LEARNER GUIDE

BSBFIA402

Report on financial activity

LEARNER GUIDE

Part 1
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“A budget tells us what we can't

afford, but it doesn't keep us from
buying it.”

– William Feather
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Contents
Elements and Performance Criteria........................................................................................................ 6
Foundation Skills ................................................................................................................................. 7
Unit Mapping Information .................................................................................................................. 8
Assessment requirements ...................................................................................................................... 8
Modification History ........................................................................................................................... 8
Performance Evidence ........................................................................................................................ 9
Knowledge Evidence ........................................................................................................................... 9
Assessment Conditions ....................................................................................................................... 9
Introduction .......................................................................................................................................... 11
Finance introduction ............................................................................................................................. 12
What is the Role of Finance in Business ........................................................................................... 12
Financial Records .............................................................................................................................. 12
Why are Financial Records Important .............................................................................................. 13
Keeping Financial Records ................................................................................................................ 13
Table 1: Basic Financial Records ................................................................................................... 14
Table 2: Basic Financial Records ................................................................................................... 15
The General Ledger ........................................................................................................................... 16
Table 3: General Journal Entries ................................................................................................... 16
General Ledger – T accounts ......................................................................................................... 17
Cash Flow Reports............................................................................................................................. 18
The Australian Taxation Office and its Role in Financial Records ..................................................... 22
Australian Securities and Investments Commission and its Role Related to Financial Records....... 22
Compile financial information and data ............................................................................................... 23
Coding data ....................................................................................................................................... 24
Accuracy and reliability ..................................................................................................................... 26
Transpositional and Transcription errors...................................................................................... 27
Verifying data .................................................................................................................................... 27
Source documents ............................................................................................................................ 27
Adjustment notes.......................................................................................................................... 27
Cheque butts ................................................................................................................................. 27
Credit notes................................................................................................................................... 27
Invoices ......................................................................................................................................... 27
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Purchase orders ............................................................................................................................ 28

Receipts ......................................................................................................................................... 28
Tax invoices ................................................................................................................................... 28
Organisational policies and procedures............................................................................................ 29
Code of conduct/ethics/practice or behaviour................................................................................. 30
Filing systems .................................................................................................................................... 31
Use conversion and consolidation procedures to compile analysis in accordance with organisational
requirements .................................................................................................................................... 32
Make, record and disclose asset and liability valuations in accordance with organisational
requirements .................................................................................................................................... 33
Balance sheet .................................................................................................................................... 35
Accounting equation ......................................................................................................................... 35
Accounting Equation Example ...................................................................................................... 36
Sample Transactions ......................................................................................................................... 37
Additional Accounting Equation Issues............................................................................................. 38
Non-profit Accounting Equation ....................................................................................................... 39
Ensure that discrepancies, unusual features or queries are identified, resolved or referred to the
appropriate authority ....................................................................................................................... 39
Dealing with discrepacies in accounts payable department ............................................................ 40
Prepare statutory requirement reports ................................................................................................ 43
Correctly record income and expenditure to ensure compliance with statutory requirements ..... 43
Preparing statements........................................................................................................................ 44
Total revenues .............................................................................................................................. 44
Total expenses .............................................................................................................................. 45
Net income .................................................................................................................................... 45
Rules of accounting ........................................................................................................................... 46
The rules........................................................................................................................................ 46
Calculate liabilities for tax in accordance with current legislation and revenue gathering practice 48
Legislation ......................................................................................................................................... 50
Reporting liabilities ........................................................................................................................... 50
Business Activity statements ........................................................................................................ 50
Choosing a GST option (quarterly payers) .................................................................................... 51
Methods for reporting GST ........................................................................................................... 51
Adjustments and corrections ........................................................................................................ 51
GST instalment notice ................................................................................................................... 51
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Pay As You Go (PAYG) obligations................................................................................................. 51

Super guarantee............................................................................................................................ 52
Fringe benefits .............................................................................................................................. 52
Payroll tax...................................................................................................................................... 53
Reporting and lodgement dates ................................................................................................... 53
State or Territory tax obligations .................................................................................................. 53
Correctly identify relevant receipts, revenue documentation and payments ................................. 54
Ensure that statements and claims take full advantage of available benefits and allowances in
accordance with statutory requirements ......................................................................................... 56
Submit statutory requirement reports to appropriate authorities within stated deadlines............ 58
Provide financial business recommendations ...................................................................................... 61
Ensure that recommendations are logically derived and supported by evidence in report ............ 61
Methods of forecasting..................................................................................................................... 62
Provide recommendations to propose constructive actions to enhance the effectiveness and
efficacy of functions and services ..................................................................................................... 66
Ensure recommendations are concise and facilitate direction and control of organisation’s
operations ......................................................................................................................................... 68
Identify and prioritise significant issues in statements including comparative financial performances
for review and decision making ........................................................................................................ 69
Ensure structure and format of reports are clear and conform to organisational and statutory
requirements .................................................................................................................................... 71
Bibliography information ...................................................................................................................... 73
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Elements and Performance Criteria

ELEMENT PERFORMANCE CRITERIA

Elements describe the Performance criteria describe the performance needed to demonstrate

essential outcomes. achievement of the element.

1 Compile financial 1.1 Collect, evaluate and code current financial data to ensure

information and data consistency, quality and accuracy in accordance with organisational

requirements

1.2 Use conversion and consolidation procedures to compile analysis

in accordance with organisational requirements

1.3 Make, record and disclose asset and liability valuations in

accordance with organisational requirements

1.4 Ensure that discrepancies, unusual features or queries are

identified, resolved or referred to the appropriate authority

2 Prepare statutory 2.1 Correctly record income and expenditure to ensure compliance

requirement reports with statutory requirements

2.2 Calculate liabilities for tax in accordance with current legislation

and revenue gathering practices

2.3 Correctly identify relevant receipts, revenue documentation and

payments

2.4 Ensure that statements and claims take full advantage of available

benefits and allowances in accordance with statutory requirements

2.5 Submit statutory requirement reports to appropriate authorities

within stated deadlines

3 Provide financial business 3.1 Ensure that recommendations are logically derived and supported

recommendations by evidence in report

3.2 Provide recommendations to propose constructive actions to

enhance the effectiveness and efficacy of functions and services

3.3 Ensure recommendations are concise and facilitate direction and

control of organisation’s operations

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3.4 Identify and prioritise significant issues in statements including

comparative financial performances for review and decision making

3.5 Ensure structure and format of reports are clear and conform to

organisational and statutory requirements

Foundation Skills
This section describes language, literacy, numeracy and employment skills incorporated in the

performance criteria that are required for competent performance.

Skill Performance Description

Criteria

▪ Compares and analyses information from a range of

Reading 1.1-1.4, 2.1-2.5, 3.1-
sources varying in complexity to determine and complete
3.5
financial requirements

▪ Records numerical and textual information incorporating

Writing 1.1-1.4, 2.1, 2.2, 2.4,
required financial language organising data in a manner
2.5, 3.1-3.5
that supports the format and purpose of the document

▪ Presents financial issues and requirements clearly,

Oral 1.4, 3.2, 3.3
succinctly and based on own findings using language
Communication
appropriate to audience and environment

▪ Exchanges and obtains information from others by

listening and questioning

▪ Establishes criteria and categories for financial

Numeracy 1.1-1.4, 2.1-2.5, 3.1,
management purposes and monitors activities on a
3.4, 3.5
regular basis

▪ Uses a wide range of mathematical calculations to

interpret and arrange/compare numerical information in

order to comply with requirements

▪ Recognises, understands and applies applicable

Navigate the 1.1-1.4, 2.1-2.5, 3.1,
legislation, industry standards and organisational policies
world of work 3.3, 3.5
and procedures in the conduct of own work
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▪ Selects and uses appropriate conventions and protocols

Interact with 1.4, 2.5
when communicating with external stakeholders to
others
supply required information

▪ Uses formal and logical processes to plan and complete

Get the work 1.1-1.4, 2.1, 2.2, 2.5,
tasks, achieving timelines and organisational
done 3.4
requirements

▪ Uses analytical skills to identify discrepancies, attempts

to resolves the issues within the context of own

responsibilities and, where appropriate, consults with

more experienced colleagues for assistance

▪ Uses a range of digital technologies to access, record,

store, organise, compile, analyse and present complex

data from multiple sources of information

Unit Mapping Information

Code and title Code and title Comments Equivalence status

current version previous version

BSBFIA402 Report on BSBFIA402A Report on Updated to meet Equivalent unit

financial activity financial activity Standards for Training

Packages

Links

Companion Volume implementation guides are found in VETNet -

https://vetnet.education.gov.au/Pages/TrainingDocs.aspx?q=11ef6853-ceed-4ba7-9d87-

4da407e23c10

Assessment requirements
Modification History

Release Comments

Release 1 This version first released with Business Services Training Package

Version 1.0.
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Performance Evidence
Evidence of the ability to:

• organise and present financial data including budget variances, budgets and forecasts, cash

flow/profit reports, balance sheets, financial year reports, operating statements, expenditure

and receipts and profit and loss statements to highlight relevant features and meet workplace

requirements

• use conversion and consolidation procedures such as moving averages, standardised variables,

trend analysis and unit costs

• identify, resolve or refer discrepancies such as absence of auditable trail, expenditure report

mismatches, incorrect payments and unreconciled cash flows

• record income and expenditure to meet statutory requirements

• calculate liabilities for tax including completing Business Activity Statements

• provide financial business recommendations

• apply knowledge of relevant legislation and regulations

• perform double entry bookkeeping and accrual accounting.

Note: If a specific volume or frequency is not stated, then evidence must be provided at least once.

Knowledge Evidence
To complete the unit requirements safely and effectively, the individual must:

• identify the key provisions of legislation, regulation and codes of practice relevant to financial

operations

• describe the techniques used for forecasting and analysis

• identify the options, methods and practices for deductions, benefits and depreciations.

Assessment Conditions
Assessment must be conducted in a safe environment where evidence gathered demonstrates

consistent performance of typical activities experienced in the financial administration field of work

and include access to:

• office equipment and resources

• computer with relevant software

• examples of financial data, reports and documents

• workplace financial policies and procedures

• case studies and, where possible, real situations.

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Assessors must satisfy NVR/AQTF assessor requirements.

Links

Companion Volume implementation guides are found in VETNet -

https://vetnet.education.gov.au/Pages/TrainingDocs.aspx?q=11ef6853-ceed-4ba7-9d87-

4da407e23c10
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Introduction
This unit describes the skills and knowledge required to report financial activity for business both in
response to client requests and to meet statutory requirements such as the completion of financial
reports.

You will learn about how to collect, evaluate and code current financial data to ensure consistency,
quality and accuracy in accordance with organisational requirements.

Also, you will learn about how to calculate liabilities for tax in accordance with current legislation and
revenue gathering practices.

In this unit, you will learn and practice how to provide recommendations to propose constructive
actions to enhance the effectiveness and efficacy of functions and services.
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Finance introduction
Finance is term that is used to describe the actual process by which needed funds are acquired, as well
as the study of how money is managed (Kurt, 2017). This can be further categorized into personal
finance (Individual), corporate finance (Business) and public finance (Government) (Kurt, 2017).

In relation to corporate business, this could include things such as raising funds through a bond issue
or stock offering (Kurt, 2017). It is common for businesses to seek advice from investment banks on
such considerations, and receive help in marketing the securities as well (Kurt, 2017). Alternatively, a
company could be trying to budget their capital, and make decisions on what projects to finance and
what projects to delay in order to grow a company (Kurt, 2017).

What is the Role of Finance in Business

Ultimately, the objective of any financial function is to achieve at least one of the following three goals;
business support service, lower costs and effect control of the environment (Griffin, 2017).
Considering money is the foundation of all business, finance is crucial to the success of any profitable
organization (Griffin, 2017).

The role of finance in business is essential for; advertisement, running marketing surveys, gaining
assets, developing products, promoting or creating business, etc. (Griffin, 2017). In the past, finance
was conventionally viewed myopically, with a focus on being reactive, risk averse, efficient and
quantitative (Griffin, 2017). However, modern business practice dictate a more opportunity and
growth focused view of finance for optimal performance in the market (Griffin, 2017).

Finance is deeply integrated in nearly any and all departments of any given company, however, major
financial responsibilities and requirements are usually handled by a dedicated finance department.
This finance department is usually responsible for taking of care of bookkeeping, reporting, payables
and receivables, etc.

Financial Records
Financial records are “Formal documents representing the transactions of a business, individual or
other organization. Financial records maintained by most businesses include a statement of retained
earnings and cash flow, income statements and the company’s balance sheet and tax returns. Keeping
financial records organized is a key element in a successful business.” ("What are financial records?
definition and meaning", 2017)

In simpler terms, financial records can simply be considered all of the transactional information that
involves your money or investments, regardless if it is in paper or electronic format (Scheid, 2017).
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Why are Financial Records Important

As previously mentioned, proper finance is an essential component of any successful venture or
organization. Logically, financial records are a natural extension of the importance of finance.

Regardless of the nature of the business, it is vital to know its financial status on a relatively regular
basis, and that you are meeting your financial obligations, whether it be on a local, city, state or federal
level (Marin, 2017).

As previously mentioned, it is important to know where your company stands on a daily, weekly,
monthly, quarterly and annually basis (Marin, 2017). With this information you can know if you are
making money, whether your client base is increasing or decreasing, whether you have enough money
to meet your obligations, whether you are reaching the objectives you’ve set for your business, etc.
(Marin, 2017). Additionally, it is crucial for having knowledge of how much inventory you have at any
given moment, how much of a product you may need to order, when that order needs to be placed
or the balance in your bank account to cover your payments for running business, such as, rent,
employee wages, office supplies, etc. (Marin, 2017). Without financial records, you are essentially
losing almost all control over your business (Marin, 2017).

There are a variety of ways to maintain business records; you can maintain the manually,
computerized as a spreadsheet or even kept online (OZKAN Accountants, 2017). Alternatively, it is
also possible to outsource any financial records work to a third party (OZKAN Accountants, 2017).

Even disregarding the necessities of keeping financial records, there are many benefits to gain from
good financial records; they can help to maximize the expenses you claim while reducing your tax
obligations; they can make it quicker to prepare your accounts at the end of the financial year; can
provide information for successfully running your business and helping it grow; can help plan for tax
payments; can be used to identify strengths and weaknesses in your business; help manage changes
and improvements to your business; make it easier to get a loan or sell your business; avoid
under/over tax payments; etc. (OZKAN Accountants, 2017).

Keeping Financial Records

Your financial records, by law, should explain all transactions, be in writing (paper or electronic), be in
English, and must be kept for at least five years though some records may need to be kept longer
("Record keeping for small businesses", 2017).

It is recommended that you use electronic record-keeping software if you can, and/or hire a
bookkeeper or accountant to manage your financial records.
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Table 1: Basic Financial Records

Record Description

Cash Book or Financial Accounting Program Records cash receipts and cash payments

Bank Accounts Cheque books, deposit books and bank

statements

Employment Records Hours of work, overtime, remuneration or other

benefits, leave, superannuation benefits,
termination of employment, type of
employment, personal details or workers,
employee personal contact and employment
details

Occupational Training Records Compliance with work, health and safety laws
including evacuation and emergency training
attendance

Sales Records Invoice books, receipt books, cash register

tapes, credit card documentation, credit notes
for goods returned and a record of goods used
by the business owner personally

Proof of Purchases Cheque butts (larger purchases), petty cash

system (smaller cash purchases), receipts, credit
card statements, invoices, any other documents
relating to purchases including copies of
agreements or leases

Work, Health and Safety (WHS) Records Workplace incidents, risk register and
management plan, names of key WHS people,
chemical storage records, first aid incident
register, workplace assessments, Material
Safety Data Sheets (MSDS)

*("Basic record keeping requirements | Business Queensland", 2017)

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Table 2: Basic Financial Records

Record Description

Employee Accreditation Certificates and Copies of permits, registrations and licenses

Licenses employees need to do their jobs

-
Employee resumes and job applications

Performance reviews Including assessments of staff performance and

agreements between you and your employees

-
Position statements and job advertisements

Customer records Personal details, products purchased and

product enquiries that are useful for finding new
customers

Customer complaints Details of complaints about products, service,

staff or anything else, and steps taken to resolve
them

Details of any disputes with other businesses Including how you went about resolving disputes

Quotes given and won Specifics of jobs and time spent on them to help
with future quoting

Details of advertising campaigns and success To make it easier to repeat advertisements and
plan future advertising campaigns

Insurance policies Regularly review and update your business

insurance, especially when your business grows
or changes.

*("Basic record keeping requirements | Business Queensland", 2017)

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The General Ledger

A general ledger account is an account or record used to sort and store balance sheet and income
statement transactions ("What is a general ledger account? | AccountingCoach", 2017). Examples of
general ledger accounts include the asset accounts such as Cash, Accounts Receivable, Inventory,
Investments, Land, and Equipment. Examples of the general ledger liability accounts include Notes
Payable, Accounts Payable, Accrued Expenses Payable, and Customer Deposits ("What is a general
ledger account? | AccountingCoach", 2017). Examples of income statement accounts found in the
general ledger include Sales, Service Fee Revenues, Salaries Expense, Rent Expense, Advertising
Expense, Interest Expense, and Loss on Disposal of Assets ("What is a general ledger account? |
AccountingCoach", 2017).

Some general ledger accounts are summary records which are referred to as control accounts
("What is a general ledger account? | AccountingCoach", 2017). The detail that supports each of the
control accounts will be found outside of the general ledger in what is known as a subsidiary ledger
("What is a general ledger account? | AccountingCoach", 2017). For example, Accounts Receivable
could be a control account in the general ledger, and there will be a subsidiary ledger which contains
each customer's credit activity ("What is a general ledger account? | AccountingCoach", 2017). The
general ledger accounts Inventory, Equipment, and Accounts Payable could also be control accounts
and for each there will be a subsidiary ledger containing the supporting detail ("What is a general
ledger account? | AccountingCoach", 2017).

A listing of a company's general ledger accounts is found in its Chart of Accounts ("What is a
general ledger account? | AccountingCoach", 2017).

To demonstrate how transactions are lodged into a general ledger, consider the following
example:

Table 3: General Journal Entries

Date Account Names Debit Credit

1/9 Cash 7500

Capital 7500

8/9 Bike Parts 2500

Accounts Payable 2500

15/9 Expenses 1000

Cash 1000
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17/9 Cash 400

Accounts Receivable 700
Revenue 1100

18/9 Expenses 425

Bike Parts 425

25/9 Cash 425

Accounts Receivable 425

28/9 Accounts Payable 500

Cash 500

*("General Ledger Entries", 2017)

General Ledger – T accounts

Cash

Sep 1 7500 Sep 15 1000

17 400 28 500

25 425

Bike Parts

Sep 8 7500 Sep 18 1000

Capital

Sep 1 1000

Expenses

Sep 1 1000

18 275
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Accounts Receivable

Sep 17 700 Sep 25 425

Accounts Payable

Sep 28 500 Sep 8 2500

Revenue

Sep 17 1100

*("General Ledger Entries", 2017)

Cash Flow Reports

Cash flow reports are usually officially referred to as statement of cash flows. The statement of cash
flows is one of the main financial statements (Averkamp, 2017). (The other financial statements
are the balance sheet, income statement, and statement of stockholders' equity.) (Averkamp,
2017)

The cash flow statement reports the cash generated and used during the time interval specified in
its heading (Averkamp, 2017). The period of time that the statement covers is chosen by the
company (Averkamp, 2017). For example, the heading may state "For the Three Months Ended
December 31, 2016" or "The Fiscal Year Ended September 30, 2016" (Averkamp, 2017).
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The cash flow statement organizes and reports the cash generated and used in the following
categories:

Operating Activities Converts the items reported on the income

statement from the accrual account to cash

Investing Activities Reports the purchase and sale of long-term

investments and property, plan and equipment

Financing Activities Reports the issuance and repurchase of the

company’s own bonds and stock and the
payment of dividends

Supplemental Information Reports the exchange of significant items that

did not involve cash and reports the amount of
income taxes paid and interests paid

*(Averkamp, 2017)

Because the income statement is prepared under the accrual basis of accounting, the revenues
reported may not have been collected (Averkamp, 2017). Similarly, the expenses reported on the
income statement might not have been paid (Averkamp, 2017). You could review the balance
sheet changes to determine the facts, but the cash flow statement already has integrated all that
information (Averkamp, 2017). As a result, savvy business people and investors utilize this
important financial statement (Averkamp, 2017).

Here are a few ways the statement of cash flows is used (Averkamp, 2017);

1. The cash from operating activities is compared to the company's net income. If the cash
from operating activities is consistently greater than the net income, the company's net
income or earnings are said to be of a "high quality". If the cash from operating activities is
less than net income, a red flag is raised as to why the reported net income is not turning
into cash.

2. Some investors believe that "cash is king". The cash flow statement identifies the cash that is
flowing in and out of the company. If a company is consistently generating more cash than it
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is using, the company will be able to increase its dividend, buy back some of its stock, reduce
debt, or acquire another company. All of these are perceived to be good for stockholder
value.

3. Some financial models are based upon cash flow.

Example (Averkamp, 2017)

On January 2, 2016 Matt invests $2,000 of his personal money into his sole proprietorship, Good
Deal Co. On January 20, Good Deal buys 14 graphing calculators for $50 per calculator—this is about
50% less than the selling price Matt has observed at the retail stores. The total cost to Good Deal for
all 14 calculators is $700. Good Deal has no other transactions during January.

Matt prepares financial statements for his new business as of January 31, 2016:
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Good Deal's income statement for January showed no profit or loss, since it did not have any sales or
expenses. However, the cash flow statement reports that Good Deal's operating activities resulted in
a decrease in cash of $700. The decrease in cash occurred because the company increased its
inventory by $700 during January. The financing activities section shows an increase in cash of
$2,000 which corresponds to the increase in Matt Jones, Capital (Matt's investment in the
business). The net change in the Cash account from the owner's investment and the cash outflow
for inventory is a positive $1,300.
This net change of a positive $1,300 is verified at the bottom of the cash flow statement and on the
balance sheet. There was a $0 cash at January 1, but at January 31, the Cash balance is $1,300.
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The Australian Taxation Office and its Role in Financial Records

The Australian Taxation Office (ATO) is an Australian government statutory agency and the principal
revenue collection body for the Australian government ("Who we are", 2017). The ATO has
responsibility for administering the Australian federal taxation system, superannuation legislation,
and other associated matters ("Who we are", 2017). In simple terms, the ATO is the main entity
businesses are expected to report to, in regards to almost all financial matters on an annual basis, and
is the chief authority regarding taxes and financial benefits.

Australian Securities and Investments Commission and its Role

Related to Financial Records
The Australian Securities & Investments Commission (ASIC) is an independent Australian
government body that acts as Australia's corporate regulator ("About ASIC | ASIC - Australian
Securities and Investments Commission", 2017). ASIC's role is to enforce and regulate company and
financial services laws to protect Australian consumers, investors and creditors ("About ASIC | ASIC -
Australian Securities and Investments Commission", 2017).

The ASIC contribute to Australia’s economic reputation and wellbeing by ensuring that Australia’s
financial markets are fair and transparent, supported by confident and informed investors and
consumers, and are responsible for ("About ASIC | ASIC - Australian Securities and Investments
Commission", 2017):

• Maintaining, facilitating and improving the performance of the financial system and entities in it
• Promoting confident and informed participation by investors and consumers in the financial system
• Administering the law effectively and with minimal procedural requirements
• Enforcing and giving effect to the law
• Receiving, processing and storing, efficiently and quickly, information that is given to them
• Making information about companies and other bodies available to the public as soon as practicable.
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Compile financial information and data

Collect, evaluate and code current financial data to ensure consistency, quality and accuracy in
accordance with organisational requirements

The process of collecting current financial data is an ongoing process which is facilitated by all
departments and personnel in the institution. Although some data is sourced from external entities,
most of the relevant data comes from within the company. The collection process is an intricate
process with multiple steps that involve a combination of the records based on the operations. From
a small to large volume, such data is comprised of primary, secondary and tertiary data in relation to
the operations of the firm. In its original form, the data is clouded and meaningless, but very necessary
for use in the company.

Some of the information is collected automatically, especially the data that relates to repetitive
process. Some of the collection processes are automated in order to ensure that the productivity of
the user is high and that they can focus on other aspects as they work. However, manual collection is
necessary for information that is current and not automated. This is due to the fact that the systems
within an organisation accommodate the two types of input. The discretion of the employees
represents the participation of manpower in the process of collecting data, in order to ensure that it
both complete and suitable.

The process of evaluating entails confirmation whether the data is accurate, relevant, complete and
related to the specific conditions. The process of data collection is subject to mistakes and errors,
hence the need for evaluation. The most common forms of errors exist in both the automated and
manual systems. Under the automated systems, evaluation focuses on the determination whether the
right type of data was presented for capture and whether any mistakes were made in the process. The
evaluation process also focuses on completeness of the data in two aspects.

First, whether all the data was recorded the way it was supposed to.

Secondly, whether the various inputs were entered as they were.

Under manual systems, the number of errors is more, including transposition, mistyping, incomplete
entries and incomplete data. Transposition is where part of the elements of the data is entered in the
wrong format, such as when the dates are entered as months and months as dates.

The evaluation can also target the characteristics of the data in order to determine whether it meets
specified characteristics. This form of evaluation is based on set benchmarks and is applied in
assessment of whether the company performed as expected or not. The evaluation follows a specified
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process that tests the data against set standards. Based on the quantitative nature of the data, it is
possible to make qualitative decisions about the performance of the company.

Finally, the data is coded through specified measures and metric systems in order to ensure that
reporting and future analysis is easy. Coding is performed after all the various form of analysis have
been performed. Coding is a process of ensuring that reference to the data is easy since it is provided
with specific terms that depict the characteristics of the data. Coding can be in the form of descriptions
of the data that is classified for example, sales records, assets, liabilities and financial ratios. Coding
can also be based on the year of reference in order to make it possible for the users to access it faster.
Finally, once the coding is performed, it is possible to store the data in a suitable format where access
is easy.

The application of organisational requirements in the process of collecting, evaluating and coding data
makes it possible to accommodate the characteristics of the data, the needs of the organisation and
to ensure that all data from the firm is uniformly handled. Although original data may vary from one
year to the other, once it is evaluated and coded, the differences are eliminated. The differences that
cannot be eliminated are fully explained to ensure that all users understand the foundation for the
difference.

Coding data
Un-coded and unclassified data is of little value to an organisation, as it consists of just raw facts and
figures. Data can come in many forms including numbers, letters and symbols.

Data is defined as; raw material, the actual measurements or raw facts we use to develop information.
As we utilise information (process, present and put into practice) it then begins to contribute to an
organisations learning; therefore is added to the store of knowledge. Whilst people in different roles
will have different competencies, all the roles and tasks within the organisation are interrelated and
the knowledge accumulated and held within the organisation is what creates its ability to operate
effectively.

The processes involved in developing and utilising information are:

• Collecting data
• Analysing data
• Interpreting data
• Converting data into information
• Converting information into knowledge
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Data can be collected in two main ways:

• Manually
• Computerised mechanisms

Computerised mechanisms could include the collection of transactional data, from a computerised
terminal. This data is automatically collected when the transaction is entered into the system. This
system might also be linked to stock records, or be used to provide reconciliation sheets and reports
at the end of a day's trading. Alternately, manual systems like note books, check sheets or run charts
can be used to record observations at the time or immediately after an event, generally with regard
to operations (how many or how often).

Data that is already stored in your organisational systems is called historical data. This type of data
can be transferred to fit current needs. Much of the data captured can be automatically coded using
software packages that sort, analyse, store, and present data in puts in a variety of report formats.
You should know:

• What data and what information is relevant to your role

• How the necessary data and information can be accessed
• What information you are authorised to access
• Who to contact if you are unsure of the processes
• Who you should consult to seek clarification if it is needed

The process of changing raw data into an abbreviated form is called data coding. For example, date of
birth would be coded as DOB in the system; male or female would be coded as M or F. The advantages
of coding include:

• Data input becomes faster

• Validation of data is simplified
• Less storage space (hard copy or electronic) is required
• Searches can be undertaken more quickly
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The process of data categorisation is designed to enable the efficient and effective use of data, this
process is called data classification. Data can be classified in many ways according to any criterion and
should enable important data to be accessed quickly and easily. Criteria used for classification could
include:

• Type of content
• Date of creation of the file
• Critical value (how often it needs to be accessed)
• File type
• When accessed and by whom
• Operating platform

Accuracy and reliability

Many computer programs will not accept data that is input incorrectly if the entry is outside of the
parameters set by the program an example of this could be using a letter or symbol instead of a
number when enter a date into the system. Other errors that a program will usually identify are such
things as a telephone number with the wrong number of digits. These are known as type and format
errors. Because if this the accuracy and reliability of coded and classified data is critical to the process.

Workers will need to check their work for accuracy, one way of doing this is to perform a check called
the reasonable test. This test depends on the awareness of the worker about what has happened in
the past and whether the current data is consistent and therefore reasonable.

An example where this test would be appropriate would be where a client has had orders in the past
that averaged around $1,000 a month. If data was provided that showed a single order of over
$100,000 this should indicate to the worker that in terms of previous orders this data might not be
correct.

In order to verify or correct information the worker will need to obtain the source documents
(invoices, order forms, etc.), it may also be necessary for the worker to contact the client. Other
examples of a reasonable test would be the entry of a client's age that is not consistent with what
would be considered to be reasonable; for example, an age of 305. This would clearly indicate the
addition of an extra digit and possibly a transpositional error.
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Transpositional and Transcription errors

Transpositional errors can cause problems that are not always easily identified. Transpositional errors
are where two correct numbers are interchanged resulting in an incorrect number being input, for
example, inputting 6554 instead of 6545.

Transcription errors are similar, but instead of interchanging numbers a symbol or letter is inserted
instead of a number; for example, instead of 5205 the entry made is 52o5.

Verifying data
In order to verify data the first step needs to be the checking of source documents. Documents should
show all relevant details for a transaction. Details that a source document might show include - the
transaction date, supplier details (name, address, and contact details), items (quantity, description,
and price), total price, and GST (Goods and Services Tax) included in the price.

Source documents should contain the date, nature of the transaction, people involved in the
transaction and the amount, terms and conditions of the transaction.

Source documents
Adjustment notes
Adjustment notes are used to correct an error in a previous document.

An adjustment note will normally contain the same information (such as supplier and items) as the
original document and the amount, including GST. It will have its own number and can include the
original document number as a cross-reference.

Cheque butts
Cheque butts are the part of the cheque that remains in the cheque book when you tear off the
cheque. Cheque butts allow the owner of the cheque book to record the cheque details so they can
be entered into an accounting system and verified against the bank statement at a later date.

Credit notes
Credit notes are used when goods are returned to a supplier. Credit notes are similar to invoices but
show opposite transactions. A credit note means the supplier has acknowledged the returned goods
and has made an adjustment to the purchaser's account.

Invoices
Invoices are a request for payment for goods or services delivered by a supplier. An invoice will
normally have an invoice number, supplier details, customer details, item details and amount.
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Invoices and cart notes should be checked for quantity and description of goods and services. Invoices
can be further checked for correct price or discount as arranged with the supplier.

Purchase orders
A purchase order is the list of goods/services you want supplied. It is sent to a supplier to confirm your
order. It can include agreed prices but not all purchase orders include cost details.

Receipts
Receipts are issued at the time of payment and show the goods or services have been paid for. An
invoice showing payment details can be used as a receipt or the receipt can be a separate document.

A receipt will show the date, supplier details, item details, amount, and payment details. Payment
details could include amount tendered, change and sometimes GST charged.

Tax invoices
Tax invoices are similar to invoices except they include the supplier's ABN (Australian Business
Number) and GST amounts. A tax invoice should clearly state it is a tax invoice. If it does not, then the
GST credit cannot be claimed.

If the invoice is for goods or services costing more than $1,000 it should include the purchaser's details
including name, address, and ABN.

The GST charged on the invoice must be displayed as a separate amount and included in the
product/service cost to display the total.

All source documents regardless of what they are must be accurate because they provide evidence as
to the validity of transactions. They show the intention of an organisation to conduct a specific
transaction, for example, a purchase order, or will provide evidence of the transaction -an invoice or
cart note. They can be used as the basis for entries in accounting records.

Data relating to all business transactions must be recorded and statements, requests for payment etc
must always be checked against the source documents. The transactions processing system in the
organisation must ensure that every source document is recorded.
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Organisational policies and procedures

The policy and procedures manual is a document that tells the reader what the organisation will do
and the steps that need to be taken. Policies reflect the beliefs, or philosophy of the service/
organisation. Policies tell workers and clients what the service values are and what actions need to be
taken. Procedures describe the steps that need to be taken to make the policies work.

Written policies and procedures are clear, concise sets of guidelines outlining how that
service/organisation operates. The procedures tell you what management expects will happen in
certain situations to support the organisation's mission/philosophy. The policies state what practices
should be implemented so that work is done efficiently and consistently. Written policies should be
available for you to access readily so that if you are unsure of how to act, you can consult the policy.
They will generally take the form of a policy and procedure manual.

Policies and procedures are developed to help you in several ways:

• Hurried or spur-of-the-moment decisions are more likely to be avoided

• Your actions are guided so the stress on you is lessened

• Consistency in the way things are done by everyone on staff is ensured

• Consistency in duties is carried on even though staff may leave

• Decisions can be made without consulting everyone else

Generally, policies can help the staff team by:

Empowering individuals who are able to make decisions with confidence as they are based on written
documentation

Protecting staff who make decisions and act on established policies

Helping teamwork and cooperation by collectively establishing common goals, procedures and
understanding

Good policies that are practical, clear and relevant can support a service to work efficiently and reflect
the professional code of ethics.

Well written procedures/protocols need to include these aspects:

• The philosophy/mission or belief statement on which it is based

• The reason a policy is needed

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• The actual statement

• A set of procedures

• Evaluation

Code of conduct/ethics/practice or behaviour

Most organisations will, or should have a code of ethics, conduct or behaviour, that outlines the
expected behaviour of employees. Ethical business practice can be summarised as meaning 'to work
to ensure that dealings support the common good and do not harm others'. Many industries will also
have a code of practice established by regulatory bodies or trade associations. These codes generally
consist of:

• An introduction that explains the values underlying the code

• A statement about what values are being committed to in the code

• An aspirational section, which outlines the ideals which the organisation hopes to live up to

• A list of rules or principles, to which employees will be expected to adhere

• Statements of action and beliefs for workers

These codes:

• Provide guidelines and directions for appropriate practice and behaviour

• Help maintain high standards of behaviour for workers

• Increase the status of a profession

A code of ethics does not give right or wrong answers to ethical issues, but it serves as a useful basis
for resolving conflicts and provides a valuable professional reference when you need to make
decisions about appropriate practice.

The values embodied in these codes should be implemented in organisational policies and practices
and reflected in the culture of the workplace.

Ethical behaviour and adherence to the principles of the codes begins at the very top of the
organisation and applies to every member of the organisation. Ethics is the system of principles of
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right and wrong that govern morality and social conduct. The codes formalise, in writing, the values,
conduct and behavioural expectations of the organisation/industry and its members/employees. It is
not, however, enough to simply write out the code. If it is not communicated to all personnel, then
the expectation that they adhere to it is neither realistic nor fair.1

Filing systems
Every organisation will have a filing system of some type. The complexity of the system will be
dependent on the size and nature of the organisation in question. Each organisation will have its own
way of filing documents but there are some general rules which most organisations follow. Commonly,
similar documents are filed together in chronological order which means that documents are filed in
date order with the most recent at the front or on top and new chronological files are started at the
beginning of each financial year.

Documents can be filed or stored in binders, file drawers or a compactus. It is essential that you keep
a copy of all documents in the files, even if a photocopy has been taken of the original.

It is essential that financial officers understand the electronic file management procedures of the
organisation, such as how files are named and how folders (directories) are used.

It is important that inactive or dead files are identified, removed and/or relocated in accordance with
organisational requirements, in order to make way for new files.

Organisations have procedures for routinely checking for dead or inactive records and transferring
them from the active filing system to secondary storage at regular intervals.

Organisations establish filing systems to accommodate the type of records they need to keep. A
business might establish a centralised filing system (all the records are kept in the one place) or a non-
centralised system (departments within organisations have control of their own records).

Employees need to know about the types of technology and equipment used in the organisation and
how it is used to organise information. Most organisations will train staff in their own procedures for
record keeping, filing systems and security procedures.

Financial information is the evidence and basis for financial reporting. This is required for taxation
purposes, to report to shareholders and management and to provide information about how the
organisation is performing.

1 http://www.brainia.com/essays/Copy-And-Paste/298576.html.
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Use conversion and consolidation procedures to compile analysis in

accordance with organisational requirements
The use of conversion and consolidation procedures when handling data is an important aspect of
ensuring that all process are aligned with international standards and guidelines. The use of these
guidelines increases the reliability of the data among the users and the organisation as well since the
data is part of the decision-making process.

In most instances, conversion plays the role of harmonising the contents of the data in order to make
sure that the contents can be understood by the various users across the globe. In the global
marketplace, it is possible to have users from different regions, where the standards are unique thus
requiring conversion. The conversion becomes necessary when due to a number reason, all that are
recognised as part of the standardisation process.

First, conversion of currencies is important in order to ensure that the currency used in the reporting
the financial data is relevant. The use of a universal currency such as the dollar is not viable in locations
where exchange rates are not specifically fixed. As a result, for the purpose of domestic use, the data
is converted to the domestic currency in order to make it easier to understand. The use of the
domestic currency limits the possibilities of disparities due to the conversion of the figures. This
conversion results to proportionate changes that can be identified at any stage.

Second, conversion can also be applied in order to accommodate the domestic financial reporting
strategies and frameworks. The conversion process to accommodate these differences results in
differences in the results since assumptions and principles change significantly. These processes
include timing of recognition of profits, tax rates, recognition of expenses, ownership structures,
assets and liabilities and other provisions for expected expenditures and incomes. The differences
affect profits and other aspects of cash flows, net worth and asset value, thus resulting in a difference
in the conclusions based on the data. When such conversions are performed, it is important to include
the rationale behind the change. One key instance when the conversion resulted in significant
differences was the Daimler Corp results after the company sought to list in the US securities market.
The conversion resulted in a loss of **, in spite of the fact that the original reporting structures resulted
to a profit of **. The huge difference was attributed to the difference in the reporting structures and
norms between the two countries.

Lastly, conversion can be performed on some specific aspects of the data in order to meet the
requirements. Consolidation in the reports is performed when data with similar characteristics is
presented with reference to a single entity, whether larger or the same. Consolidation of data is
performed in order to eliminate the need for multiple sets of data with similar characteristics.
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Consolidation is also done in order to ensure that confusion does not exist when the data pertains to
same operations within the same period. Companies with branches and subsidiaries use this approach
to provide comprehensive reporting that gives a clear picture of the performance of the company’s
performance through the same report. The process of consolidation takes into account the
proportionate contribution based on the nature of the relationship between the two firms.

Consolidation reduces monotony and the confusion arising from two firms that are highly related
through ownership. Although not considered a form of consolidation, data from different
departments is consolidated when normal reporting is done. This makes it possible for the final results
to present a unified figure that can be legally attributed to the operations of the company as it based
on the incorporation provisions.

Although both processes are performed based on company guidelines, there are universal guidelines
on conversion and consolidation. These guidelines ensure that companies do not exploit the loopholes
in the process of handling the data.

Make, record and disclose asset and liability valuations in

accordance with organisational requirements
The importance of asset and liabilities to a business originates from the fact that these two indicate
the net worth of a company. The net worth is the value of the company, which indicates the strength
of the company based on the ownership of the available resources. A higher net worth is associated
with higher assets and lower liabilities. A profitable company is able to grow its assets, which are the
component of the capital that generates profits which will eventually be distributed to the owners of
the company.

Records related to disclosure of assets and liabilities are important since they provide the accurate
and viable value of the net worth of the company. The process of making the records entails visual
assessment, review of the records to determine what has been acquired or disposed of during the
year, as well as assessment of the contribution of the asset to the performance of the company. The
same process is applied to the liabilities, which are mostly intangible elements of the financial records.

The process of recording is performed in a systematic manner, which the cost of the item identified,
together with the associated expenses during the year. The process follows a number of steps that
determine the fair value of the assets and liabilities, in order to ensure that the records are up to date.
Although the fair value approach is one framework that is applied, its applicability to a number of
assets and liabilities makes it more viable. The process of recording entails the development of an
audit trail in order to ensure that it is possible to trace the existence of the item in the organisation.
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The audit trail entails related expenses and incomes, changes in form, location, use, ownership and
nature of the item. Based on these process, it is possible to determine whether an item is part of the
operational norms or whether it is dormant.

Disclosure processes are important since they inform the users of the reports about the existence of
the asset and liability. Disclosure levels are prescribed by the international financial reporting
standards and other guidelines that seek uniforming and reliability of the results. The process of
ensuring full or acceptable levels of disclosure are contained in the process of reporting financial
activities. In addition to indicating the quantitative aspects of the performance, companies have to
provide additional information and explanations for the various components. In these explanations,
the companies outline the reason why they chose the process, effects of change, and the possibilities
for future change. As a result, users of the information have a clear understanding what the
information and numbers mean.

Disclosure guidelines also stipulate that it is important to use summative and long form reports that
complement one another. The summary is quantitative in nature, and indicates the performance in
the summary of numbers. However, there are explanations for each of the figures, with a breakdown
to show where the changes occurred from.

Full disclosure measures are highly contested since most companies feel that some information is not
necessary and relevant to the users. When such information compromises the competitiveness of the
company, there is no need for disclosing. However, the guides by the reporting standards institutions
offer sufficient procedures that ensure different options for full disclosure. Regardless of the industry,
nature of transaction and type of records, there is a process through which sustainable disclosures
can be achieved without compromising the position of the company.

Finally, disclosures are a combination of institutional choices and generic formats. The institutional
standards are developed internally and verified by the financial reporting departments in the
company. The processes are deemed necessary since they are custom designed to accommodate the
different and unique transactions that the company is involved in. Although companies have
significant leeway to exploit the system, the presence of internal and external auditors limits this
possibility. Similarly, there are numerous stakeholders who review the processes and give
independent views on the suitability. However, sometimes, financial malfeasance and reporting
misconduct occurs, such as the observed in the case of Enron Inc. and WorldCom Inc.

At the same time, there is a benchmark level for disclosures that is provided for all companies
regardless of their nature and the nature of operations. These guidelines affect all companies and they
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are sufficient to highlight the strengths of the company as well as any weaknesses in the reporting
structure.

Balance sheet
The balance sheet offers an excellent representation of the financial health of a business and is a
device used to evaluate a business's liquidity. It helps a small business owner identify trends and
quickly grasp the financial strength and capabilities of their business.

The balance sheet is the financial statement used to report on the financial position of the business to
the owner and other stakeholders such as banks and investors.

The balance sheet is a statement of what a company owns (assets) and owes (liabilities), and the value
of the owner's equity (or net worth of the business) at a particular point in time. The balance sheet is
also known as a statement of financial position because it shows a summary of the company’s financial
position at a particular point in time.

The difference between the assets and liabilities is known as owner’s equity. The balance sheet is so
named because the capital must equal assets minus liabilities.

Accounting equation

What is Accounting equation?

The equation that is the foundation of double entry accounting. The accounting
equation displays that all assets are either financed by borrowing money or paying
with the money of the company's shareholders. Thus, the accounting equation is:
Assets = Liabilities + Shareholder Equity. The balance sheet is a complex display of this
equation, showing that the total assets of a company are equal to the total of
liabilities and shareholder equity. Any purchase or sale by an accounting equity has
an equal effect on both sides of the equation or offsetting effects on the same side of
the equation.

The accounting equation is also written as:

Liabilities = Assets – Shareholder Equity and Shareholder Equity = Assets – Liabilities

Assets = Liabilities + Shareholders' Equity

Read more: http://www.investopedia.com/terms/a/accounting-equation.asp#ixzz3e8ZAKPOu

LEARNER GUIDE

The fundamental equation shows that a company can fund the purchase of an asset with assets (a $50
acquisition of equipment using $50 of cash) or fund it with liabilities or shareholder equity (a $50
acquisition of equipment by borrowing $50 or using $50 of retained earnings). In the same vein,
liabilities can be paid down with assets, in cash, or by taking on more liabilities, like debt.

Accounting Equation Example

GROUP International engages in the following series of transactions:

GROUP sell shares to an investor for $10,000. This increases the cash (asset) account as well as the
capital (equity) account.

GROUP buys $4,000 of the roster from a supplier. This expands the list (asset) account as well as the
payables (liability) account.

GROUP sells the list for $6,000. This decreases the roster (asset) account and creates a cost of goods
sold expense that appears as a decline in the income (equity) account.

The sale of GROUP 's roster also creates a sale and offsetting receivable. This increases the receivables
(asset) account by $6,000 and increases the income (equity) account by $6,000.

GROUP collects cash from the customer to which it sold the roster. This increases the cash (asset)
account by $6,000 and declines the receivables (asset) account by $6,000.

These transactions appear in the following table:

(Asset) (Asset) (Asset) (Liability) (Equity) (Equity)

Item Cash Receivables Inventory = Payables Capital Income

(1) 10,000 = 10,000

(2) 4,000 = 4,000

(3) (4,000) = (4,000)

(4) 6,000 = 6,000

(5) 6,000 (6,000) =

Totals 16,000 0 0 = 4,000 10,000 2,000

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Every amount is balanced inside the accounting equation – this is because there are variations on both
sides of the calculation, or because a transaction cancels itself out on the one hand of the equation.

Journaling accounting trades with the accounting calculation means that debits and credits are used
to record every transaction, this is known as double-entry bookkeeping.

Sample Transactions
This is how some accounting transactions can be recorded with the accounting equation:

Transaction Type Assets Liabilities + Equity

Buy fixed assets on credit Fixed assets increase Accounts payable (liability) increases

Buy inventory on credit Inventory increases Accounts payable (liability) increases

Pay dividends Cash decreases Retained earnings (equity) decreases

Pay rent Cash decreases Income (equity) decreases

Pay supplier invoices Cash decreases Accounts payable (liability) decreases

Sell goods on credit (part 1) Inventory decreases Income (equity) decreases

Sell goods on credit (part 2) Accounts receivable increases Income (equity) increases

Sell services on credit Accounts receivable increases Income (equity) increases

Sell stock Cash increases Equity increases

Examples where we show how they comply with the accounting equation:

Buy fixed assets on credit. GROUP Company buys a machine on credit for $10,000. This increases the
capital (Asset) account and increases the accounts payable (Liability) account. Thus, the asset and
liability sides of the transaction are equal.

Buy inventory on credit. GROUP Company buys raw materials on credit for $5,000. This increases the
stock (Asset) account and increases the accounts payable (Liability) account. Thus, the asset and
liability sides of the transaction are equal.
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Pay dividends. GROUP Company pays $25,000 in profits. This reduces the cash (Asset) account and
reduces the retained earnings (Equity) account. Thus, the asset and equity sides of the transaction are
equal.

Pay rent. GROUP Company pays $4,000 in rent. This reduces the cash (Asset) account and reduces the
accounts payable (Liabilities) account. Thus, the asset and liability sides of the transaction are equal.

Pay supplier invoices. GROUP Company pays $29,000 on existing vendor invoices. This reduces the
cash (Asset) account by $29,000 and reduces the creditors (Liability) account. Thus, the asset and
liability sides of the transaction are equal.

Sell goods on credit. GROUP Company sell goods for $55,000 on credit. This increases the accounts
receivable (Asset) account by $55,000 and increases the revenue (Equity) account. Thus, the asset and
equity sides of the transaction are equal.

Sell stock. GROUP Company sells $120,000 of its shares to investors. This increases the cash account
(Asset) by $120,000 and increases the capital stock (Equity) account. Thus, the asset and equity sides
of the transaction are equal.

Additional Accounting Equation Issues

What if you print the balance sheet and the total of all assets do not match the total of all liabilities
and shareholders' equity? There may be one of three underlying causes of this problem:

▪ Rounding error. If your accounting software is rounding to the nearest dollar or thousand
dollars, the rounding function may result in a presentation that appears to be unbalanced.

▪ Unbalanced starting numbers. If you have just started using the software, you may have
entered beginning balances for the various accounts that do not balance the accounting
equation. The accounting software should flag this problem when you are entering the
beginning balances.

▪ Unbalanced transactions. You may have made a journal entry where the debits do not
match the credits. This should be impossible if you are using accounting software, but is
entirely possible (if not likely) if you are recording accounting transactions manually.
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Non-profit Accounting Equation

The equation is different for a non-profit organisation. This is due to the fact a non-profit does not
record any shareholders' equity. Instead, the equation for a non-profit is as follows:

Assets = Liabilities + Net Assets

The net assets part of this equation is comprised of unrestricted net assets, temporarily restricted net
assets, and permanently restricted net assets.

Ensure that discrepancies, unusual features or queries are

identified, resolved or referred to the appropriate authority
The process of developing financial records is continuous and non-stop. In most instances, the
publicised records relate to a specific period. This is due to the existence of multi-period transactions
and a difference in the type of transaction that each company engages in. Although a standard year
has 12 months, the differences in the incorporation date implies that companies publicise their
records at different times based on when the financial year ends. However, once a company has set
the start and end of its financial year, it is mandated to stick to that duration and system.

In order to ensure accuracy and reliability of the financial records, the company has to check the
contents and completeness of the records before publication. There are a number of measures in
place to ensure that the errors that cause discrepancies do not influence the final outcome. First, the
companies rely on an accurate data capture method that has numerous control mechanisms that
ensure a continuous quality system. As a result, the preparation of the reports is a year-long process
which is continuous. Automation of most elements implies that the human intervention occurs in
checking whether the system is working efficiently, as opposed to checking each and every entry. In
addition, the automation also reduces the possibility of human error, while accommodating sufficient
human intervention in the process.

The existence of set levels of operations implies that any undetected errors do not have a significant
influence on the outcome. The negligible nature of such errors is acceptable based on the nature of
the company. Any large discrepancies necessitate a check of the data collection process, the systems
as well as a fundamental background that could have caused such an outcome. If it an error, the
necessary measures are taken to correct prior to publication. In case it is part of the fundamental
reasons that influence change in the performance of a company, such details are disclosed to the users
of the information in the right channel.

Unusual features and discrepancies are part of the concerns that are avoided through provision of
interim records. Interim records can either be provided monthly, quarterly, or semi-annually. Of late,
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semi-annual interim records are important of the reporting structures in an organisation that help to
reduce the last minute rushes. Since they are recognised by the investors, they can be applied to
provide sufficient information, in spite of the fact that they do not contain legally binding information.
They also provide stakeholders with an indication of the performance of the company. As a result, the
interim reports play an important role in the organisation and the external stakeholders.

The process of resolving is done according to the nature of the discrepancy or unusual feature. The
unusual features include new items in the reporting structure, changes in capital structure, operations,
new reporting guidelines and other aspects that did not exist in the previous year’s records.

First, these elements have to be disclosed due to the fact that it is an integral requirement.

Secondly, they represent a deviation from the norm; thus, there is need to clue in investors and
owners on the origin and direction of such elements in the company’s operations.

Lastly, they have direct and indirect effects on profitability and the performance of the company.

As a result, a succinct explanation is necessary. Whether their effects are immediate or delayed, it is
necessary to inform the users of the existence of such elements.

In case it is not possible to deal with the element or discrepancy, it is important to ensure that it is
reported to the right authorities. By referring to the right authority, a company establishes a
foundation for similar operations in the future. Similarly, since it is not part of the authorised reporting
structure, it is important for the right authorities to be aware. Finally, by reporting such aspects, the
company is able to operate within the accepted disclosure guidelines and rules.

Dealing with discrepacies in accounts payable department

The accounts payable schedule indicates the amounts owed for goods or services received from a
supplier. Suppliers are creditors.

The accounts payable department is responsible for paying the organisation's bills. While this should
be a relatively simple task, it can become complicated. When the invoice is received and presented
for payment, you need to match it with the purchase order and the document showing it has been
received. If these three documents match, the invoice is paid.

In some cases, the match does not occur, and this is where the problems can begin.

Many of the problems are caused by actions taken outside of the accounts payable section, but they
will all have to be rectified by someone in the accounts payable section.

For example, some of the problems can arise from:

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• Purchase orders never sent to accounts payable

• Inaccurate invoices

• Lost invoices, late invoices, early invoices

• Incomplete purchase orders

• Purchase orders never completed

• Inaccurate purchase orders

• Incorrect receiving documents

• Collecting a not checked documents

• Invoices sent in two or more times for payment

Pricing of goods and discount calculations should be checked against source documentation such as
the current supplier pricelist. If discrepancies or errors are noted, the provider should be contacted to
verify the information. If there has been, a mistake made a new invoice should be created. When the
new invoice is received, the payment can be processed.

Once a supplier has issued an invoice, the provider becomes a creditor; a person or organisation to
who a debtor owes the money. The debtor, in this case, is your organisation. Payments to suppliers
are equally as important as the amounts you need from your customers. They should be made on time
and in line with purchasing agreements.

You will need to check invoices to ensure the accuracy of:

• All calculations including extensions, discounts, GST and Totals

• That delivery of the goods has been signed off by an authorised person

• That goods delivered have been checked against those ordered

• Invoice and delivery dates are correct

• Payment terms stated on the invoice are correct

• Any extensions, changes or corrections have been accurately recorded

The invoice can then be processed, and payment either authorised or made.
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Supplies of incoming goods should always be checked against the delivery dockets or invoices on
arrival and while the delivery person is still present. If, in such situations, discrepancies occur, they can
often be rectified on the spot or credit notes can be organised immediately.
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Prepare statutory requirement reports

Correctly record income and expenditure to ensure compliance
with statutory requirements
The accurate recordation of items results in a true reflection of the operations within the company
over a specific period. In order to ensure correct recording of the results of the operations, a company
has to be careful when collecting data and inputting the data into the company’s systems. Based on
this approach, it is possible to reduce the possibility of errors and ensure that the information is
correct. There are numerous reasons for incorrectness in the information related to incomes and
expenditures as indicated below.

First, determining whether to include the information based on the timing of the transaction is a key
area of contention. The use of accrual method indicates that transactions are recorded during the
period when they happen and not when money exchanges hands. Unlike the cash method of
accounting, the accrual approach ensures that revenue is recognised as and when it is earned. This
process aims at reducing the confusing arising from incomes and expenditures that are spread over
time. However, corresponding entries under the double entry should be done to reflect the full
implications of the transactions. As a result, the use of records such as accounts receivable and payable
makes it possible for a company to present records that are up to date. These two show transactions
that have already been performed but the money has not exchanged hands. The process
accommodates the going concern principle which views the company as an ongoing concept that is
not limited to one financial period.

The double entry system is another source of challenges since incorrect or incomplete entries result
to incorrect conclusions. Companies are required to use the general ledger, commonly known as the
nominal ledger in order to ensure that the double entry system is maintained throughout. The ledge
contains a list of accounts including fixed and current liabilities and assets, expenses and revenues and
the corresponding losses and gains. As a result, it is important to know the timing of the incomes, how
the incomes were finalised and the implications on the operations of the company.

Incomes relate to money that comes into the business on a regular basis, mostly as a result of specific
operations. In some instances, incomes are recorded for activities that are not recurrent in nature.
The organisation has to determine whether the income relates to investment in the company or a
process that relates to the generation of profits.
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Expenditures relate the money that is paid out in order to cover expenses for the business in the
process of generating profits. Expenditures are recurrent and non-recurrent in nature, hence the need
to separate the various aspects based on the nature of the business.

The process of recording expenditures and incomes follows the matching principle, where incomes
and expenditures are recorded based on the nature of the association. Based on this approach, there
are different effects on taxes and cash flows. First, the approaches influence the timing of payment of
taxes, since under the accrual approach, tax accrues on the year when the records are made. The
effects on cash flows are more pronounced, since it is possible to account for the changes on a
continuous basis, thus giving a clear picture of the outcome. Although it is not clear which method
provides a better picture, preference of the accrual methods is the reason for the widespread
adoption across a range of industries since it follows the principles of accounting. It is important to
ensure continuity in the method used, as well as a clear understanding of the meaning of the figures
in order to avoid confusion.

Preparing statements
In order to prepare statements showing profit and loss for the year it is necessary for the accounting
cycle to be closed. This means that a trial balance sheet needs to be prepared that summarises the
financial transactions recorded for each month.

The trial balance is a listing of all accounts and their balances from the general ledger at a given point
in time. The intention of a trial balance is to ensure that after the posting of all debits and credits there
is mathematical equality; that is, the general ledger is in balance. This is undertaken once all of the
closing entries have occurred.

The revenue statement is composed of three parts:

Total revenues
Total revenues indicate the total sales of goods and services which occurred during the financial
period. If the organisation sells products it will be described as sales and if it was a service based
organisation such as an accountancy organisation it would be described as fees earned or just fees.

Other income such as interest earned on investments would also need to be included in the revenue
statement. Any returns of goods would need to be deducted from the sales figure. Once the necessary
additions and deductions have been completed the end result is known as total revenues.
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Total expenses
Total expenses include all of the expenses associated with running the organisation. These would
include wages and salaries, rents, insurance, electricity and water, supplies of goods and specialist
advice. Most large organisations have a miscellaneous expense line which covers expenses that would
not suitably fit in any other category. The miscellaneous expense is always reported last regard less of
how large or small it might be.

Net income
Net income is the result of subtracting the total expenses from the total income. This is transferred to
the statement of owner's equity and the financial statements.

An example of how this might look for a small organisation is shown:

Bowman’s Farm Supplies Pty Ltd

Income Statement
Year Ending June 30 2014
Sales $900,000
•
Interest on investments $20,000
Cost of goods sold $350,000
Gross profit $570,000
Administrative and sales expense $175,000
Depreciation $75,000
Operating profit $320,000
Interest on debt $40,000
Total income before tax $280,000
Tax @ 30% $84,000
Net Income $196,000

This is an example of a very simple income statement and most organisations will have much more
complex and detailed statements. This statement has also been simplified to show how gross profit
and expenses are calculated. Most statements follow a different format and subtract depreciations
and expenses from the gross profit to get an operating profit. This is also known as earnings before
interest and tax (EBIT).
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Depreciation is included in the income statement because when an organisation purchases a building
or equipment it is able to depreciate it over a period of time. Depreciation is a non­cash expense so it
is included in the income statement because its benefit arises out of its tax treatment.

Rules of accounting
If you are going to prepare balance sheets to reflect the financial position of an organisation you will
need to have an understanding of the accounting practices of the organisation and of the principles
and rules of accounting.

All organisations issue invoices. An invoice or bill is a commercial document issued by a seller to a
buyer, indicating the products, quantities and agreed prices for products or services with which the
seller has already provided the buyer. An invoice indicates that payment is due from the buyer to the
seller, according to the payment terms.

From the point of view of a seller, an invoice is a sales invoice. From the point of view of a buyer, an
invoice is a purchase invoice. The document indicates the buyer and seller, but the term invoice
indicates money is owed or owing. In English, the context of the term invoice is usually used to clarify
its meaning, such as 'We sent them an invoice' (they owe us money) or 'We received an invoice from
them' (we owe them money).2

When a sales invoice is paid the supplier issues a receipt. A receipt is a written acknowledgement that
a specified article or sum of money has been received as an exchange.

The receipt acts as testimony to the fact that the title to the property obtained has been transferred
in the exchange.

In the same way as the one invoice represents two different things (one to the buyer and one to the
seller), each transaction will require two entries to balance the books.

It is not possible to make a transaction that will only affect one account in the general ledger.

The rules
To a beginner, the most confusing aspect of accounting is working out on which side of a ledger a
transaction should be recorded.

2 http://www.qxinvoice.com/?whatisinvoice
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There are rules that must be applied and if you follow the rules then there will be no problems.

Debit Account category Credit

Your organisation's
+ -
ASSETS
Others LIABILITIES
- +
Others
- +
EQUITIES
Others REVENUE
- +
Your organisation's EXPENSES
+ -
Looking at the table we can see that the debit and credit formula for each account type is as follows:

Assets are always debit:

o If assets are increased, also debit

o If assets are decreased, it is credit

Liabilities are always credit:

o If liabilities are increased, also credit

o If liabilities are decreased, it is debit

Owner's equity is always credit:

o If owner's equity is increased, also credit

o If owner's equity is decreased, it is debit

Income (revenue) is always credit:

o If income is increased, also credit

o If income is decreased, it is debit

Expenses are always debit:

o If expenses are increased, also debit

o If expenses are decreased, it is credit

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Sequence to follow when analysing transactions:

1. Identify the name of the two accounts affected by a transaction

2. Identify the element of the ledger to which this account belongs

3. Identify what effect this transaction has on this account

4. Determine whether it is an increase or decrease

5. Now analyse the second account repeating Steps 2 to 4

6. When both accounts have been analysed, check to see if you have debits equalling cred
its

Regardless of the particular system used (electronic or manual) there are specific legislative
requirements that must be adhered to. These include GST reporting and taxation compliance relating
to calculations of incoming and outgoing monies and to wage payments and general bookkeeping
processes.

Calculate liabilities for tax in accordance with current legislation

and revenue gathering practices
The calculation of liabilities is important since it has tax implications as well as implications for the
value of the company. Liability represents the financial resources that are borrowed from parties to
finance the operations of the company. Furthermore, such resources or amounts are repayable
through two ways. First, periodic service fees in the form of interest that is a percentage of the whole
amount. The interest is payable through simple or compound means. The periodic repayment also
contains a portion of the principal amount, which has to be paid in full. As a result, based on the terms
of the liability, it is possible to know when the amount will be cleared and how much will be paid.

There are other forms of liabilities that are paid in full and without interest, especially if they relate to
the day to day running of the business. These liabilities relate to occurrences from the accounting
principles that imply that there is a delay between the transaction and payment of the necessary funds
to complete the transaction as explained in the accrual accounting process. The most common
liabilities include the following:

• Accounts payable

• Bonds payable
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• Notes payable

• Unearned revenues

• Salaries and wages payable

• Pension payable

• Interest payable

• Lawsuits payable

• Income tax payable

• Customer deposits

• Warranty liability

These liabilities can generally be classified as current or long-term liabilities. Current liabilities are
considered as part of the business operations and will be included as part of the expenses, even when
they have not been paid for as yet. Since they influence the overall profits based on the accrual
accounting system, an organisation is able to benefit from the improvements in cash flows, when the
tax paid is lower than it would be if the cash accounting method was applied.

Calculating liabilities can be verified through the use of the accounting equation (discussed earlier).
However, this process is for confirmation only, since the specific components cannot be calculated in
this manner. However, total liabilities are normally the amounts owed.

Current liabilities are the amounts that become due within a year. Long-term liabilities are due for
periods longer than one year. In order to get the full figure of the liabilities, a company can calculate
its assets and total shareholders’ equity. Shareholders’ equity is comprised of the investment by
shareholders plus retained earnings. Total assets are comprised of the items that can be converted to
cash within a year (current assets) and those items that are owned for purposes other than resale. By
subtracting the shareholders equity from the total assets, the difference represents the total liabilities.

The portfolio of current and long-term liabilities is an important aspect of risk management in the
form of gearing. It is important to ensure that the level of liabilities remains low in order to protect
the ownership of the company.
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Legislation
All businesses will have a form of statutory obligation that they are obliged to conform to. Statutory
obligations are the legal reports to authorities the client needs to make as a direct requirement of
government legislation, a client’s statutory obligations will depend on the size and type of business. A
form of statutory obligation that governs all for profit businesses is the legal obligation to report all
income and to prepare and lodge a tax return, this is governed by the 1936 and 1997 Income Tax Acts.

Other taxation issues may include:

• Business Activity Statement (BAS) reporting requirements

• Compliance advice

• Pay As You Go (PAYG) obligations

• Reporting and lodgment dates

• State or Territory tax obligations

Reporting liabilities

Business Activity statements

Businesses use activity statements to report and pay a number of tax obligations, including GST, pay
as you go (PAYG) instalments, PAYG withholding and fringe benefits tax. Individuals who need to pay
quarterly PAYG instalments also use Activity statements.

Activity statements are personalised to each business or individual to support reporting against
identified obligations.

Businesses use an activity statement to:

• Report and pay the GST they have collected

• Claim GST credits

Reporting and payment periods are shown on an activity statement and will be one of the following:

• Monthly

• Quarterly

• Annually
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Choosing a GST option (quarterly payers)

Most businesses report and pay their GST quarterly and have a choice each year about how they do
this. If their activity statement shows that they have options available, they need to choose one.

Methods for reporting GST

There are two methods for working out a client’s GST liability. You can use their accounting records
(most businesses do this), or use a calculation sheet provided by the ATO.

Adjustments and corrections

If an event occurs that alters the GST you have reported for a client on a previous activity statement -
for example, goods are returned and the sale is cancelled - you may need to make an adjustments for
them.

If you need to correct a mistake you made in a previous activity statement, you may need to lodge a
revised activity statement.

GST instalment notice

If a business pays a quarterly GST amount and has no other reporting obligations, the ATO will send
the business a quarterly GST instalment notice instead of an activity statement.

Pay As You Go (PAYG) obligations

If you have employees or pay employees of another business, you must withhold an amount from
payments you make to them. If you operate a business as a company, you also need to withhold
amounts from payments to company directors, for their services, this also includes payments to other
workers such as contractors.

You must also withhold an amount from payments you make to other businesses if they don't quote
their ABN to them on an invoice or other document if required.

You must report and send all amounts they have withheld under PAYG withholding - this is called
'withholding'.

Under PAYG withholding:

The individual or business making the payment is called the 'payer' and the individual or business
receiving the payment is called the 'payee'.
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If the client is an employer or they operate a business and they make payments subject to withholding
they must:

o Register for PAYG withholding

o Work out the status of their workers (if applicable)

o Become familiar with the types of payments they need to withhold from

o Work out the amount to withhold

o Report and pay withheld amounts to us

o Provide payment summaries and lodge an annual report after the end of each
income year

Super guarantee
Under super law, an employer must pay super contributions to the correct super fund by the cut-off
dates for all your eligible employees. They may also have to offer a choice of super fund to your eligible
employees including individual contractors.

Employers must pass on their employees' tax file numbers (TFN), provided in their Tax file number
declaration (NAT 3092), to their super funds.

For more information about superannuation obligations:

visit www.ato.gov.au/employersuper

refer to Super - what employers need to know (NAT 71038).

Fringe benefits
If an employee provides a fringe benefit to an employee or their associate, such as their family
member, they may be liable for fringe benefits tax (FBT). Basically, a fringe benefit is a benefit provided
to an employee (or their associate). Benefits include rights, privileges or services. For example, the
employer provides a fringe benefit when they allow an employee to use a work car for private
purposes or pay an employee's private health insurance costs.

If you need more information on fringe benefits tax, refer to Fringe benefits tax - what you need to
know (NAT 1744).
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Payroll tax
All Australian States and Territories have a payroll tax, which is calculated on wages paid or payable
by employers. For payroll tax purposes wages includes salaries, allowances, director's fees,
superannuation and the 'grossed-up' value of fringe benefits.

Employers are required to self-assess their liability on a monthly basis, with an annual adjustment
reconciliation performed at the end of the financial year.

The Australian Taxation Office (ATO) and the State and Territory Revenue Offices exchange wage-
related and other information to assist in the proper identification and accurate assessment of
taxation liabilities.

Reporting and lodgement dates

Reporting and lodgment dates will vary depending on your reporting requirements. They could be due
monthly, quarterly or yearly. Your will have your reporting set so you will need to know what these
are prior to reporting.

State or Territory tax obligations

Each state and territory will have its own tax obligations and you should become aware of what these
are depending on the state you are working in. For more information about payroll tax contact the
Revenue Office where you employ:

Australian Capital Territory 02 6207 0088 www.revenue.act.gov.au

New South Wales
Northern Territory
Queensland
South Australia
Tasmania
Victoria
Western Australia
1300 139 815 www.osr.nsw.gov.au
1300 305 353 www.revenue.nt.gov.au
1300 300 734 www.osr.qld.gov.au
08 8204 9880 www.revenuesa.sa.gov.au
03 6233 2813 www.sro.tas.gov.au
13 21 61 www.sro.vic.gov.au
1300 368 364 www.finance.wa.gov.au
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Correctly identify relevant receipts, revenue documentation and

payments
The process of identifying receipts, and revenues is automated and easy in a fully functioning entity.
The automation makes it possible for sharing of information across the department, and electronic
delivery to the Australian Tax Office (ATO) and the registrar. According to the ATO, it is important that
every company keeps records in order to explain all the transactions, including any documents that
are relevant to the working of computing the tax liabilities. The records should also be made as soon
as they occur in order to avoid any delays in reporting. The timely recording is important especially
with regard to tax purposes such as goods and services tax, income tax, pay as you go tax, fringe
benefits tax and capital gains tax. There should also be records relating to calculations and supporting
rationales behind the determination of the taxes. The records must also be maintained for a minimum
of five years after delivery to the ATO office. The financial and tax records must be kept in electronic
or written form, and in a manner which facilitates ease of retrieval as and when needed. The following
records must be maintained.

• Revenue records and records of incomes based on invoices, receipts, and sales in cash

• Records of the expenditure relating to tax returns and the business

• Loan and bank statements

• Register for all assets

• List of debtors and creditors

• Legal documents indicating the various contracts

• Vehicle log books indicating travel details and expenses

• Loan or lease records for the various assets

• GST records

• Worksheets, calculations, declarations and elections for fringe benefits.

Employee records to be maintained include the following:

• Records of all payments and taxed withheld

• Allowances during employment

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• Other forms of compensation

• Records of payments for superannuation

In order to ensure that there is clarity on the details of invoices, the following details must be indicated
as required by the ATO.

• The date of issuance

• The address and name of supplier

• Price, quantity and description of the goods or services being paid for

• An indication of the extent to which the transaction is taxable.

Through this approach, it is possible to ensure that all receipts are applied in the process of
maintaining the records. The correct process also entails matching the receipts with codes in order to
ensure that cross-referencing is possible. The process also ensures that auditing can be done since it
maintains an audit trail.

These records can either be stored in a manual or electronic system. However, they are necessary for
confirmation of whether all the transactions have been entered into the accounts and that reporting
is complete. Once such records have been added to the financial statements and accounts, they
become part of the audit evidence and are stored for the statutory five-year period, during which they
can be called for in any legal proceedings.

The identification of receipts and documentation is mostly done at the verification stage in the
accounting and internal audit department. The process is also done when the recordation process is
transferred from one department to the other in order to establish a clear record of events. The main
objective is to avoid errors and misstatements in the future and lack of responsibility for those
mistakes.
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Ensure that statements and claims take full advantage of available

benefits and allowances in accordance with statutory requirements
Filing records and financial statements serve two key purposes. First, it is a statutory requirement of
the Company’s Act for every incorporated entity in the country. The contents form part of legally
binding information that can be applied in any proceedings since it is a commitment that the
information represents the results of operations according to the laws governing companies.
Secondly, the statements are proof of the operations that occurred during the specified year and are
used in the determination of accruing taxes and other charges that relate to the company. Taxes,
interest and dividends are the main categories of payments that are dependent on the performance
of the company. Filing for taxation purposes is different from filing for records at the end of the year.
In addition to the difference in the content of the statements in both instances, there is a difference
in the timing of the statements.

First, filing for tax purposes is done on a continuous basis, based on the tax in reference. Corporation
tax fillings are made at the end of the year, and they relate to the nature of the operations and the
amount of profit from the trading activities. Filing for value added tax is done on a monthly basis,
based on the operations within that period.

Both tax and annual returns can be designed to take full advantage of circumstances in order to
enhance the competitiveness of the company. The following approaches are applied.

The tax returns should take into consideration the effects of specific transactions in order to reduce
the tax liability. The tax deductions are aimed at reducing the tax liability in a legal manner, thus
resulting in a lesser tax and leaving sufficient funds for operations. These tax claims are established to
promote success in specific businesses. However, these claims are only applicable to the expenses in
a previous year. There are a number of specified deductible expenses, including the following:

• Bad debts are written off

• Advertising and sponsorships

• Borrowed finances

• Homework claims

• Fringe benefits

• Insurance

• Losses to theft
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• Expenses related to business travel

• Car expenses

• Tax management expenditure

• Repairs, replacement and maintenance

• Superannuation contributions

• Salaries and wages

• Depreciation for plants and equipment

The list indicates the most common business expenses and indicates whether they are tax allowable
or not. It is also possible to offset taxes from different perspectives in order to reduce the overall cash
flows. In most instances, the concern is related to maintenance of sufficient cash flows. The use of
offsets implies that the company protects the cash flow levels and reduces the opportunity costs of
illiquidity. Since there is no specific formula for handling the offsets, companies have to design
approaches that are both legal and viable based on the tax guidelines. In addition, the offset should
serve the interest of the company through reduction of the direct and indirect expenses associated
with filing tax returns.

Other forms of allowances and claims relate to the nature of the business that the company engages
in. The provisions and allowances should, however, follow a specific procedure and deviations from
the norm should be supported with viable explanations. The Pay as You Go (PAYG) system can also be
utilised in the process of taking full advantage of the available procedures. The company has the
mandate to deduct or withhold the amounts from:

• Payments to office holders including the directors and other employees

• Payment for employees under hired labour agreements

• Payment under voluntary arrangements

• Payments where there are no requirements for business numbers

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Submit statutory requirement reports to appropriate authorities

within stated deadlines
The process of submitting the required reports to the appropriate authorities is simplified and easy to
understand. The simplification aims at ensuring that companies have flexibility due to the challenges
that sometimes arise in the delivery of the complete records for publication and tax purposes.

Each company has a review date for each year, which is normally the anniversary of the date when it
was registered. The review is followed by an annual statement and invoice statement for the review.
Some of the obligations do not apply to charities and not-for-profit entities.

Failure to apply for the annual review results to penalties including late review, late payment and late
lodgement fees. If the information contained therein is correct, only the annual review fee is
applicable. This is due within two months from the review date. If the contents of the statement are
incorrect, the company gets 28 days to get the records in order lest a late review fee is charged.

The charges are as follows:

AUD$75 for notifications of annual statements that are up to one month late.

AUD$312 for changes to annual statement notified more than a month late.

Late payment fees are charged for companies that fail to pay the assessment fees in time. However,
they are of the same amounts as the late review fees, over the same durations. Companies that fail to
lodge Form 484 (Change to company Details) in time are changed similar amounts depending on the
timing when they lodge the statement. The annual filing is done in a specified month which is selected
in the first year of incorporation. In case a company is unable to meet the deadline, the registrar
provides for an extension if the company applies for such. There is a difference between the annual
returns and the annual accounts. These annual returns include the important details of the company
to the registrar, as well as the ownership structure, internal functions and other aspects that are
important. These are for census purposes and to ensure that the Registrar has sufficient records. The
contents of annual returns include the following among others:

• Name of the company

• Official address and registered office

• Director’s and secretary’s details

• Capital statement outlining all the available company shares

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• List of all shareholders

• Changes in the company’s shareholding

The annual records differ in that they entail financial statements of the operations that occurred
during the year. These annual accounts include the following in relation to 12 months prior to the date
of filing:

• A balance sheet with detailed statement of the value of the institution as at a specified date

• A trading profit and loss account which indicates the revenues and expenses as well as the
profits for the specific year

• A director’s report indicating the strategies applied by the company, and future expectations

• An auditor report indicating their views on the nature of reports prepared by the accounting
department

• Notes to the financial records indicating a clear outline of the explanations for the various
figures.

The statutory requirements for the various documents are clearly specified in order to ensure that
they meet the requirements. However, there are differences in the type of records to be filed based
on the nature of the company.

First income tax returns differ based on the ownership structure. For sole traders, the returns must
contain tax returns for the individuals and the assessable income less the deductions that can be
claimed. For partnerships, the returns shall include the partnership tax return, as well as the partners’
tax returns individually. Since the partnership does not pay tax, the accruing tax is drawn from the
share of the profits.

For trusts and beneficiaries, the trustee lodges tax claims separate from the beneficiaries. Companies,
on the other hand, lodge company tax returns with taxable incomes, credits, offsets, PAYG instalments
and other tax liabilities separate from personal income tax.

Other returns to be filed include:

• Fringe benefits tax returns

• GST annual return

• Taxable payments annual report

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The medium of delivery is an important aspect, and significant changes have been made over time to
increase efficiency and accommodate changes in the market. The guidelines have been changed to
include electronic means as an acceptable approach through which filing returns can be done.
LEARNER GUIDE

Provide financial business recommendations

Ensure that recommendations are logically derived and supported
by evidence in report
Financial records provide important information to the users of the reports, including the company.
Although the annual returns are the most comprehensive form of records within the organisation,
companies have access to the constituent information and data on a constant basis. Through the daily,
weekly, monthly and quarterly summaries, companies can make viable decisions on what measures
to take in order to achieve the stated objectives. As a result, most of the strategic decisions are based
on continual assessment of the information available, as opposed to there being a specific point when
such decisions are made.

Although the annual returns contain suggestions for the future, it is important to note that the
directors’ report also provides information on what the company did during the year. In this report, it
is possible to identify a chronological change in the company’s strategies, objectives and goals based
on the outcomes. It is also possible to see the change over time in order to determine whether the
decisions by the directors actually implement the proposal. This is made possible by the fact that
annual records are prepared in a comparative manner, indicating the performance over three years.
In this way, the investors can see the effects of the decisions made in the recent years, and see what
to expect in the future. The process is also applied to market the company to potential investors, who
rely on the past success and future outlook to determine if they are interested in acquiring a stake in
the company.

The recommendations contained in the reports are an efficient communication tool that relies on
qualitative and quantitative elements in the creation of a clear picture about the company. The
presence of sufficient disclosures is itself an indication that the company is willing to get independent
judgments on their operations and performance. The disclosures provide explanations to the various
users through the summary and supporting evidence. If any of the summary information is not clear
or satisfactory, the explanation provides the reason for the levels as well as indicating the expectations
in the future. The combined effect is that the users of the information will be satisfied with the
summary, or understand the outcome based on the supporting evidence.

The fact that previous years’ data is also available plays an important role for comparison purposes. If
a company has successfully managed to perform according to plans and resulting to the achievement
of the stated levels, then it is possible that it has the ability to duplicate the performance in the future.
LEARNER GUIDE

It is important to note that the contents of the financial statements are destined for the annual general
meeting (AGM) where the investors have to ratify and authorise the company to implement the
recommendations. As a result, the existence of evidence for the reliability of the recommendations
makes it easier for the investors to make viable decisions including ratification of the plans and supply
of the necessary resources to ensure that the company is a going concern. The recommendations are
mostly related to expansion into new market segments, improvement in production processes, the
introduction of corporate social responsibility, acquisition of new entities as subsidiaries, mergers with
viable institutions or increased expenditure in specific areas such as research and development. These
recommendations are the fuel for growth, based on challenges and successes in a year. In summary,
the entail a change in the operations, introduction of new operations or termination of existing
operations.

Corresponding projections for improvement are made in order to categorically state the expectations
for the future. Such projections are made based on the nature of change required. As part of the
organisational strategy and goals, they represent the year over year change in the organisation.

Methods of forecasting
Forecasting is a decision-making tool used by many businesses to help in budgeting, planning, and
estimating future growth. In the simplest terms, forecasting is the attempt to predict future outcomes
based on past events and management insight.

There are two methods of forecasting:

• The subjective approach which is qualitative in nature and quite often based on people’s
opinions

• The objective approach which is quantitative or mathematical formulations - statistical

forecasting
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Qualitative Methods Examples

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Quantitative Methods Examples

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Provide recommendations to propose constructive actions to

enhance the effectiveness and efficacy of functions and services
Organisations change on a constant basis, based on changes in the internal and external environment.
The changes can either be tactical, operational or strategic in nature, depending on the level at which
they are implemented. Tactical changes reflect the effectiveness at the low level of management, and
their validity is short-term. The tactical approach is important since it provides a short-term reprieve
from changes in the environmental circumstances. The change in tactics focuses on ensuring that the
company achieves its objectives and goals without significant change in other aspects and
departments. These changes are important since they are low impact but very effective in solving
short-term challenges at a local level.

Operational changes are important since they focus on problems that persist in the medium term. The
change in operations involves the participation of a considerable portion of the company and its
objectives are to ensure that long-term goals are achieved through maintenance of an efficient
system. Most of the operational changes are drawn from the tactics that are successful in alleviating
the medium term issues. Furthermore, their applicability in limited in time and they can be terminated
when the situation reverts to normal.

Strategic approaches become part of the organisational structure and identity, due to the fact that
they have long term effects and applicability. Strategies can be traced the tactical and operational
approaches to solving challenges in operations, all which start from recommendations based on the
performance of a company. Although the transition from tactics to strategies is not linear, it is possible
to trace the progress which is basically a problem solution systems.

In order to ensure that tactical, operational and strategic approaches are viable, they have to be
designed according to the needs of the organisation. It is possible to identify the operations within an
organisation, such as the examples provided below.

• Human resources management

• Production

• Sales and marketing

• Financial reporting and accounting

• Management

• Distribution
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• Training and development

In each of these operations, the existence of processes and sub-processes makes it possible for
identification of new ways to increase efficiency and improve the utilisation of resources. In a learning
organisation, this is a continuous process which originates from identification of redundancies or
activities that are not necessary for the achievement of optimal performance. Whether through
change or replacement of the activity, an organisation relies on all the levels of management to make
decisions that result in a reduction of cost and improvement of revenues, directly or indirectly.

The role of the top management is to review those suggestions and model the outcomes through
simulation and assessment of the overall effects of the change in relation to other aspects of the
company. Although this does not have a financial perspective, the management has to work out the
financial and non-financial implications, including savings from the change, increased expenditure,
change in efficiency, restructuring, the required expertise to achieve the change, effect of the
committed employees, effect on existing customers and stakeholder categories and the overall effect
on the reputation of the company. The timing and extent of the changes are also an important
consideration in the process, in order to ensure that the company has sufficient control over the
company and its operations.

Finally, the decision is made as to whether the change has a positive or negative effect on functions
and services of the company. In some instances, functions with positive effect are placed on hold in
order to avoid unexpected outcomes, whereas some aspects that are viewed as inefficient are
retained. All these decisions are based on the reporting structure which combines the financial and
non-financial aspects since most of the objectives of an organisation can be traced to the financial
metrics in an organisation.
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Ensure recommendations are concise and facilitate direction and

control of organisation’s operations
The directors have executive powers to make decisions and steer the company towards success. The
decisions they make are however based on the information provided from the operations within the
organisation. The information is assessed by experts who offer professional rationales to the decisions
they make in order to ensure that the outcomes of the decisions are realistic and evidence-based. In
the internal and external environments, it is possible to make recommendations that drive the
company to success. However, it is also a complex process, and there is a need for companies to
ensure that the information is concise and precise so as to achieve significant control over the
operations of the organisation. An assessment of the processes and types of the decisions is necessary
for indicating the importance of this point.

First, management teams work continuously based on the data provided by the various departments.
The information is related to the operations of the company, operations of the competitors and
changes in the industry and marketplace. As a result, changes in performance can be assessed from
the point of view of changes in the marketing and sales department, marketability of the products or
existence of substitutes in the market. A combination of any of these is possible, thus making it
necessary for the company to devise responses to these changes. Such decisions have to reflect the
nature of the company, nature of the market and possible reactions by the industry and competitors.
In this accord, the company can change its operations and strategies, or hope for a change in the
market, thus maintaining the status quo. Although this is not the final decisions at any point, there
have to be reasons for this decision in order to ensure that independent analyst understands the
company’s position on an ongoing manner. The employees also need to understand why the company
makes the decisions in order to communicate to its customers and partners as well.

The conciseness of such information is important since it introduces a culture in the organisation and
makes it possible for the people in the company to understand the present and future. Although being
predictable is not always favourable, it serves a specific purpose in informing others what the future
brings.

At the top level management, this process is applied too. The management has to assess the
performance of the company across the year in order to determine what needs to be changed and
what can be sustained. However, their decisions bear more weight since they relate to investment,
marketing, management, operations and capital structure. These elements are highly specialised and
require expertise, especially since they involve huge amounts of capital and affect a large number of
individuals.
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As a result, these decisions have to be based on facts and information supported by the financial and
non-financial data in the records. The conciseness of the information increases the reliability of the
decisions and makes it possible for transmission across the various departments, periods and
management teams. As long as the decisions are transmittable, it is possible for the successive
leadership and management teams to implement the decisions even when the current leadership
leaves

The concise, evidence-based decisions can also be supported by independent and critical analysists.
Independent analysts play an important role since they apply acid tests and robust trials and
simulations in determining whether the propositions are viable based on the characteristics of the
company. Investors and other stakeholders rely on these independent analysts as a ‘voice’ in making
decisions before investing in a company. If the independent analysis can corroborate what the
management suggests, or, at least, find no reason to state the opposite, then investors get higher
confidence in the outcomes of the decisions.

The management teams also have to clarify the operations and decisions as a way of committing to
the organisation and indicating their future hopes for the company. Since the projections provide the
roles of the various employees including the top management, it is a process of preparing the investors
for the eventualities and activities of the coming year. Since they indicate the objectives in the coming
year, investors are advised on what to expect from the company, with corresponding benefits and
gains that will arise from the objectives. However, it is important to ensure that the records do not
compromise the competitiveness of the company by revealing future plans that are sensitive and
confidential. In spite of full disclosure provisions, such recommendations depend on the nature of the
records, and the recommendations. As a result, it is not necessary to utilise identical formats and
structures in the records, since the internal and external environment changes from year to year.

Identify and prioritise significant issues in statements including

comparative financial performances for review and decision making
Comparative financial performance is a key element in the provision of information to stakeholders,
specifically investors. The investors are concerned with how well the company has performed in
comparison with previous years. Other aspects of comparison also exist, especially with regard to
growth in revenue, profits, assets, and other key performance metrics. These comparisons provide
investors with sufficient motivation to remain committed to the company and retain the current
management team. Similarly, it is also an indication that the current strategies are viable, thus making
the voting process easy during the AGM.
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It is the role of the management and finance department to highlight all aspects of performance in
the company in order to highlight what is necessary. The process of identifying is based on exceptional
outcomes and those factors that are bound to raise red flags. As a result, highlights include three key
aspects.

First, previous commitments included in past financial records. These aspects are contained in the
director’s report, and they summarise the future strategies and the oncoming operational changes
that are necessary to drive the company’s success. In addition, significant changes in the internal and
external environment are highlighted. These highlights provide the investors with information what
was promised and how it has been delivered.

Second, any exceptionally positive results in order to motivate clients by indicating the success over
the year. The use of financial and non-financial elements provide sufficient information on the
achievements of the company over the specified period.

Lastly, the unexpected outcomes including weaknesses in performance, unattained goals and adverse
outcomes that caused the inability of the company to achieve its objectives. In most instances, these
issues play a role in aligning internal and external environmental factors with the financial records and
performance of the company.

These significant issues warrant mentioning as part of the disclosures that companies have to make.
Their inclusion warrants the provision of subsequent activities since financial records are designed to
provide information to the active and potential investors.

Comparative performance assessment focuses on the institution only, although industry standards
can also be mentioned. The analysis of trends is a favourable approach that paints a clear picture and
contextualises the reports. In the process of creating a context, the management can make reference
to changes in the trends and market and the corresponding effect on revenues, assets, liabilities,
expenses, and provisions. For example, the change in the price of key inputs or foreign currencies can
be highlighted as a significant factor that is outside the control of the management. On the same note,
a change in procedures can also result in significant improvements in productivity, thus the need to
introduce them to the owners of the company.

The analysis, comparisons and issues should be contextualised and detailed in the report since it is a
legally binding document that is purposefully designed to do that. Although there are other means of
communication from the management, the financial records remain the single most important
medium for use. If the recommendations are not clearly stated or specified, it causes confusion to
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users who are not professionals in the field. Since the managers require the votes and ratification of
the investors, it is their job to ensure that the comparisons support the overall picture.

Ensure structure and format of reports are clear and conform to

organisational and statutory requirements
The structure of the reports is an important aspect which has significantly evolved over time. Most
companies rely on a specific format that is familiar to the users of the reports, whereas other
companies change from time to time, based on the nature of the report. Although there are no specific
restrictions, on the structure, format and contents, there are guidelines that establish benchmarks to
be followed by the institution when preparing the annual reports. These include the following.

First, there is a specific type of accounts that has to be present in the final records. The accounts
include the balance sheet, the profit and loss, cash flow statement and a statement of change in the
equity. In addition to the summative, formative, explanations and the notes to these accounts should
be present, explaining the reasons for the outcomes.

Second, the accounts must be certified by the directors and the auditors, with a corresponding
auditor’s note and director’s report. These two make the report official and increase the validity of
the contents therein. these two parties bear significant weight on the validity of the records since they
provide a note of independence and indicate that the records are official in nature.

Lastly, the use of acceptable accounting procedures, provisions and approaches are necessary, in
order to ensure that the relationships between assets and liabilities, expenses and incomes, cash
inflows and cash outflows and other forms of provisions can be clearly understood. The use of clearly
labelled accounts introduce the benefits of double entry, with specified entries in a chronological and
formal order increases the ability of users to understand what the accounts represent.

The format of the records influences the ability of users to compare the information in order to
determine the trend. The arrangement that follows the grouping of information on the financial and
non-financial aspect increases the readability of the content. It is also based on accounting principles
of double entry, and makes it possible for the individuals preparing the accounts to cross check
whether the information is complete and correct.

The arrangement of the financial records is designed in a manner that facilitates use by the
professional and non-professional stakeholders. The use of figures makes the comparison direct, with
the accompanying content providing further details. As a result, if any of the summative information
is not clear, the supporting notes can be assessed.
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The combination of organisational and statutory guidelines are applied in most organisations.
Although they are not contained in a specific document, it is clear that there are frameworks to be
applied. According to the AASB, the compiled standards outline the structure of the financial records
by providing basic benchmark standards. An illustrative format is provided in AASB 101 (2007). Most
of the automated accounting software provide the format and generate the records according to the
guidelines.

However, it is important for exceptional contents to be included and accommodated in the model.
The differences in the statements are attributable to the unique transactions that each company
provides in its operations. Although there are guidelines in the accounting systems, it is important for
the unique elements to be included through special mentions.

The grouping of the accounts is also favourable for different users since the analysts focus on different
aspects of performance. It is thus possible to identify the profitability information, net worth
information, cash flow information, and information on investment attractiveness, the director’s
views, the supporting views and other aspects. As a result, the individuals who prepare the records
have to recognise the fact that the diverse nature of the users of the information have different needs
and expectations in the market. It is their role to ensure that that the records are designed in a suitable
manner to meet the expectations.
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