The requirements and recommendations
apply to bookkeepers providing BAS services for a fee
and the registered tax agents under whose direction they
are working. It does not apply to employees of a
registered tax agent who must be under the tax agent’s
supervision and control.
The requirements do not apply to
bookkeepers who are not providing, or holding out as
providing, any BAS services beyond entering transactions
and processing data used in preparing a BAS.
Requirement
In order for a bookkeeper to be ‘working
under the direction of a registered tax agent’ the
registered tax agent must have a
risk-based quality assurance process in place to review
the BAS services provided by the bookkeeper for accuracy
and completeness, and be satisfied with the standard of
BAS services provided.
Guidelines
The paper provides guidelines for
developing a robust risk-based quality assurance process
that would meet the requirements of the legislation. The
guidelines are not prescriptive and no one factor is
generally conclusive in determining whether a suitable
process is in place. The facts and circumstances must be
considered on a case-by-case basis.
Whilst not a legislative requirement, we
strongly recommend (for the protection
of all parties, including clients) that the bookkeeper
and the registered tax agent document and maintain
copies of their arrangement as to:
-
the clients the agreement relates to
-
the period it covers, and
-
the details of the agreed risk-based
quality assurance process.
We also strongly recommend
that the agreement documents client privacy and
liability considerations and that both parties consider
appropriate professional indemnity insurance.
The Commissioner of Taxation
cannot determine liability in the event of error.
A tax agent:
-
must be assured that the bookkeeper’s
work is of a satisfactory standard
-
where the work is unsatisfactory,
should ensure that the bookkeeper
-
should review the quality assurance
process to determine if any changes are required.
A bookkeeper:
-
should have the knowledge and skills
appropriate to the level of direction provided by
the tax agent, and maintain their knowledge and
skills
-
should have available all necessary
client documentation to verify the workings from
which any BAS service was provided, and
-
once advised of any unsatisfactory
work, should identify and correct all instances in
other BASs they have prepared and undertake further
learning as necessary.
The quality assurance process between the
bookkeeper and the tax agent must satisfy the tax agent
that the work performed by the bookkeeper is of a
satisfactory standard.
Key principles of a quality assurance
process are:
|
Principle 1 |
Competence:
assurance/evidence/demonstration that the
bookkeeper has the knowledge and skills to
prepare the BAS. |
|
Principle 2 |
Checking: a risk-based sample of
the bookkeeper’s BAS work is checked by the tax
agent. |
|
Principle 3 |
Feedback: corrective action and
feedback is provided where the work is not
accurate or complete. |
The tax agent should incorporate these
principles in the development of the quality assurance
procedures for the bookkeeper working under their
direction.
When designing the quality assurance
process the tax agent must consider the risks involved
when forming an opinion of a bookkeeper’s reputation and
competency. This is a function of three factors:
To reduce the overall risk of forming an
incorrect opinion, the tax agent can decrease one or
more of the contributory risk factors or, alternatively,
a given level of risk can be achieved by adjusting the
individual risk factors.
For example, with an experienced
bookkeeper with recognised accounting qualifications
(lesser inherent risk), using comprehensive checklists
and sophisticated software (lesser control risk), the
tax agent could plan for a higher level of detection
risk (smaller proportion of documents/transactions
checked) and still have a reasonable basis for their
opinion. However, if one of the bookkeeper’s clients had
highly complex affairs (higher inherent risk), the tax
agent may need to check a greater proportion of this
class of documents/transactions.
This principle includes information on
appropriate knowledge and skills and evidence of
knowledge.
Appropriate knowledge and
skills
To complete a BAS accurately and
completely, a bookkeeper must have the appropriate
knowledge and skills. This may include:
-
knowledge of the tax laws relating to
BAS provisions and the Tax Office rulings that
support those laws, and an appreciation of their
practical application in the commercial and business
environment
-
knowledge of relevant Tax Office
administrative policies and procedures regarding the
lodgment of a BAS
-
knowledge of the relevant procedures
and practices on how to complete a BAS from a
client’s source accounting records, and
-
knowledge of software packages used
by their clients, and experience in their use.
Evidence of knowledge
To demonstrate that they have the
knowledge and skills appropriate to complete a BAS
accurately, a bookkeeper may provide evidence including:
-
attainment of a recognised industry
benchmark qualification or standard or membership of
a professional bookkeeper association
-
their previous work experience, or
other demonstrated competence
-
comprehensive procedures that guide a
bookkeeper through all areas of the BAS preparation
– relevant checklists and reconciliations could form
part of the documented procedures supporting the
bookkeeper
-
support from the tax agent or other
qualified providers in relation to BAS preparation
to assist in the resolution of specific issues, and
-
maintaining up-to-date information
and knowledge on new developments relating to BAS
services and the subsequent regular updating of
relevant procedures and documents used by the
bookkeeper.
This principle includes information on
the intent of the legislature, forming a reasonable
opinion, risks, substantiation procedures to be
undertaken and timing.
Intent of the legislature
The intent of the legislature in enabling
bookkeepers to provide a BAS service was to ease the
burden of tax reform on tax agents. It may be implied
that the expectation of the legislature was that a tax
agent providing direction to a BAS Service Provider
would not be overly weighed down by this responsibility.
The fact that bookkeepers do not have to
be employees of a tax agent to provide BAS services
supports the notion that the supervision and control
requirements were contemplated as being something less
than that required for employees of the tax agent.
However, the tax agent must undertake sufficient review
activities to be reasonably assured that the clients of
the bookkeeper are protected from malpractice and
incompetence.
Forming a reasonable
opinion
By addressing the risks of forming an
incorrect opinion in planning their quality assurance
strategies, the tax agent should be able to form a
reasonable opinion of the bookkeeper’s work without the
need to review 100% of the work.
Risks
The risks to be considered when designing
a quality assurance process include:
Inherent risk and materiality
The first factor includes the
bookkeeper’s level of experience and knowledge and/or
the types of clients and their transactions covered
under the agreement. For example, there is a higher
inherent risk in a less experienced bookkeeper providing
BAS services to a large, complex client.
Factors that may be considered under
inherent risk/materiality include the:
-
experience and qualifications of the
bookkeeper
-
complexity of the bookkeeper’s client
base/transactions entered into, and
-
size of clients’ transactions and the
relative weight of those transactions in the
bookkeeper’s work.
Control risk
Control risk is a function of the
effectiveness of the bookkeeper’s internal control
structure, policies and procedures. Effective internal
controls reduce control risk, whilst ineffective
internal controls increase control risk.
Factors that may be considered under
control risk include:
-
demonstrated use of appropriate
checklists
-
maintenance of detailed working
papers demonstrating how the completed BAS was
generated from the client’s source accounting
records
-
use of appropriate research processes
– that is, how does the bookkeeper research issues
when they are uncertain of the correct treatment,
and
-
demonstration of effectiveness of
controls – that is, the accuracy and completeness of
work previously reviewed.
Detection risk
Detection risk is the risk that issues
will not be identified. It is a function of the
effectiveness of procedures and of their application by
the auditor. Unlike inherent and control risk, the
actual level of detection risk can be changed by varying
the nature, timing and extent of the substantiation
procedures performed.
Factors that may be considered under
detection risk include:
-
sampling – the tax agent must ensure
that the sample checked is representative of the
whole of the bookkeeper’s work, and
-
investigation of the original client
documentation to verify the workings for the
document that was lodged with the Commissioner.
Some substantiation
procedures must be undertaken
It is not appropriate to conclude that
inherent and control risks are so low that it is not
necessary to perform any substantiation procedures for
all of the bookkeeper’s work.
Timing
Effective quality assurance of work
requires that work is checked within a reasonable
timeframe. It is preferable that reviews are performed
prior to the lodgment of a BAS rather than after.
However, it will be up to the tax agent to determine the
appropriate timing of the checking of a bookkeeper’s
work.
An agent may determine, based on the
accuracy and completeness of work previously reviewed,
that a post issue review is appropriate. For example,
where the agent prepares the income tax return of a
client and reviews the BASs prepared by the bookkeeper
as part of the return preparation process.
Where a review of a bookkeeper’s work
identifies a lack of accuracy and/or completeness, the
tax agent must act to ensure that the bookkeeper:
Bookkeeper’s
responsibility to correct similar errors
Where a deficiency is identified, it
would generally be the bookkeeper’s responsibility to
identify and correct all instances where the mistake or
omission occurred, including other BASs they have
prepared. They should also undertake any further
learning required to address their understanding of the
issues involved.
Review of risk-based
quality assurance
The tax agent would also be expected to
review the existing quality assurance process for the
bookkeeper to determine what, if any, changes are
required. This may include changes to:
-
the work checked – for example,
increasing the sample size or a greater proportion
of pre-lodgment reviews, and
-
the quality assurance processes to
correct any identified deficiencies which
contributed to the mistake or omission.
Voluntary disclosures
In the event of errors being identified
in lodged documents, both parties are reminded that
voluntary disclosures of tax shortfall amounts will
generally result in significant reductions of penalties
for the taxpayer – see
Law Administration Practice Statement PS
LA 2004/5 Administration of shortfall penalties under
the new tax system
Tax Office research and consultation with
the industry has identified the need to clarify the Tax
Office view on when a bookkeeper will be considered to
be ‘working under the direction of a registered tax
agent’ in the provision of BAS services.
The Tax Office undertook to:
-
state its view of the legislative
requirements
-
develop principles and guidelines to
assist the parties in meeting the requirements to
ensure complying bookkeepers received the protection
of subsection 251L(6) of the ITAA 1936 from
subsection 251L(1) of the ITAA 1936, and
-
provide guidance to both parties as
to liability implications under section 251M of the
ITAA 1936.
How to use the guidelines
The paper provides guidelines for
developing a robust risk-based quality assurance process
that would meet the requirements of the legislation.
The guidelines are not prescriptive and
no one factor is generally conclusive in determining
whether a suitable process is in place. The facts and
circumstances must be considered on a case-by-case
basis.
The guidelines will help the parties
self-assess whether they have an arrangement which is
likely to be considered compliant with paragraph
251L(6)(b) of the ITAA 1936 and provide guidance around
the practical implementation of the requirements of the
paragraph.
Background to the
subsection 251L(6) amendment
The introduction of the new tax system
was expected to create a demand for tax agent services
by small business for the preparation and lodgment of
BASs. To address concerns in the tax practitioner
industry about the ability of tax agents to meet this
demand, amendments were made to the ITAA 1936 to allow
certain people, other than registered tax agents, to
provide BAS services on behalf of taxpayers. This
included members of a recognised professional
association, or bookkeepers working under the direction
of registered tax agents.
Enabling bookkeepers to provide a BAS
service was intended to ease the burden of tax reform on
registered tax agents. It may be inferred that the
expectation of the legislature was that tax agent/s
providing direction to a BAS provider would not be
overly weighed down by this responsibility.
The fact that bookkeepers do not have to
be either employees of a registered tax agent or under
their supervision and control (per section 251N of the
ITAA 1936) in order to provide BAS services, supports
the view that the ‘working under the direction of’
requirements were contemplated as being something less
than that required for employees or for those under
supervision and control.
Our view
In order for a bookkeeper to be ‘working
under the direction of a registered tax agent’ the
registered tax agent must have a risk-based quality
assurance process in place to review the BAS services
provided by the bookkeeper for accuracy and
completeness, and be satisfied with the standard of BAS
services provided.
Whilst not a legislative requirement, we
strongly recommend (for the protection
of all parties, including clients) that the bookkeeper
and the registered tax agent document and maintain
copies of their agreement as to:
-
the clients the agreement relates to
-
the period it covers, and
-
the details of the agreed risk-based
quality assurance process.
This would provide prima facie evidence
that the bookkeeper was working under the direction of
the tax agent.
We also strongly recommend that the
agreement document client privacy and liability
considerations and that both parties consider
appropriate professional indemnity insurance.
The level of detail in the agreement is
up to the registered tax agent and the bookkeeper under
the terms of their commercial agreement.
How this meets the
legislative requirement
A risk-based quality assurance process
does not require the registered tax agent to review all
of the bookkeeper’s work. Appropriate risk-based
sampling should ensure that the tax agent can obtain
reasonable assurance as to the accuracy and completeness
of the bookkeeper’s work. The tax agent must then be
reasonably satisfied as to the reputation and competency
of the bookkeeper as a result of their assurance
process.
Assistance in designing a
risk-based quality assurance process
The assurance process required by the tax
agent as to the accuracy and completeness of the
bookkeeper’s work is a matter for the agreement between
the tax agent and the bookkeeper. The guidelines list
factors that may assist the tax agent and bookkeep
Section
251L of ITAA 1936