Wednesday, 2 December 2020

Upskilling your practice for the new normal in accountancy



Firms already on the path to digitalisation will have seen this period of prolonged remote working, and online collaboration, as justification for their continued investment in technology. For those pioneering firms that see technology as an enabler for the growth of their practice, it is very much a key factor in their ability to not only survive, but to thrive in a post-COVID world.


With so much reliance on technology, where does that leave the humble accountant? What now for your team of technical experts who have perhaps delivered services in the same way for many years? Whilst automation is expected to change 50% of accountancy and finance related jobs, the World Economic Forum estimates that it is not expected to eliminate any more than 5% of roles.

Accountants, as any tax professional will attest, are incredibly resilient and adaptive to change. They are poised for growth if they can take the opportunities that will present themselves over the coming years. One way to prepare for this opportunity is to build a practice ripe for technology to work with skilled professionals in your practice.

Upskilling your practice to work hand in hand with the technology to provide an efficient practice that keeps up with the remote working regulations changes, changing client expectations. Beyond building a competitive customer experience, you will need to build a practice that keeps up with the changing expectations of individuals in the workplace, shifting social norms and values, and new types and levels of connectivity and demographics.

Learning from past economic downturns

In the early 1990s many practices understandably put recruitment on hold throughout the recession, with many cancelling graduate recruitment programs. A necessary move for cashflow perhaps, but within a few years this created a sizeable skills gap. There was a distinct shortage of part-qualified and semi-senior candidates coming through the ranks and it is very expensive to have fully qualified staff doing the work of part-qualifieds and semi-seniors.

Firms with a little more agility were able to cherry pick the best candidates during the recession and were primed for growth in the period of economic recovery. The same pattern today. The firms that are able to adapt quickly and repurpose their business for the changing times are able to keep their existing talent and attract the best of the rest.

 

Learning to work with automation

The synergy of accountant and machine can open doors to higher-value work, making practices more efficient, more productive, more interesting, and ultimately more meaningful. Automating routine tasks frees up time for your team to do more of what your client’s value most – providing insight and supporting their business ambitions.

Having the desire to work digitally creates momentum. Prioritise data analysis over data entry and valuable conversations with your clients will follow. Even with automation, the business of accountancy is still all about relationships.

 

Recruiting for change

Change inevitably impacts greatest on your people. Ensuring they have the skills to operate effectively in a new and uncertain landscape is always difficult. The soft skills of yesterday will become the essential skills of tomorrow. Until now you may have been recruiting people with great inter-personal skills, who quickly make people feel at ease in their company, who make great use of body language and can build rapport effortlessly. Are those people able to manage relationships as effectively over a video call as they are in person? If they aren’t, they will certainly need to.

Recruiting people who have a clear aptitude for change, a passion for new technology and the people skills needed to build strong connections with clients will be paramount. In addition to the expertise needed, these tech-loving accountants with the know-how in the profession and a passion for new ideas and innovative tech solutions will be keen drivers in the synergy between man and machine and the growth of advisory services in the business.

Technical proficiency has limited value for those unable to communicate effectively in a language client will understand.

 

Bring in the new or upskill the old

It’s important to understand the skill set that you've got within your practice today. Have you got the right people with the skills to offer advisory services, work remotely with your clients and meet their ever-changing needs?

If not, is there the potential to upskill your existing team or do you need to bring in new talent? Have you got a team of technologists? This could be an opportunity to recruit people with those skills to enrich your offering to clients.

Investing in people, technology and relationships is ultimately not just a strategy for making it out of an economic downturn but a strategy for riding the economic upturn that inevitably follows.

 

Tuesday, 10 November 2020

India: Direct Tax Alert: Ad-hoc Year-end Provisions Attracts Tax Withholding

 Reproduced with permission from BDO India LLP.

Background

As per general accounting principles, under mercantile system of accounting, provisions need to be created in respect of expenses which have been accrued in order to have a true and fair picture of the financials. Hence, all businesses which follow the mercantile system of accounting are required to create year-end provisions for the expenses incurred in respect of services availed till 31 March of a financial year. More often than not, provision for expenses is reversed in subsequent month(s) when the actual invoice is received. This has led to a vexed issue – whether tax is required to be withheld on such year-end provisions or not. Even the judiciary is divided on this front.

Recently the Mumbai Tax Tribunal1 had an occasion to consider, apart from other issues, whether the disallowance under section 40(a)(ia) of the Income-Tax Act, 1961 (IT Act) is attracted on ad-hoc year-end provision for expenses. We, at BDO in India, have summarised the ruling of Mumbai Tribunal and provided our comments on the impact of this decision.

Facts of the case

Taxpayer, a public limited company, is engaged in the business of Direct to Home Services (DTH). It provides DTH services through Set Top Box installed at the subscriber's premises. For the fiscal year 2008-09, the taxpayer created an ad-hoc year-end provision of expenses aggregating to INR 56.92mn which included expenses such as sales promotion, legal and professional, interest and programming costs. The taxpayer did not withhold tax at source (TDS) in the absence of the receipt of invoices from the service providers. As the taxpayer had not withheld tax, the tax officer disallowed these ad-hoc provisions under section 40(a)(ia) of the IT Act and thereby added it to the taxpayer's income. Aggrieved, the taxpayer filed an appeal before the First Appellate Authority which upheld the additions made by the tax officer.

Tribunal ruling

Before the Tax Tribunal, the taxpayer relied on various judicial precedents2 to contend that it is not under an obligation to withhold tax on the ad-hoc year-end provisions. Hence, the same should not be disallowed under section 40(a)(ia) of the IT Act. The taxpayer also submitted that in the subsequent year, the year-end provisions were either reversed or paid after TDS. Revenue Authorities submitted that as per the provisions of Chapter XVII-B of the IT Act, TDS is required to be done either at the time of payment or at the time of credit (including even a credit in the suspense account) whichever is earlier. Therefore, there is no merit in the taxpayer's contention that TDS is not applicable on an ad-hoc year end provision for expenses.

After hearing the contentions of the taxpayer and the Revenue Authorities, Mumbai Tax Tribunal held that TDS is attracted on the year-end provision. For coming to this conclusion, it observed that:

  • The year-end provisions were debited in the profit and loss account and not added back to the computation of total income.
  • Once, the taxpayer has claimed these expenses by debiting in profit and loss account, it needs to withhold tax on such expenditure, even if not credited to respective vendor account.
  • Since, the taxpayer has not withheld tax, the provisioned expenses claimed as deduction are liable to be disallowed under section 40(a)(ia) of the IT Act.
  • Also, the taxpayers contention that in the subsequent year the provision has either been reversed or paid subject to TDS does not alter the legal position in so far as disallowance of expenses under section 40(a)(ia) of the IT Act is concerned.
  • With respect to judicial precedents relied by the taxpayer, all the cases are contrary to the provisions of Chapter XVII-B read with section 40(a)(ia) of the IT Act and hence are not followed.

BDO comments

This decision has only increased the complexity revolving around applicability of tax withholding provisions to ad-hoc year-end provisions. It is imperative to observe that Hon'ble Mumbai Tax Tribunal has simply brushed aside its earlier decision in case of Mahindra and Mahindra by stating that the decision is contrary to the provisions of Chapter XVII-B read with section 40(a)(ia) of the IT Act. It is pertinent to observe that in the case of Mahindra and Mahindra, Hon'ble Mumbai Tax Tribunal had held that if the party(ies) is not identified/identifiable, the tax withholding provisions are not attracted. While the instant decision has not given detailed reasoning, the Revenue Authorities could take support of this decision to make disallowance under section 40(a)(ia) of the IT Act. 

Further, the Revenue authorities could also treat the taxpayer as assessee-in-default for the purpose of section 201 and thereby initiate TDS proceedings against the taxpayer. Also, sight should not be lost to the recent decision of Delhi Tax Tribunal in case of Inter Globe Aviation Ltd3 wherein it held that "The amount of expenditure incurred can be determined only if, there is a recipient identified of the sum, there is a methodology available for working out the amount payable by the assessee to the recipient, there is a corresponding liability arising out of the existing contract or customs by the assessee with the recipient. If generally these ingredients are not satisfied assessee cannot be said to have incurred the expenditure. In absence of one of one of these criteria, if provision is made, it is not an ascertained liability but an unascertained liability, which does not satisfy the concept of accrual of expenditure. There may be reasons for receiving the bills by the service providers after certain time lag but that does not absolve the assessee from the liability of deduction of tax at source.

 In the present case the provision is made under the specified head, provision is also made to on certain basis thereby ascertaining the amount. It is not the case of the assessee that it has made an ad hoc provision. Thus, it cannot be said that the payee is not identified. Therefore, according to us, the tax is required to be deducted on the year-end provisions made by the assessee which are ascertained liabilities"

While the Delhi Tribunal has not relied on Mahindra and Mahindra4 decision, it has made an important observation that in its peculiar facts that the year-end provision for expenses were liable for withholding tax as these were ascertained liabilities and ad-hoc in nature.

From the said decisions, one may sum up that tax is required to be withheld on behalf of an identified payee. If the fact pattern suggests that while the liability has accrued but there is no precision as to the identity of the person to whom payment is to be made, the tax withholding requirement may not be capable of being implemented.

Wednesday, 4 November 2020

Upcoming 2021 Budget

 


Two more days to go for our 2021 Budget. We are all looking forward for the budget as we see so many news on the budget expectations and measures that associations/professionals are proposing. 

Especially during though times like this due to the Covid-19 pandemic, our upcoming budget will help us in so many ways. There are so many proposals for tax rate reductions and tax reliefs. Our Finance Minister stated that the Ministry had received about 6.600 proposals for the upcoming budget. Tax rate deductions for both corporate and individuals will really ease the burden off our shoulders. 

Companies will be able to stable up their cash flow and individuals too. However,  a decrease in the tax rates would be challenging for the government. There are many proposals for SST exemptions on certain goods as well. 

The government need to focus on keeping Malaysians employed too as many of them had lost their jobs or had a pay cut. 

We will have to wait until 6th November for our 'new normal budget'  to see what's in store for us! (in a new normal situation). 



Monday, 19 October 2020

Guide on Accommodation

 The Royal Malaysian Customs Department has recently released a Guide on Accommodation - Version 2. This guide enlights mainly to service providers in the hospitality industry, specifically hoteliers and other providers of sleeping accommodation. 

The Guide illustrates the following:

  • Examples of services subjected to service tax
  • Imposition and Scope of tax and the service tax due 
  • Registration and responsibility of a registered person

It is worth noting that this guide provides clarity on the determination of accommodation services and which services falls under the 'service tax' category. 






Lochana Nanthacumar
Content Management Analyst
Wolters Kluwer Malaysia



(Note: For further information about our Sales and Service Tax (SST) subscription, contact us at my-sales@wolterskluwer.com (Malaysia).

Thursday, 8 October 2020

Financial Accounting and Reporting in Malaysia, Volume 2 – 7th Edition is here!



Financial Accounting and Reporting in Malaysia, Volume 2 – 7th Edition is now available for purchase!






This 7th edition comprises new, revised and expanded content from the previous edition, including the new and amended Malaysian Financial Reporting Standards (MFRSs) issued after 31 December 2017. A new chapter on corporate social responsibility reporting, integrated reporting and sustainability reporting has been included in this edition.

Financial Accounting and Reporting in Malaysia explains clearly the Conceptual Framework used in the preparation of financial statements for entities, including groups of companies, and how to analyse and interpret those financial statements. With a clear emphasis on local practices, accounting principles are discussed in detail to guide users on the preparation and presentation of financial statements to ensure compliance with the latest accounting pronouncements. Where applicable, comparisons are also made with statutory requirements and guidelines issued by the Securities Commission and the Central Bank of Malaysia.



About the Author: Tan Liong Tong is a respected and experienced author on financial reporting practices. He has served in various working committees of the Malaysian professional accountancy bodies, including as a Council member of the Malaysian Institute of Certified Public Accountants (MICPA), a member of its Accounting and Auditing Technical Committee and a member of the Accounting & Auditing Standards Committee of the Malaysian Institute of Accountants (MIA).



To order, existing customers can contact your regular Account Manager. New customers can visit our online store.

Wednesday, 30 September 2020

Happy team = happy clients



Equipping your team with powerful software and research platforms undoubtedly improves efficiency within your firm.

It minimises the need to key in data by prepopulating standard documents and tax department forms with accurate, up-to-date data from your client database. It clears away logjams, with built-in workflows to keep client work progressing smoothly to a timely outcome.

As well as benefits like these, there is another major advantage of practice automation that often goes unrecognised: the increased job satisfaction of your team. For employers, this can be linked to increased productivity, which will ultimately impact your bottom line.

Let technology do the heavy lifting

Members of your team will have studied long and hard to hone their professional skills. But constantly (re)keying in client data doesn’t require a deep knowledge of accounting and tax legislation and financial reporting.

Spending time entering data, chasing clients and generating routine correspondence is frustrating. When you free your employees from high-touch, low-value tasks through the strategic application of technology, they can invest their time, energy and experience in what they do best: helping clients to achieve their financial goals.

Using integrated accountancy software eliminates the need to hand-carry data from one client task to another. Released from repetitive even mindless tasks, your team has more time to play to their strengths and will interact with clients in a positive, can-do frame of mind. They can concentrate on interpreting what the numbers mean for the client’s business and think creatively about how best to advise them.

Build your reputation as a progressive employer

All this has an impact on the client and your relationship with them. Your team will be able to make a real difference to the client’s business or personal financial situation, earning their trust and respect. They have the satisfaction of helping start-ups get off the ground and supporting more established enterprises to expand and grow in a sustainable way.

What’s more, gaining a reputation as a firm that constantly looks for ways to streamline its processes helps you recruit and retain the right people, giving you an edge over more traditional firms.

Thursday, 17 September 2020

Upskilling your practice for the new new normal in accountancy

Firms already on the path to digitalisation will have seen this period of prolonged remote working and online collaboration as justification for their continued investment in technology. For those pioneering firms that see technology as an enabler for the growth of their practice, it is very much a key factor in their ability to not only survive, but to thrive in a post-COVID world.

With so much reliance on technology, where does that leave the humble accountant? What now for your team of technical experts who have perhaps delivered services in the same way for many years? Whilst automation is expected to change 50% of accountancy and finance related jobs, the World Economic Forum estimates that it is not expected to eliminate more than 5% of them.
Accountants, as any tax professional will attest, are incredibly resilient and adaptive to change. They are poised for growth if they can take the opportunities that will present themselves over the coming years. One way to prepare for this opportunity is to build a practice ripe for technology to work with skilled professionals in your practice.
Upskilling your practice to work hand in hand with the technology to provide an efficient practice that keeps up with the remote working regulations changes, changing client expectations. Beyond building a competitive customer experience, you will need to build a practice that keeps up with the changing expectations of individuals in the workplace, shifting social norms and values, and new types and levels of connectivity and demographics.

Learning from past economic downturns

In the early 1990s many practices understandably put recruitment on hold throughout the recession, with many cancelling graduate recruitment programs. A necessary move for cashflow perhaps, but within a few years this created a sizeable skills gap. There was a distinct shortage of part-qualified and semi-senior candidates coming through the ranks and it is very expensive to have fully qualified staff doing the work of part-qualifieds and semi-seniors.
Firms with a little more agility were able to cherry pick the best candidates during the recession and were primed for growth in the period of economic recovery. The same pattern today. The firms that are able to adapt quickly and repurpose their business for the changing times are able to keep their existing talent and attract the best of the rest.

Learning to work with automation

The synergy of accountant and machine can open doors to higher-value work, making practices more efficient, more productive, more interesting, and ultimately more meaningful. Automating routine tasks frees up time for your team to do more of what your client’s value most – providing insight and supporting their business ambitions.
Having the desire to work digitally creates momentum. Prioritise data analysis over data entry and valuable conversations with your clients will follow. Even with automation, the business of accountancy is still all about relationships.

Recruiting for change

Change inevitably impacts greatest on your people. Ensuring they have the skills to operate effectively in a new and uncertain landscape is always difficult. The soft skills of yesterday will become the essential skills of tomorrow. Until now you may have been recruiting people with great inter-personal skills, who quickly make people feel at ease in their company, who make great use of body language and can build rapport effortlessly. Are those people able to manage relationships as effectively over a video call as they are in person? If they aren’t, they will certainly need to.
Recruiting people who have a clear aptitude for change, a passion for new technology and the people skills needed to build strong connections with clients will be paramount. In addition to the expertise needed, these tech-loving accountants with the know-how in the profession and a passion for new ideas and innovative tech solutions will be keen drivers in the synergy between man and machine and the growth of advisory services in the business.
Technical proficiency has limited value for those unable to communicate effectively in a language client will understand.

Bring in the new or upskill the old

It’s important to understand the skill set that you've got within your practice today. Have you got the right people with the skills to offer advisory services, work remotely with your clients and meet their ever-changing needs?
If not, is there the potential to upskill your existing team or do you need to bring in new talent? Have you got a team of technologists? This could be an opportunity to recruit people with those skills to enrich your offering to clients.
Investing in people, technology and relationships is ultimately not just a strategy for making it out of an economic downturn but a strategy for riding the economic upturn that inevitably follows.

Upskilling your practice for the new normal in accountancy

Firms already on the path to digitalisation will have seen this period of prolonged remote working, and online collaboration, as justificati...