Managing an SME (small to medium enterprise) is a complex task involving sales, production, innovation, marketing, human resources, health and safety, accounting and payroll. Every business strives for the best outcome in all these areas, knowing that getting it right most of the time is essential to building the business. Along the way it is inevitable that honest mistakes will happen and when they do, reputable business owners do their best to rectify them.
It is crucial that all businesses have sound management systems to direct production and record transactions. Business accounting systems have been standardised for over a hundred years, and the advent of computerised accounting packages have made it relatively easy for a competent bookkeeper to record daily financial transactions. Typically, a business will then hand these records to their accounting firm to prepare the tax returns.
Through a series of tried and tested methods, the records are checked, errors corrected and the tax returns completed and lodged, all in good faith. The source documents are archived and the business continues trading. Incurring an unplanned tax liability is the furthest thing from the mind of management as they get on with running the business. The first inkling that something may be amiss is a contact from the tax office to make arrangements for an audit.
Sound Accounting Systems Always Ready for a Tax Audit
Getting an advice that a tax audit is imminent should not be cause for panic if the business has used a professional accounting firm to audit their accounts and prepare their tax returns. The tax office regularly singles out certain business sectors to audit and it may be that a particular company has been selected for this reason only. A sound accounting system that produces reports on demand, original source documents readily available, all bank accounts reconciled and all bank statements available for scrutiny are excellent preparation points for a tax audit.
Businesses that have cause for concern during a tax audit are very likely ones that have not used professional accountants to set up their accounting systems, or audit their accounts. Accountants are trained to place a heavy emphasis on the accuracy of the financial information in the systems they manage. Without that watchful eye, all it takes is an inexperienced staff member to put through some incorrect entries, not apply the GST rules correctly or lose important records and a few honest mistakes could raise enough suspicion to expand the scope of the audit.
The end result could be an unplanned tax liability that has obviously not been allowed for in the budget. If it is a sizable liability it will have a major impact on all operations. This could all have been avoided if the business was using a professional accounting firm to audit their accounting system and provide advice and assistance on taxation matters. Having a professional accountant to manage tax settlements and liabilities is an essential part of running a modern business.
