Cash Audit under Article 28 of Law 3296/2004

Impacts, Obligations & Tax Risks

Learn what a cash audit entails under Article 28 of Law 3296/2004, the tax implications of any cash shortfalls, and how businesses can protect themselves against assessments and penalties.

What is a cash audit and why is it so critical?

A cash audit is a mandatory procedure for businesses keeping Category C (third-category) books, pursuant to Article 28(2) of Law 3296/2004. The law provides that verification of cash on hand and negotiable instruments is carried out first, before any other audit procedure.

POL.1027/22.2.2005 provides that the audit includes:

• meticulous verification of accounting books and supporting records,
• counting of cash in the presence of auditors,
• drafting a cash-count protocol signed by both parties.

What are the consequences when discrepancies are found in the cash account?

Under Article 28(2), any difference identified between the actual cash balance and the accounting balance:

• is added to net profits,
• increases gross revenues,
• affects the calculation of taxes, duties and contributions.

In practice, a cash shortfall is treated as an indication of:

• undeclared receipts,
• invoices not recorded in the books,
• potential informal/undocumented loans,
• accounting inaccuracies in the system.

If the discrepancy relates to an earlier or time-barred (statute-barred) fiscal year, case law (e.g., Council of State 884/2016) provides important arguments against an assessment.

Tax risks & penalties arising from a cash audit

• Increase of the taxable base. A discrepancy in the cash account is considered additional income and is taxed accordingly.
• Imposition of penalties. Based on POL.1027/2005, the presence of unjustified cash shortfalls may lead to penalties for inaccurate books and further assessments.
• Ex officio (extrajudicial) assessment.
  In serious or repeated cases, the authorities may deem the books inaccurate and proceed to an ex officio determination of taxable income.

Why do cash discrepancies constitute a key indicator of tax risk?

The “Cash” account is, by its nature, a debit account and cannot show a credit balance. If a shortfall appears, this may indicate:

• misrepresentation of available funds,
• non-compliant application of Greek Accounting Standards (ELP) (Article 5(5) of Law 4308/2014),
• inability to substantiate transactions.

How can a business protect itself?

Compliance with ELP and properly documented transactions: Supporting documents must substantiate every transaction, as required by Law 4308/2014.

Daily cash reconciliation: Compare physical cash on hand with the accounting balance at the end of each day.

Zero tolerance for negative balances: Negative balances operate as an indication of inaccuracy.

Review of historical discrepancies: Document older shortfalls so that the current fiscal year is not unjustifiably taxed.

Preparation for an unannounced audit: Filing, transparency and readiness for an in-person cash count.

Conclusion — Cash as a critical indicator of tax compliance

A cash audit is not a mere formality; it is a decisive factor in a business’s credibility before the Tax Administration. Article 28 of Law 3296/2004 provides strict consequences for inconsistencies, and cash discrepancies can turn into significant financial burdens if there is no proper and timely substantiation.

Businesses that maintain transparent procedures and reconcile their cash regularly avoid unnecessary tax risks and are better prepared in the event of an audit.