Corporate Governance Consequences Of Accounting: A Study Of Autosports Group Limited

Equity Section of Autosports Group Limited‘s Balance Sheet

Discuss about the Corporate governance consequences of accounting.

Three main items are present in the statement of financial position of the organisations, out of which equity is significant. Autosports Group Limited is not an exception from this rule. In compliance with the balance sheet statement of the organisation in 2017, three main items are listed in equity section, which include issued capital, share-based payments reserve and retained profits. Issued capital is the equity of the business organisations (Atanasov and Black 2016). The firms utilise in raising a part of capital needed for their businesses. The issued capital is calculated by multiplying the par value of the shares with the number of outstanding shares. The annual report of the organisation states that the issued capital has fallen from $478,500,000 in 2016 to $475,637,000 in 2017 (Investors.autosportsgroup.com.au 2018). 

The main items falling under issued capital comprise of issuance of ordinary shares, cost of issuance of shares and income tax associated with issuance of shares. The next item in the equity of Autosports Group Limited is reserves. According to the financial accounting concept, reserve is taken into account as a part of the equity of the firm. This is adjudged in the form of additional amount except for primary share capital. The recent annual report of Autosports Group Limited states that it has issued shares-based payments reserve in 2017, which is valued at $392,000; however, no such reserves are there in 2016. 

In addition, the latest annual report of Autosports Group Limited states that it has positive retained profits amounting to $12,198,000; however, it has experienced retained losses in 2016 amounting to ($101,000). Hence, it could be said that the organisation has made more profits than losses. The constituents involved in the retained profits of Autosports Group Limited are net income available to the shareholders, dividends paid or provided and effect of restatement (Schaltegger, Etxeberria and Ortas 2017). Thus, all the above-described constituents are the main equity items in the organisation.

In the global firms, various forms of expenses could be seen and they are selling expenses, administrative expenses and other expenses. Out of these expenses, tax expense could be considered as one of them. Moreover, tax expense is taken into account in the form of main liabilities of the companies owing to the state, federal and municipal governments of the nation (Damodaran 2016). The tax expense is computed through multiplication of the suitable business tax with the income before taxes after some main items are factored such as tax assets, non-deductible items and tax liabilities. Autosports Group Limited is not exempted from this, since it incurs tax expenses as well. Based on the recent annual report of the organisation, the income tax expense has been $6,035,000 in 2017, which was $8,000,000 million in 2016. 

Tax Expenses of Autosports Group Limited

Based on the rules of the taxation law of Australia, the corporate tax rate is 30% (Gitman, Juchau and Flanagan 2015). According to this tax rate, the overall tax expenses for Autosports Group Limited would be $5,526,900 in 2017, which was $101,400,000 in 2016. This is the major tax expense of the firm for the years 2016 and 2017. It could be identified that the overall tax expenses of the organisation have fallen in 2017 due to decline in income for the organisation in that year.

Based on the above discussion, it could be stated that Autosports Group Limited has recorded total tax expense of $6,035,000 in 2017, which was $8,000,000 in 2016. On the other hand, if the tax rate is followed, the overall tax expenses for Autosports Group Limited would be $5,526,900 in 2017, which was $101,400,000 in 2016. Hence, a clear variation in the tax expense of the organisation could be observed. For Autosports Group Limited, there are some particular reasons for the variations in tax expenses despite of having the identical tax rate of 30%. However, few specified items are included or not taken into account in the preliminary overall tax expenditures. The initial item is non-deductible expense in order to ascertain taxable profits (Cheng, Ioannou and Serafeim 2014). However, few expenses in the organisation need not be subtracted from its overall income. Due to this, $638,000 and $879,000 are included in 2016 and 2017 respectively. The next item includes the use of various tax rates for the subsidiaries of the organisation. In Australia, the rate of tax is 30%, while in case of USA and New Zealand, the tax rates are 34% and 28% respectively (Graetz and Warren Jr 2014).

Because of such variation in the rate of tax, certain amount is subtracted from the actual tax expenses of the organisation. The next item includes the availability of deferred tax assets. With the help of deferred tax assets, tax advantages could be sought (Agrawal and Cooper 2017). For this reason, $3,897,000 has been deducted from the tax expense of Autosports Group Limited in 2017. Some other items need to be included as well with the tax expense of the organisation. The final item is the availability of non-assessable incomes. There are certain incomes, which do not need to be evaluated in accordance with taxation. Hence, an inclusion of $1,547,000 is made with the overall tax expenses.

Deferred Tax Assets and Liabilities

In the words of Richardson, Taylor and Lanis (2015), deferred tax assets and liabilities are the major concepts that are associated with the tax operation of the organizations. The situation, in which the organisations make prepaid tax on their financial assets or overpay taxes, is termed as deferred tax assets. On the contrary, deferred tax liabilities signify a situation, in which a variation could be observed in profit and the carrying amount of tax of the organisation (Taylor and Richardson 2014). For Autosports Group Limited, it could be viewed that the organisation has disclosed deferred tax assets as well as deferred tax liabilities in its balance sheet statement. The deferred tax assets of the organisation have been $3,897,000 in 2017, which were $3,900,000 in 2016. Along with this, the organisation has deferred tax liability base of $5,948,000 in 2017, which was $4,000,000 in 2016. By taking into account the accounting norms and regulations, there are few reasons to develop deferred tax assets and liabilities.

For deferred tax assets, the cause might be the additional depreciation amount on the part of the organisation because of the difference in rate of taxable depreciation and depreciation. Because of the additional depreciation payment, Autosports Group Limited would not have to incur the excess tax in the upcoming year; hence, it is taken into account as asset. In case of deferred tax liabilities, the temporary variations in business profits might be the cause, which has resulted in lower tax payment of the organisation in the existing year (McClure et al. 2018). Hence, it becomes mandatory for the organisation to repay the same in the upcoming years, which is the main reason of its consideration in the form of liability.

Income tax payable or current tax asset is adjudged as a significant aspect for the global organisations. According to the annual report of Autosports Group Limited, it has disclosed about its current tax asset. It has been found that the income tax payable of the organisation has been $4,980,000 in 2017; however, no income tax payable is reported in the year 2016.

In organisations, it could be observed that there is a variation between income tax payable and income tax expense and there are some particular reasons that could be held for such disparity. The basic reason is the availability of deferred tax assets. There are many examples, in which the organisation incurs additional tax amounts in contrast to the tax expenses (Dyreng, Hoopes and Wilde 2016). In this condition, the additional amount of tax paid would be adjudged in the form of deferred tax assets, which would result in variation. The next reason is that the rules pertaining to financial accounting and tax accounting differ from each other. In this dimension, it is noteworthy to mention the concept of depreciation. The variation for depreciation could be observed in case of tax accounting as well as financial accounting due to the use of different depreciation methods (King 2016). Therefore, the final depreciation amount payable could rise or decline. These could be stated as the primary reasons behind the variations between income tax expense and income tax payable (Burkhauser, Hahn and Wilkins 2015).

Income Tax Payable

Based on the financial statements of Autosports Group Limited, the organisation has disclosed its tax-related expenditure in both the income statement and the cash flow statement. However, there are variations in tax expenses, which are depicted in the cash flow statement and the income statement. Under the income statement, the income tax expense has been $6,035,000 in 2017, which was $8,000,000 million in 2016. Under the cash flow statement, the income tax paid has been $6,760,000 in 2017, while in 2016; it has not recorded any income tax paid. Some particular reasons are there for this variation in both the above-depicted statements in relation to tax expense. Under the income statement, the organisation has depicted the entire taxation amount by using the tax rate of 30% on the profit before tax. However, the situation is dissimilar in case of the cash flow statement. 

In this regard, Murphy (2016) advocated that the tax expense falls under the operating cash flows. Moreover, in the section of the statement of cash flow, there is different for few items laid out in the income statement. This signifies that various modifications have occurred in the current asset and liability base of the organisations. In case of Autosports Group Limited, the income tax payment is taken into account in the form of current asset. Under the cash flow statement, some minimisation in the constituents of income tax has been brought signifying the usage of cash. This denotes that there is cut off of few components of tax expense, before they are considered in the cash flow statement (Dowling 2014). Because of these reasons, the variation in tax expense could be observed in both the income statement and the cash flow statement.

After the tax treatment is observed for the financial reports of Autosports Group Limited, it is to be said that the organisation has presented its tax-related information in a fashion that any user would not find any confusing or surprising element within the same. The organisation has carried out all its tax treatments by adhering to the regulations and principles of the taxation law of Australia. Moreover, the organisation has laid down all the justifications and descriptions of the different influential dynamics of taxation such as rate of tax, income tax payable, deferred tax assets, deferred tax liabilities and others. However, few interesting stuffs have been found in relation to the tax treatment of the organisation.

The most significant factor is the description made on the part of the organisation in relation to the difference identified in the overall tax expense. It has provided description about the five main influential dynamics accountable to create difference in tax expense. This is depicted with the help of various tables present in the annual report of the organisation. Another significant factor is the variation in tax expense, as identified from the statement of income and the statement of cash flow. All these exciting factors are highly valuable to increase the knowledge and understanding needed in business taxation. From this evaluation, an individual could obtain insight and understanding regarding the tax treatment of the Australian organizations.

References:

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