Company Directors Will Have To Disclose Tax Data

The new rules set to be adopted by Australia, which are in accordance with international accounting guidance, will lead to a new necessity, one that will make tax audit insurance more useful than ever.

Companies are now obligated to disclose ‘uncertain’ tax positions in their records, which include any tax auditing that’s been put into question by the Australian Tax Office (ATO), as part of the changes brought upon by the aforementioned new rules, which were primarily designed to increase investors’ access to necessary information.

According to RSM Australia’s National Technical Director, Ralph Martin, these new rules would no doubt lead to company directors being forced to make some uncomfortable disclosures. He says that, in the situation that a company has a tax position or audit they are uncertain about, either because no precedent covers it or because the ATO disputes the records, directors will be forced to make their estimates on the possible results and include that in their financial statements.

He gave an example, saying that, in the scenario where the Tax Office thinks that a company owes more than what a director thinks they do, that disclosure will be difficult to work with and sign off on.

Regulators have met the changes with positivity, and have suggested that directors take action now regarding the changes ahead of time, rather than wait for them to become mandatory.

Kris Peach, a chair member of the Australian Accounting Standards Board, says that company directors will now be assessing their company’s tax positions out of necessity. She says that directors have to assume that the relevant authorities have all the facts, regardless of the company’s likelihood of having tax audits and/or amended assessments.

Australian Securities and Investments Commission commissioner John Price, stated that tax was a focus on the organisation’s review of financial reports recently. He adds that company directors should carefully weigh in on the possible responses to uncertain and disputed tax positions in their company financial reports, including whether or not such a liability is worth recognizing or disclosing.

Other experts have stated that it now falls on the directors to make the tough decisions. Uncertainties will be more important and emphasized following the new rules, which will no doubt lead to more tax audits and financial checks than ever, with financial records and tax audit insurance taking precedence.

The Australian Institute of Company Directors have yet to make a statement on the new rules, as the AASB  has yet to release the full terms.

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