Australian Tax Office to Review Two Million Vehicle Car Sales in Stamp Duty Cheat Crackdown - Article Example

Accounting Regulation Name: Course Name: Institution: Date: Article Link: http://www.heraldsun.com.au/news/law-order/australian-tax-office-to-review-two-million-vehicle-car-sales-in-stamp-duty-cheat-crackdown/story-fni0fee2-1227159741886?nk=acc0eb8820d32ad46efd72cf729e84e3 Question 1 Australian tax office to review two million vehicle car sales in stamp duty cheat crackdown The article discussed is written by Peter Mickelburough and is available on the Herald Sun website and was posted on December 18. It highlights the decision of the Australian Tax Office to be involved in stamp duty that is aimed at examination of about two million car sales that have taken place in the last three years. The crackdown is targeted at hunting down car buyers and car sellers that are tax thieves. Tax thieves, in this case, are people that have bought or sold cars without registration so as to avoid tax payment. As explained in the article, the examination is to be carried out on cars that are valued at more than $10,000 in the period of 2014-2016. The Australian Tax Office believes that the costs incurred in the exercise will be less than the amount that will be recovered once the process is over. The process is to be carried out electronically and is believed to point out more than 2.8 million people that have either dodged tax payments or have bought cars that are not within their income stipulations. The people that will be affected by the crackdown will have missed to register their cars and pay their taxes as required by the taxation laws. They will have avoided payment of the crucial Goods and Services Tax, luxury car tax, fuel schemes, income tax regulations and fringe benefits tax. The decision provides evidence of important theories of accounting (Mickelburough, 2014). Ethics Very business and professional body has an outlined code of ethics that are outlined and must be adhered to. According to the Motor Traders Association (MTA) code of ethics (1996), several ethical expectations are outlined and must be carried out by car buyers. Some of the codes of ethics relevant in this case are: i. Honesty: act honestly in all dealings with the public and conduct business with strict professional courtesy and integrity; ii. Compliance with federal and state laws, codes of practice and regulations that apply to the business or trade. iii. Not knowingly mislead a consumer in relation to the condition of a vehicle or be a party to improper practice in relation to the sale or purchase of a vehicle. According to this code of ethics that directly relate to the current decision, it is unethical for the car sellers to sell cars without registering them. Additionally, it is unacceptable for the seller to be noncompliant to the federal and taxation laws. Therefore, the decision by the tax office to point out the car sellers that have avoided tax is ethical. The Australian tax office expects and has informed its people that every car is registered after its being bought for taxation reasons. This responsibility is mainly the dealer’s but the buyer must ensure that they buy a car that has been registered. The fact that this decision is aimed at ensuring all taxes is paid shows that the tax office is fulfilling its duties. In addition to that, every Australian understands their role in tax payment. Therefore, the purchase of a car by a person and using it without registration or tax payment is unethical. It shows a person that is not interested in the development of their country (Armstrong, 1993). Public Interest Theory The public interest theory insists that regulation is put in place in order to benefit the general society. The taxes that are acquired from the public by the tax office are used by the public. Therefore, any reduction in the amount that is received denotes that some developments and issues will not be addressed. The taxes that are collected are used by the Government of Australia in development, payment of salaries and wages and maintenance of the public land and systems. Therefore, Australia Tax Office is aiming at ensuring that all taxes from car dealers and buyers are paid to the government in order to benefit the society (Gaffikin, 2005). In addition to that, it is stated in the article that the Australian Tax Office is planning to hunt down the people that have bought vehicles that are not in proportion to their income will be investigated. This decision will help ensure that people have to pay taxes that they can handle. This shows that the tax office is concerned about the welfare of its taxpayers. Apart from investigating the people that have not complied to tax regulations, it is planning on finding people that have lodged taxes and those that lie about their income, entitled deductions and credits on input tax. Generally, the decision to investigate all these cases should lead to a nation that pays all it taxes and consequently provide the government with fund to be used to better the public(Mickelburough, 2014). Professionalism Professionalism is defined as the state of having skills that are required in an area of expertise. The Australian Tax Office has the obligations of ensuring that taxes are paid in time. It has the responsibility of seeking taxpayers that are not complying to set tax regulations. Therefore, the decision to seek out tax evaders is an act of professionalism. It is professional that they are working hard to ensure that all their roles are fulfilled in order to benefit the public. The car dealers, buyers and sellers that are knowingly avoiding car registration or are buying cars that are beyond their stipulated income and knowingly avoiding tax payments are unprofessional. It is expected that every new car that is bought must be registered and the action of selling cars without registration with the knowledge that they should register it for taxation purposes is unprofessional on the part of the car sellers(Armstrong, 1993). Question 2: Accounting Standard and Comment Letters The IFRS are the International Financial Reporting Standards that are set by International Accounting Standards board (IASB) and highlights a number of accounting standards that are internationally. In response to the set question, an exposure draft by IASB that was published in June 2014 is considered as well as the comment letters that were received. The exposure draft was a proposal of amendments to the IFRS consolidated financial statements. It proposed three main amendments: confirmation of the consolidated financial statements presentations are not done by subsidiaries of an investment entity that are parent entities, clarification that an investment entity parent should not measure a that provides investment related issues at a fair value but instead consolidate it and simplification of the equity method for entities that are not investment entities this proposal was aimed at clarifications on some accounting practices in order to reduce cases of different practices. Several comment letters were received from organizations and individuals. After the draft was presented to the public with three questions, more than 50 comment letters were received from different organizations, accounting institutes and corporate bodies. The response that was received from the Japan Foreign Trade Council agrees with the first Question on the basis that it will be of positive impact in the preparation of financial statements. It also agrees with the second proposed amendment. it goes on to state that the proposal will aid in ensuring that measurement of fair value will ease valuation of an investment and thus enhance the use of the financial statements. In response to the third proposal, the TRADE Council disagrees with the third proposal and says that it encourages diverse practices in the accounting practice. It therefore suggested that the if the equity method is applied in the case of an associate the non-investment entity joint venture r should retain the fair value measurement applied by its subsidiary to the joint venture. A similar response is presented by the Zambian Institute of Charted Accountants. In the comment letter the institute agrees to the first and second proposed amendments but recommends adjusts to the third amendment. The institute agrees that a non-investment entity should retain its fair value when applying the equity method. It disagrees that a non-investment entity investor that is part of a joint venture cannot retain its fair value after applying the equity method. It states that the venture will result in diverse treatment of investments in comparison to treatment of investments in joint ventures. The institute adds that a cost and comparability analysis must be carried out and be considered. It proposes that the exception that is applied in associates should also be applied to joint venture investments. The institute of Chartered Accountants of Pakistan writes a comment letter where it supports two of the proposals. This is similar to the last two comment letters assessed previously. With regard to the third proposal, the institute supports the application of the equity method on an investment entity associate belonging to a non-investment entity investor. The letter does not support the application of equity method in fair value measurement without regard for the profit and loss. It therefore recommends that the profit and loss with accordance to IFRS 9 must be incorporated in measurements of fair value of an investment that belongs to a non-investment entity. The later also aggress to the first amendment of the IFRS which proposes that allows for the exemption from preparing consolidated financial statements to subsidiaries of an investment entity that are actually parent entities. The Accounting Committee of Chartered Accountants Ireland also presented a response letter to the proposed draft. I the comment letter, the accountants support the first amendment because it reduces the burden imposed on a parent entity of having to produce consolidated financial statements. They however suggest that a criteria must be added on the IFRS 1O in order for intermediate parent entities to quality for the same exemption. With regard to the second amendment, the committee does not agree to the proposal. It states that the requirement for consolidation of financial records should not be limited to non-investment entity subsidiaries that are an extension of the investment entity parent. It proposes that some intermediary companies that re involved in the process should be consolidated so as to present information that is not only useful to users but also clearer and more transparent. With regard to the third proposal, the Chartered Accountants of Ireland agreed to the first part which proposed that equity method is applied when measuring the fair value. It however disagrees with the second part of the proposal because it creates additional costs for the joint venture when preparing additional information. It therefore proposes that a joint venture who measures the fair value of their investment should provide sufficient information to users in order to provide information that is useful to users. The Chartered Accountants of Ireland are the first to provide different opinion from the others in the response to the draft. From the different comment letters that are compared it is clear that most of the comment letters agreed to the first and second proposed amendments. The third question has however presented a problem with arguments that the equity method should not be applied to non-investment venture entities but instead the considerations of other costs must be done when measuring the fair value. Additionally, the proposal is said to encourage diversity in accounting instead of solving the issue. In terms of the theories of accounting regulation, the proposed amendments are aimed at defining the processes of accounting bodies. This relates to private interest theory because these amendments affect investors in areas of creating financial statements whether in joint ventures or not. If the right amendments are enforced, the investors and accountants will benefit. It is aimed at self-interest and not public interest (Stigler, 1971). Bibliography Armstrong, M. B. (1993). Ethics and professionalism in accounting education: A sample course. Journal of Accounting Education, 11(1), 77-92. Gaffikin, M. (2005), Regulation as Accounting Theory, Faculty of Business, University of Wollongong. IASB (2014), Exposure Draft and Comment Letters, International Accounting Standards Board. Retrieved 9th January 2015 from Mark, K. (2014), Investment Entities- Applying the Consolidation Exception (Proposed Amendments to IFRS 10 and IAS 28), Chartered Accountants, Ireland. Mickelburough, P. (2014), Australian Tax Office to review two million vehicle car sales in stamp duty cheat crackdown, Herald Sun. Retrieved 8th January 2015 from . MTA (1996), Code of Ethics, Motor Traders’ Association of New South Wales. Owais, M. (2014), Investment Entities- Applying the Consolidation Exception (Proposed Amendments to IFRS 10 and IAS 28), Institute of Chartered Accountants of Pakistan. Stigler, G. J. (1971), The Theory of Economic Regulation, The Bell Journal of Economics and Management Science, Vol. 2, No. 1. Zambia Institute of Chartered Accountants, (2014), Investment Entities- Applying the Consolidation Exception (Proposed Amendments to IFRS 10 and IAS 28), Zambia institute of Chartered Accountants. APPENDIX 1. Comment letter from THE Japan Foreign Trade Council 2. Zambia Institute of Chartered Accountants comment letter 3. Comment Letter from the Accounting Committee of Chartered Accountants Ireland 4. Comment letter from the Institute of Chartered Accountants of Pakistan 5. News Article for question 1. Read More