Good Accounting is Good Practice

Check List

The type of information that needs to be maintained and kept on file includes:

• Bank statements and reconciliations—particularly important in times of direct debit and internet transfers.

• Aged general debtors—very useful in showing that customers are paying on time and that debtors are being followed up in a timely and effective way so that bad debts are avoided.

• Lists of expenditure by type that reconcile back to the bank statements. This allows you to identify potential areas of waste and should be undertaken at least monthly. Ledger accounts only need to be reconciled annually.

• Fixed asset register, including supporting documents for all major transactions undertaken.

• Tax invoices and BAS returns.

• Insurance documents.

• Payroll summaries, including employee entitlements and superannuation statements and payments.

If such records are maintained well and kept up-to-date any audit becomes a relatively simple process and, as indicated, having the information up-to-date provides business management with very useful information on the health of the business.

When it comes to a potential tax audit, there are a number of factors that will attract the ATO’s attention. We have shown a checklist for these in Table I. Again, most of these will be avoided if good accounting records are maintained and the advice of external accountants taken.

Certain industries need to be particularly focused on maintaining good accounting records and to be prepared for a potential tax audit. The ATO has indicated that they will continue to look at a range of compliance issues in certain industries as shown in Table II.

• Inconsistencies with other returns and payments, such as BAS.

• Undisclosed income (such as interest) reported to the ATO from other sources.

• Financial or tax performance that varies substantially from industry patterns.

• Significant variations in the amounts or patterns of tax payments compared with past performance, relevant economic indicators and industry trends.

• Unexplained variation between economic performance, productivity, and tax performance.

• Unexplained losses, low effective tax rates, and cases where a business or entity consistently pays relatively little or no tax.

• A history of aggressive tax planning by the corporation, group, board members, key executives or advisers (such as accountants).

• Weaknesses in the compliance structures, processes, and approaches.

• Tax outcomes that are inconsistent with the policy intent of the tax law.

• Multinational groups with a history of tax losses or lower than expected profitability in Australia (such businesses are likely to risk a transfer-pricing audit).

The ATO will continue to focus on a range of compliance issues in the following industries during the current year:

• Building, property, and construction.

• Adult industry.

• Alcohol industry.

• Banking and finance.

• Duty-free shops.

• Fishing.

• Horse racing.

• Legal profession.

• Licensed hotels and registered clubs.

• Motor vehicle industry.

• Petroleum industry.

• Restaurant, café, and takeaway food.

• Tobacco industry.

*Mark Muller is an audit partner and Peter Bembrick a tax partner with accountants, business and financial advisers HLB Mann Judd Sydney.