
Companies can use this document as a subsidiary since the legislation still did not define a single document for all enterprises, which would regulate the definition, structure and procedures for representation expenses.
According to para.2 of the Order № 1026, representation expenses are the reception and servicing of foreign representatives and delegations arrived on the invitation for negotiations for the purpose of international relations, establishing and maintaining of mutually beneficial cooperation.
In the given definition the key words, which explain the basic content of the concept “representation expenses” are “reception” and “negotiations”.
The representation expenses include expenditure items related to the official reception (breakfast, lunch and dinner) of representatives, measures of the cultural program, buffet service during negotiations, payment of interpreter services (freelancer), payment of hotel rooms, as well as expenditures for hotel bookings in the amount of 50% of the room per night.
It is traditional to present souvenirs to the event participants, for example pens, notebooks, diaries, etc. when negotiating or after their completion. As a general rule, such souvenirs are marked by the logos or name of the organization that invites, contact information on it is provided (telephone, mailbox address or website) or information about the goods (works, services), which are produced (performed, provided) by the company. The cost of such souvenirs is included in representation expenses. This is because, presentation of souvenirs or their exchange should be in accordance with the customs of business turnover, and thus contributes to the strengthening of relations between the partners. However, as a rule, the logo of the company-presenter is not marked on the expensive gifts to the partners, therefore appropriateness of classifying these costs as representative expenses most likely should be proven when audit of controllers.
Documentation of representation expenses
To classify the expenditures as representation expenses, it is necessary to have properly executed confirming documents. It should be noted that there are no any normative documents which regulate the procedure for documentation of representation expenses. Therefore, first of all, it is necessary to remember about the general requirements for the mandatory details of primary documents (accounts, tickets, receipts, tax invoices, etc.) specified in the second part of Art. 9 of the Law of Ukraine “On Accounting and Financial Reporting in Ukraine” of 16.07.99, № 996-ХІV and in para.2.4 of the Regulations on the documentary provision of records in an accounting approved by the order of Ministry of Finance dated 24.05.1995, № 88.
These requisites are the following:
- title of the document;
- date and place of its preparation;
- name of the company on behalf of which the document is drafted;
- content and volume of business transaction, a unit of measure of such a transaction;
- positions of people responsible for implementation of economic transaction and its satisfactory form;
- personal signature or other data that identify a person who has been involved in a business transaction.
In addition, the set of documents required for implementation and preparation of representation expenses may include:
- estimate of expenses planned for the year, approved by the head of the firm, with details of the planned activities (meetings, presentations, etc.);
- report on expenses actually incurred for the year with detailed activities that were planned;
- program of carrying out of events (presentations, signing contracts, etc.) with the date and venue;
- list of participants (both invited people and employees of the company) with an indication of the surname, name, patronymic, position;
- the amount of planned expenses.
Administrative documents (orders, regulations) of the head of the company define people, which are responsible for the reception of representatives of other companies on commercial activities.
The event program should include a full list of what is planned, date and place of the meeting, a list of invited people and representatives of the inviting party. This program should be confirmed by the head of the inviting company.
Representatives and delegations that arrive for negotiations as existing and potential partners, regardless of whether they are domestic or foreign, should be formally invited to the company. One of the most important documents confirming the validity of representation expenses for those arriving from abroad and from other cities is a log book of arriving for a business trip. The log book’s keeping is provided by the Regulations on business trips within Ukraine and abroad, approved by the order of the Ministry of Finance dated 13.03.1998, № 59 (this standard is not mandatory for all businesses, but it can be used as a reference).
If during a business meeting (negotiations) parties do not come to an agreement and do not conclude the contract, it wouldn’t go amiss to confirm this fact in written form, for example, protocol on intention to conclude a contract in any form signed by representatives of both parties.
