Question

Businesses may report incorrect amounts of GST if their accounting systems for capturing and recording GST information fail. Explain four reasons why an accounting information system may fail to correctly deal with GST taxable transactions.(Explain the key features of financial legislation relating to taxable transactions and reporting requirements).

Answer 1

Answer :

Businesses may report incorrect amounts of GST if their systems for capturing and recording GST information fail. We refer to these errors as integrity of business system risks. We have found that businesses going through change are most at risk of incorrectly reporting GST. For example, businesses experiencing rapid growth, restructure, mergers or de-mergers, installation of new accounting software or changes to accounting staff. Other common causes include:

■ failure of accounting systems ■ incorrect or incomplete business activity statements (BAS) ■ incorrect interpretation of the GST legislation ■ classification of taxable supplies as GST-free or non-taxable.

WHY ERRORS OCCUR : Inadequate, non existent or poorly documented controls can lead to a wide range of errors. The table below identifies common errors and shows the frequency of occurrence within large and SME markets. The table also shows the average amount of liabilities raised.

Cause of error	Explanation and Examples of errors
BAS preparation	transposing figures when completing BAS ■ claiming GST credits without a valid tax invoice ■ excluding invoices produced outside normal accounting system ■ incorrect transfer of GST information between associated entities ■ GST control accounts not cleared ■ activity statement reconciliations not completed
Incorrect interpretation of GST legislation	misclassification of supplies or acquisitions ■ claiming GST credits on total tax invoice amounts when part of the transaction is not subject to GST ■ exceeding the financial acquisition threshold as a result of merger, acquisition or capital raising
Change of accounting software	new accounting system automatically overriding entries that had been recorded as non-allowable ■ incorrect GST codes allocated as GST-free on non-taxable items
Change of accounting staff	lack of understanding about internal processes, leading to errors in capturing and reporting GST information
Incorrect set up of accounting systems or internal controls	errors processing one-off transactions ■ GST on taxable supplies incorrectly off-set against credits ■ rebates processed incorrectly
Change of business structure	sales not reported for new branches ■ trading stock incorrectly invoiced on transfer to a new business ■ entities not eligible to form a GST group ■ incorrectly treating sales as taxable when supplied to a member of a GST group ■ claiming GST credits for associated entities which have recently left a GST group ■ system integration issues
Incorrect supply status	incorrectly recording the transaction as GST-free or non taxable.