Process Documentation for Businesses – Mandatory or Optional?
- Martin Kanopka
- Mar 26
- 4 min read
The requirements for proper bookkeeping have changed significantly with the ongoing digitalization of accounting. While paper invoices and handwritten notes are largely a thing of the past, today’s business processes rely heavily on digital documents, cloud-based solutions, and automated systems.
What is often underestimated: The German tax authorities expect companies to thoroughly document their digital bookkeeping processes – in the form of what is known as process documentation (Verfahrensdokumentation).
In this article, we explain what process documentation entails, the legal framework it’s based on, which specific requirements apply, and the potential risks of missing or incomplete documentation.
1. What Is Process Documentation?
Process documentation is a key tool for ensuring the traceability and verifiability of accounting records. It describes in detail how tax-relevant data is processed within a company – from the creation of a document to its archiving.
The goal is to allow a knowledgeable third party (e.g. a tax auditor) to understand how bookkeeping and record-keeping processes are organized and which systems are involved.
A complete process documentation typically includes the following four components:
a) General Description
Information about the company, its organizational structure, the IT systems in use, and the overall framework of the accounting process.
b) User Documentation
Description of the software applications and tools used for bookkeeping, document processing, archiving, and communication with tax authorities.
c) Technical System Documentation
Details about the IT infrastructure, interfaces, security protocols, and access controls.
d) Operational / Process Documentation
Step-by-step description of relevant processes, such as incoming invoices, scanning and archiving documents, payment procedures, booking controls, and data storage.
2. Legal Basis: Where Is Process Documentation Regulated?
The obligation to maintain process documentation arises from the Principles for Proper Management and Storage of Books, Records and Documents in Electronic Form and for Data Access (GoBD).
The current version of the GoBD was published by the German Federal Ministry of Finance (BMF) on November 28, 2019, and has been in effect since January 1, 2020.
Paragraph 151 of the GoBD states:
“Traceability and verifiability require a clearly structured and factually accurate process documentation.”
This obligation applies to all businesses, regardless of their legal form or size, that conduct their accounting digitally – even if only partially. Sole proprietors and freelancers who scan receipts or use accounting software are also affected.
3. Why Is Process Documentation Important?
Process documentation is not merely a bureaucratic requirement. It plays a crucial role in determining whether a company’s accounting meets legal standards.
If the documentation is missing or incomplete, the consequences can be serious:
Formal deficiency in bookkeeping
Doubt about the accuracy of the records
Additional tax estimates during audits
Longer and more intensive audits
Increased tax risk and potential liability
The tax authorities increasingly rely on digital audit tools (e.g. Z1-Z3 data access). Without documented procedures, auditors cannot verify the origin, completeness, or immutability of data – with potentially negative consequences for the taxpayer.
4. Who Is Required to Maintain Process Documentation?
In principle, the obligation applies to all taxpayers who generate, receive, process, or store tax-relevant documents in electronic form. This includes:
Corporations and partnerships
Sole proprietors and freelancers
Associations, foundations, non-profit entities
Taxpayers using accounting software
Companies with scanning or archiving processes
Businesses using cloud or ERP systems
Even if the accounting is outsourced (e.g. to a tax advisor), the responsibility for proper documentation remains with the client – it cannot be delegated.
5. What Do the Practical Requirements Look Like?
In practice, it’s not enough to simply have a process documentation in place. It must also be comprehensive, understandable, and up to date. Specifically, it must be:
Complete – covering all relevant processes
Clearly written – understandable for third parties
Kept current – updated promptly when changes occur
Auditable – preferably available in digital form
Generic templates or boilerplate text are insufficient. The documentation must be customized to the company’s specific structure and workflows.
6. Recommended Approach: Practical Steps
Creating proper process documentation is a structured task best tackled with input from different departments – especially accounting, IT, and external advisors.
Step 1: Analyze Your Processes
Identify all tax-relevant processes and systems used within your business.
Step 2: Create the Documentation
Organize the documentation into the general description, system overview, process descriptions, and technical components.
Step 3: Internal Review
Have all relevant stakeholders review the content – including accounting, IT, and possibly your data protection officer.
Step 4: Regular Updates
Update the documentation whenever relevant changes occur. A regular review, at least once per year, is strongly recommended.
7. Conclusion: Mandatory – and Valuable
Process documentation is not just an administrative burden – it is a core element of proper digital accounting. Companies that proactively manage their documentation not only meet regulatory expectations, but also benefit from greater transparency and internal clarity.
Well-documented procedures also make communication with advisors, software providers, and – if necessary – tax authorities much easier.
Need Assistance?
Our law firm offers expert support in drafting, reviewing, and updating your process documentation. With our experience in tax and commercial law, we help ensure your digital bookkeeping is fully compliant and legally secure.
Get in touch with us for a free initial consultation.
