Accounting For AASB Its Application And Frameworks In RL Ltd.

Tax Returns

Discuss about the Accounting For AASB Its Application And Frameworks In RL Ltd.

First and foremost I wish to point out and correct the statement by the CEO Chris Thor concerning the tax return report that he claims it’s only what is needed for decision making. Kindly Mr CEO be informed that decision making process involves wide aspects from costing, expenses, revenue generation and allocation, asset management and of course taxation as you state therefore be informed that all these factors plus many others must be put into consideration before making the decision not only one part of it. However, Mr CEO if the decision you claim you want to make involves the tax part alone then you can proceed with the consideration the tax return issued to you, Lo (2010.Pg 25)

I now wish to handle the points and concerns raised by the CEO one by one in accordance with the lawful guidelines and regulation applicable. Reference is made to the issue raised by the CEO on payment of tax and hereby wishes to inform him that under AASB112, para.5 the law allows and requires a company not to pay any income tax at all if under certification it is operating on a loss basis Sorensen (2010.Pg 80). The firm instead is then obliged to keep the record of the same upon the filing of tax loss return that is claimable in future when offsetting the loss of the future annual profits based in Nicholas (2007.Pg 70). This regulation further outlines what is to be referred as tax loss or profit so as to distinguish what is recoverable and what ought to be paid as explained in Shaviro(2008.Pg 423).

Taxation Determination TD 2007/2 reference on income tax further emphasizes the need to file tax loss return as well as safe record keeping of these documents outlining the losses so as to support tax credits in the near future Devereux(2006.Pg 41).Firms that report losses are expected to file tax loss return as well as safe keep of record for compliance purposes and tax audit if any.

The board should therefore know that there exist no tax payment done in this year from the income since the company is making loss, however what probably the CEO might be claiming to be payment is what possibly referred to as tax loss return in the reports that are deemed to be mandatory for compliance purposes just as what would happen if we had made profit a tax profit return would be filed as per the regulation set in the Australian Business Tax Guide17, para 6.1. In addition, the reason why there is tax loss return filling is for purposes of notifying Australian Tax Office on the company tax position at the moment as well as during facilitation of tax audit process if any Richardson(2007.Pg 700). This is further insisted in AASB 101, para .88 that requires disclosure of any material factor to the users in our case through filling of tax return loss we are informing ATO who is our user in the context.

Income Statements

I however wish to take a different interpretation on the issue away from this on payment of income tax, and assume that the CEO is referring to taxes on salary, goods or services and even those withhold at source, in this case, I however, wish to inform him that we have no option of not paying this taxes whether we like it or not  since these are statutory in nature and must be paid. For example,Pay As You Go there is no room for not paying these taxes simply because as long as the employees are enjoying their salary benefit up to date then the tax man(ATO) likewise need to enjoy her share, in any case, it is always collected at source. The same approach accorded to PAYG is what applies to Goods Sales Tax whereby the payment being made is just a collection being done on behalf of the tax office similar to any withholding tax that the firm standards as an agent of the principal i. e tax office hence needs to remit that amount after payment.

I therefore, wish to conclude on this matter on how to treat income loss for taxation purposes by saying that it is irrational and unlawful to pay taxes as claimed by the CEO whereas in reality no gain is made and thus that payment in the company books ought to fall part of tax audit query. The tax man is considerate enough as long as all the documents are safely kept and the taxpayer is aware of his or her role for tax purposes i.e. when to act as agent and when to act as a taxpayer. The board is therefore notified that there are no traces of income tax paid at all especially within this period of  income tax loss but if there existed Goods Sales Tax, Pay As You GO or any other withholding tax then the payment made is just giving what belonged to the Caesar or rather what was kept on behalf of the tax man Frank(2009.Pg 70).

Concerning the issue raised on the income statement, I wish to explain this basing it on the information raised by the CEO on payment of tax while we are making profits Zander(2015.Pg 650). It is generally acceptable for a business to make profit or loss as outlined in AASB101, paragraph 10A, therefore it is in accordance with the law for any firm to present its income statement with a loss in any case this is why it is referred to a statement of profit or loss and other comprehensive income in AASB101,para.10(b).We can’t therefore assume that we are only in business for purposes of profit making alone then what would occur if the market does not favour your business? Will you force the market to consider you? This question clears the doubt on income loss reporting.

Asset Valuation

Just as outlined above there are exist no permanent good days in business today the business may be booming only to get into recession the following day thus no absolute best moment hence the possibility of a loss or profit occurring.  Whether a business is showing going concern concept or not there exist an obligation of reporting its performance via the use of profit or loss income state since the users of the information have a right to that information Hamilton(2014.Pg 24).

I therefore, justify my sentiments by stating that there is nothing wrong with the statements if in reality a loss was reported. More so if the loss is reported and tax is being paid on this loss still there is no problem with the income statement the problem is with the person paying or persons acting on behalf of the company on tax matters since they seem not to know on how to account for tax in case a firm makes losses.

The tax department at RL Ltd should be held accountable on this payment since the regulation allows a firm to carry forward it is lost into future upon making profits hence a room for set off. The only task the RL tax department is allowed by law concerning the loss is just to file a tax loss return and not payment of the same. I therefore inform and advise the board that there exists absolutely no problem or alarming issue with the statements instead they should access its tax department competency on the issue and subject them to disciplinary action if found culpable since they are making the company pay on tax liability they ought not to have paid as stipulated in the regulations.

This is further explained by an Australian Company by the name NEC that was seen to report a loss of AU$44.4m in the FY 2017 a decrease of what was reported in year 2016 of AU$8.2,with this it is a practical example since the firm was allowed to set off the tax loss in the future there was no tax payment done in this year.

AABB 13 clearly guides on all that entails valuation and measurement of assets and their respective disclosure in the books. AASB13, para 2 defines what fair value is and its application during valuation. I totally agree with the CEO that by RL Ltd valuing assets at fair value it will clearly depict the worth value of the assets at the time of valuation. However I definitely disagree with him that at the fair value he can increase the value of the assets anytime he wishes so, I disagree with him because AASB13, para 2 defines fair value as the market-based measurement not the individual entity valuation at a measurement date.

This is further explained by stating that no persons or entity has control over the fair value but rather the prevailing current market conditions is what dictates the exit value at the time of product exit. The valuation market conditions vary with geographical locations and seasons hence making the process ambiguous thus need to involve special professional expertise the so-called actuarial who are guided by their professional ethics on how to approach the issue. The use of values in the process of valuation likewise knocks down the CEO claim on his discretion to value the assets anytime he feels so.

AASB 13 is further seen to challenges the CEO will value the asset since he will be having no substantial basis to claim on what made him do the valuation. Moreover, it is of great importance for him to realize that fair value valuation of the asset is reported in the statement of financial position and its respective notes are disclosed via notes annexed to the statement Schroeder(2011.Pg 12). The note on this expects the participants in the market to disclose on what characteristics they based while doing valuation as well as explanations on the reasons for valuation not forgetting the economic benefit resulting from this Khorana(2006. Pg. 379).

With these guidelines I wish to inform Mr CEO AASB 13 does not allow any entity or individual persons to value assets as per their discretion and claim the measuring process to be that of fair value because there exist no prevailing market conditions Bosch(2012.Pg 23).

All of you will agree with me that the valuation price is not the initial the acquisition value. Likewise, you will agree with me that valuation can be up or down depending on the prevailing market conditions. AASB13, para 61 and 62 explains that during valuation in the valuation techniques cost approach or the cost of the item is deemed to be the benchmark of valuation Salinas(2009. Pg 40). According to AASB13, Para 19(e) there exist great explanation on why the need to report cost value. The regulation states that for purpose of calculation of gain or loss that is to be included in the statements hence the need to disclose where the assets originate from and their respective correspondence change whether downwards or upward.Al Jifri(2009.Pg 130). It is therefore clear that for the ascertainment of gain or loss on valuation especially for item eligible for disposal hence the need to clearly disclose in the notes on how the gain or loss came about Christensen(2013.Pg 740). Clause 14 of AASB 137 strongly defines recognition for provision to apply to entities that have current reliable and estimable obligation of previous transactions and that whose returns in wait can settle the debt in place hence if this is not met the aspect of recognition of provision is missed.

Valuation measurement is climaxed by the comparing the fair or rather market value with the face value or cost value for the purposes of disclosure and reporting Huang(2012.Pg 1600).Therefore by having these notes on the cost of the assets is indeed flavouring and explaining the materiality and compliance of the report with the set standards of International Financial Reporting Standards especially IFRS 7 Epstein(2006 Pg. 71). With this explanation, the CEO is therefore not supposed to worry about the notes on the cost model since they are lawful appended and give more information to the users of the information Beatt(2006.Pg 280).

The number four issue on why not all assets are consistently valued stand to be a good observation and I deem it important to the extent of suggesting for the valuation exercise to be conducted across all the assets  Fiechter(2011.Pg 100). I therefore personally support the CEO concern on valuation because according to AASB101 all financial position items at the time of reporting are expected to show the actual value of the business thus the reason why I think we should do valuation but not to all items because something like cash and cash equivalents we cannot value not unless it is in foreign rate form Lang(2010. However, my point of concern on this is what then is the appropriate valuation model and technique should the valuation be conducted for. We need to ask ourselves this question simply because assets are classified differently and more likely there exist differences while accounting for them Shaffer(2011.Pg 21).

For instance inventory are always valued at cost hence can’t subject them to the fair value concept it is recognized at cost as per IAS 2 hence there exists no rule of valuing it at market prices. Each concept should be treated differently since they have different end effects and they are recognized and accounted for differently and under different regulations. Debtors on the other hand are valued at the net realisable value since there exist the need to report on what was to be recovered from the debtors. Most of the non-current asset those which depreciates are valued at net book value with the likes of land appreciating upwards hence subjecting to the market fair value model will be wrongly reporting Busacca(2007.Pg 310).

During financial reporting recognition, disclosure and measuring of assets are viewed as of great importance since they present the actual position of the company at the reporting date. Valuation therefore sets the benchmark analysis for practical applicability during recognition and measuring of assets in the financial position as well as its disclosure implication in the foot notes of the financial statements pursuant to accounting standards in place.

It is hence more practical to value assets at the time of reporting the accounts as well as at the time of disposing these assets. For instance if we want to value a building whose walls and pillars were repaired and painted therefore we need to capture each and every cost relating to that building has to be put into consideration, therefore relevant factors like depreciation and value of money aspect has to be considered.

Intangible assets, the likes of intellectual properties the likes of goodwill, patent, trademarks e.tc should be valued at net book value Chalmers(2008.Pg 240). Looking at all these set of assets we notice the mode of valuation are different hence need to clarify the issue of consistency in  valuation of  assets as raised by the CEO by saying that as long as valuation will be done appropriately and through the right model technique and to the appropriate asset I don’t see the problem with valuing all assets but only to those which are worth valuation Mard(2007.Pg 51). Correct recording during and after valuations should be done and kept in accordance with the regulation while respective closing and opening balances disclosed since this what form the basis of reporting and positioning. Records from the participants in valuation should likewise be kept well for purposes audit and reference.

The CEO point of concern on the five items raised are great importance since it has assisted and educated RL Ltd company on areas they need to put more extra attention or rather pull up their socks and that which they should uphold and keep up cause they are of benefit to them. I further wish to say that all the aforesaid solution and suggestion issued above are in compliance with respective set regulations. All the relevant regulations have been quoted to suit the users of the information of RL Ltd to further understand the pressing interpretations of the issues raised by the CEO. I hope have likewise concretely advised the CEO and the board on the next course of action.

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