Financial reporting mis-steps

Want to hear a scary story? Once upon a time there was 2020 and you managed to live through it – and then it turned out 2021 was when the real horror happened!

Terrifying, right?

Please try to remain calm.

It might sound like just a fable, but for small businesses coping with the ups and downs of the Australian financial reporting system this year, the real horror show might just be beginning. If you’ve utilised JobKeeper or any of the Federal/State govt programs intended to help you weather the storm, tax time 2021 and its required financial reporting is shaping up to be a bit more interesting than other years.

Don’t stress though – utilising the tools made available to you both personally and as a business owner was absolutely the right move – it’s what they were provided for and it’s very likely to have helped you get through 2020. Just don’t make the mistake of thinking ‘almost’ correct financial reporting, both business or personal, is going to just get lost in the 2020 chaos.

Now more than ever the ATO is likely to be checking up on your financial reporting to make sure your business is paying its fair share. After all, the ATO (and the government more generally) are down a significant amount of revenue thanks to Covid and they’ll want to make sure they’ve recovered everything they’re actually owed.

You probably won’t fly under the financial reporting radar

So you might be thinking, there’s no way the ATO is going to bother chasing everybody up, particularly little (small business) fish. Surely, they have far bigger, corporation-sized fish to fry, or ‘real tax avoiders’ who are rounding to the nearest 5K-10K-100K – and maybe that’s true. However, the ATO is known to, as the Lannister’s would put it, “pay their debts” (or in the ATO’s case, seek out debts owed) and they will likely be sending out auditors to check on the mess of 2020/2021 for a quite some time to come – remember they’ve seven years to do it.

But even if they don’t, now is not the time to start letting your financial reporting and accounting processes slide. The last thing you want is to start developing bad business reporting habits that might haunt you for years to come. Letting your financial reporting and/or ASIC declarations get totally out of sync, even just this once, could and likely will have massive flow-on effects that could impact the longevity of your business – not to mention cause you untold amounts of unnecessary angst.

As a cautionary tale, in 2019 (doesn’t that seem like a loooong time ago), a company CFO was sentenced to two years under the Corporations Act for falsely reporting a company position to ASIC. That’s a very significant negative outcome for a financial records mistake (intentional or otherwise).

And here’s another thing to think about …

This tax year is likely to be more confusing than most.

The seismic impact COVID 19 has had on business, and small business in particular, has been ‘unprecedented’ (sorry, we couldn’t resist).  With grants, allowances, tax bracket changes and brand-new rules coming into play, even the most tax-savvy DIYers might find themselves struggling to keep their financial reporting by-the-book. Even if you nail it, everything where it should be, paid and recorded in full, the amount of stress and time it will likely take you to get things exactly right likely isn’t worth it (unless of course you’re an accountant).

There are lots of cliches out there about what makes for a great business leader – you eat last, you do more with less, you’re team centric (no I in team) and you delegate, delegate, delegate – which to be honest, are very reasonable leadership traits.

What the leadership mantras don’t include, and for very good reason, is doing, or trying to do everything yourself – doubly so when it comes to legislative stuff. Why?? Essentially because ignorance or best guesses, do not valid ATO/ASIC (or other regulatory body) excuses make.

Plus, the huge amount of time it will take you to work through all the permutations of what 2020’s changes might mean for you, your staff and your business probably isn’t the best use of your time (again, unless you’re an accountant). Sure, you’ll need to change your salary tax tables over to the new brackets by mid November (your single touch payroll software might make that a bit easier), but managing how to account for the cash flow boosts that credited back some of your GST, PAYG and PAYGW – that might be a bit more challenging. And what about the ‘buy assets, write them off and credit that back against your previously paid tax’ idea that’s floating around – hmmm, there’s devil in that detail let me tell you. Worst of all, getting it wrong, could mean more pain down the track.

And, let’s face it, when 2020 is behind you (most likely good riddance!), no doubt you’ll want to really get on with getting back to growing your business – not sorting your admin.

So if you’d like to avoid the legislative business headaches Covid brought with it, or you’d like help planning your business’ recovery, we’d be delighted to talk further. You can call us on 02 6023 1700 or drop us a note via the form below