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Standard Chart of Accounts For Software Developers Stakeholder Relationship and Management Group
Presented by
Matthew Hay
Assistant Commissioner, Strategic Program
Service Delivery
Australian Taxation Office
22 May 2014
Standard Chart of Accounts 2
Overview Contemporary and tailored service
How SCoA can reduce effort
Key concepts in developing SCoA
The building blocks of SCoA
Leveraging financial reporting
Achieving tax outcomes
XBRL dimensions
Customise your implementation
Where are we up to?
The end state: what are we aiming for?
Standard Chart of Accounts 3
Contemporary and tailored service In future, business taxpayers will experience more contemporary services that will be
streamlined and tailored based on our knowledge of their tax and super affairs.
We will make greater use of business taxpayers’ natural systems to make reporting a by-
product of their day-to-day activities.
We will offer a standardised record keeping and reporting environment that will support
greater transparency of tax and super affairs.
We will reward this transparency with less effort required to comply (“light” or “no touch”
experience) and greater certainty about the status of tax and super affairs.
Standard Chart of Accounts 4
How SCoA can reduce effort
Populating
and
submitting
Validating,
calculating
and
reviewing
Collecting (49%) Data entry (32%) 12% 5%
Data entry (34%)
SCoA
Businesses often undertake a number of steps in financial
reporting to government. These include collecting
data/information, data entry, making calculations,
checking/validating data and populating and submitting reports.
Data is based on 2013 survey of a sample of small businesses, in response to the question: Businesses often undertake a number of steps in financial
reporting for government. These include collecting data/information, data entry, making calculations, checking/validating data and filling in and submitting
the report. Please rank these steps from the most to the least time-consuming/burdensome.
.
Standard Chart of Accounts 5
Data entry
Collecting Data entry
How SCoA can reduce effort
Populating
and
submitting
Validating,
calculating
and
reviewing
Impact of SCoA
Standard Chart of Accounts 6
Key concepts in developing SCoA Concept Explanation
Replacing tax returns and
activity statements
Financial reports, marked-up for tax characteristics, replace business
tax returns and activity statements.
Standard Business Reporting-
based
SBR offers an XBRL capability to represent complex characteristics
within financial information. SBR is a whole-of-government channel
suited to host the chart.
Financial-accounting centred The chart recognises that financial accounting is the centre of business
record-keeping
One chart: entity-neutral
The same chart is used by a sole trader, a company, a trustee, etc., in
that capacity or by any other entity. Each entity uses the combination
of accounts from the chart that best suits its affairs.*
One chart: scalable
The chart is simple for small business but does not impede a growing
business from expanding into an AIFRS/AASB financial reporting
environment.
One chart: flexible
The chart is non-comprehensive and does not prevent sub-accounting
and different styles of presenting financial statements. The chart offers
taxation contexts that can be applied to financial reports.
*We recognise that equity accounts are slightly different for different entity types, but otherwise there is little need for difference.
Standard Chart of Accounts 7
The building blocks of SCoA
Example reports
Business guidance
Financial
account
report
elements
Bisected by fixed and optional
taxation characteristics
Validation rules
Concise accounting policies for small
business
element definitions for small business
financial reports
worked examples on ato.gov.au
Sales $400,000
ABC Pty Ltd
[…]
XBRL taxonomy
Closing Assets = Closing Liabilities + Opening
Equity + Equity Increases(Decreases) + Income –
Expenses
Assessable Income – Deductions = Taxable
Income or Net Income
Standard Chart of Accounts 8
Leveraging financial reporting
AASB Conceptual framework
Balance sheet (stmt of fin
position)
P&L (stmt of fin
performance)
SoCiE (stmt of
changes in equity)
Standard chart of accounts Uses conceptual framework to offer
concise, uniform accounting policies for small proprietary companies (and other
non-reporting entities)
ATO XBRL tags
Offers dimensions to ‘tag’ financial accounting information for various
revenue obligations
Line items Assessable
income
Deduction
Revenue $5,000,000 $4,700,000
Cost of sales $3,900,000 $3,700,000
Gross profit $1,100,000
Other expenses $400,000 $50,000
Normalised profit $700,000
Abnormal expenses $40,000 $20,000
Net profit before tax $660,000
Cash flow (stmt of
cash flows)
Small business: A small business chart would be grounded in fundamental accounting
concepts, but with simple accounting policies for both cash and accruals taxpayers.
Standard Chart of Accounts 9
Leveraging financial reporting
AIFRS AASB Conceptual
framework
Balance sheet (stmt of fin
position)
P&L (stmt of fin
performance)
SoCiE (stmt of
changes in equity)
Cash flow (stmt of
cash flows)
Defines accounting policies for non-small proprietary
companies
ATO XBRL tags
Offers dimensions to ‘tag’ financial accounting information for various
revenue obligations
Line items Assessable
income
Deduction
Revenue $50,000,000 $47,000,000
Cost of sales $39,000,000 $37,000,000
Gross profit $11,000,000
Other expenses $4,000,000 $3,500,000
Normalised profit $7,000,000
Abnormal expenses $400,000 $250,000
Net profit before tax $6,600,000
Medium – large business: A chart grounded in the Australian implementation of the International
Financial Reporting Standards is recognised as suitable for medium-large business.
Standard Chart of Accounts 10
Achieving tax outcomes
The use of ‘tax codes’ for GST in many accounting software packages
shows that software already uses financial data in more than one
dimension. These ‘tax codes’ are used to produce reports that would
populate the BAS as a result of journal entries within the software.
XBRL dimensions give us the ability to create a range of tax codes
across different revenue products and to make those ‘codes’ present
in the final report.
If the ATO receives financial reports within a standard-chart format,
then it may be possible to rationalise the number of ‘tax codes’ and
simplify reporting across revenue products.
Standard Chart of Accounts 11
$45,000
$2,000
$12,000
Sales
Purchases
Other inventory
increase (decrease)
Financial Accounting
XBRL dimensions Small business: Financial accounting report elements are the focus of SCoA and its
primary dimension
Standard Chart of Accounts 12
XBRL dimensions Small business
Sales
Purchases
Other inventory
increase (decrease)
Financial Accounting
$2,000
$45,000 $45,000
$12,000
Assessable income
Ordinary Statutory Deduction
Core income tax
Standard Chart of Accounts 13
XBRL dimensions Small business
Sales
Purchases
Other inventory
increase(decrease)
Financial Accounting
Assessable income
Ordinary Statutory Deduction
Core income tax
$45,000
$2,000
$12,000
$20k
$15k
$10k
$5k
$4k
$3k
Taxable supplies/acquisitions
Input taxed supplies/acquisitions
GST free supplies/acquisitions
GST
Standard Chart of Accounts 14
Customise your implementation
The chart is intended to be capable of ‘as is’ implementation for a
variety of businesses.
Developers encouraged to customise implementation of SCoA to
maximise the utility of SCoA to the full range of business taxpayers.
Sub-accounting SCoA line items
Integrate features that populate line items (e.g. fixed assist register to
populate depreciation and gains/losses on the disposal of assets.
Use market specific descriptions for line items within the chart.
Standard Chart of Accounts 15
Where are we up to?
Finalising high level design.
Technically proving SCoA by applying SCoA to existing financial
statements and working papers of small – large businesses.
Preparing to consult and co-design with key stakeholders about:
– How the SCoA concept might be most effectively implemented
– Accounting policies that would apply to small business financial
reports.
Standard Chart of Accounts 16
Digital business, business data kept \in the cloud,
single ledger, single data and messaging standards
The end state: what are we aiming for?
Digital business
ATO
Other third parties
Software developers
Transactions automatically imported, coded and reconciled in near-time. Instant visibility
Over time, more online services wholesaled
Expand SaaS and SCoA-enabled cloud-based solutions
Instant access to business records, tax
treatment applied to transactions on the go
Tax forms no more: One touch payroll and financial statements marked up for tax (SCoA) submitted in place of tax forms directly from software
Businesses
Tax practitioners
Instant access to apply tax
treatment to complex transactions,
assistance “as you go”
Standard Chart of Accounts 17
Questions?
© COMMONWEALTH OF AUSTRALIA 2014
This presentation was current in May 2014.
(02) 9354 3900