Economic sciences

Matviyenko T.O.

post-graduate student, chair of accounting and audit

Taras Shevchenko National University of Kyiv

USAGE OF AUDIT RESULTS ON TAX AND CHARGES LIABILITIES IN TERMS OF ENTERPRISES’ TAX PLANNING

Annotation. Organization principles of enterprises’ tax management were revealed. Main directions of usage of audit results on tax and charges liabilities when making management decisions substantiated. This will allow to extend scientific papers on audit problems and improve tax planning at enterprises in Ukraine and in the world.

Keywords: liabilities, taxes, charges, tax management, audit, tax planning

І. Introduction. Problem definition. Unstable development of the national economy requires from enterprises to concentrate attention to improvement of their financial and resources' provision, searching ways of effective activity support. Favorable financial position and solvency of enterprises are evidenced by ability to timely redeemed indebtedness to other enterprises-contractors, financial institutions, tax authorities. However tendencies, presented in financial and economic activity of enterprises, do not bring positive results. As of January 1, 2010 current liabilities of business entities generally in Ukraine amounted to 1352,9 bln. UAH, it increased by 6,7 % as compared with the previous year. Moreover the worst situation is observed in enterprises of hotel and restaurant business (+22,8 %), health care and social services provision (+20,0 %), as well as in industrial enterprises (+15,8 %) (table).

Table

Current liabilities on types of economic activity

as of January 1, 2010 *

Type of economic activity	Liabilities, bln. UAH	% prior previous year
agriculture, hunting, forest management	50,4	110,9
industry	484,5	115,8
building	75,1	104,7
commerce; auto service, repair of household goods and personal demand items	637,2	106,8
trade of automobiles and motorcycles, its maintenance and repair	46,5	98,9
wholesale trade, brokerage	543,0	107,7
retail trade; repair of household goods and personal demand items	47,7	106,0
hotel and restaurant business	6,4	122,2
transport and communication business	69,6	99,8
financial activity	73,6	101,8
real estate activities, leasing, engineering and provision of services to business entities	295,1	80,2
education	0,4	105,4
health care and provision of social aid	2,0	120,0
provision of utility and individual services; activity in the field of culture and sport	10,4	102,2
Total	1705,4	126,1

* Made by author on the basis of [1]

In such conditions a necessity arises in organization of effective system in tax management at domestic enterprises, which could quickly respond to onrush changes in social-economic and tax environment of the country. Complete and comprehensive information about enterprise’s activity and taxation of main and specific economic transactions can be obtained under audit results of accounts and financial statements. Therefore management of enterprises require services of audit firms oftener for confirmation of accounting accuracy for liabilities on taxes and duties, tax and financial statements, as well as making management decision concerning improvement of financial and tax policies of enterprises on the basis of auditor’s conclusions.

Analysis of research papers and publications in question. Problems of efficiency enhancement of enterprises’ activity on the whole, as well as optimization of taxation in particular, were studies by specialists of various profiles: economists, managers, financial experts, check-men, analysts. Among foreign scientists the following are worth noting: Е.А. Arens, P.S. Chandra, І.М. Karasyova, V.P. Suits, А.D. Sheremet and others. In domestic science this problem was researched by such scientists: V.D. Bazylevych, М.Т. Bilukha, N.І. Dorosh, Ye.V. Kalyuga, G.І. Kupalova, О.А. Petryk, V.Ya. Savchenko, B.F. Usach and others [2-10]. They defined main approaches to methodology and organization of economic activity audit, its individual subjects. They developed conceptual frameworks of financial planning, assets management, raising and using of financial resources, forming of short-term and long-term financial strategies on the basis of analysis results and activity audit of business entities. But still less attention in scientific literature is devoted to tax planning and usage of audit results on tax liabilities and charges in enterprises’ management. Therefore these and other issues require further research and clarification.

ІІ. Task definition. The purpose of this article is research of tax management organization and substantiation of priority directions for the usage of audit results on tax liabilities and charges in tax planning of enterprises. For this purpose achievement the following tasks were defined:

- coverage of organization bases for tax management and planning at enterprises;

- forming of conceptual directions of audit results usage on tax liabilities and charges when making managerial decisions.

ІІІ. Presentation of main material. Effective management of tax liabilities provides forming of tax management system or carrying out functions on establishment of tax compliance within corporate management of enterprise. Information base in tax planning is accounting information, reports of internal control system and audit results.

Important medium of information collection about enterprise’s activity shall be accounting system, which comprises data about financial operations of business entities, assets condition, acknowledgment and redemption of indebtedness, as well as accounting policy principles and reporting preparation. With the purpose of control and efficiency enhancement of enterprises functioning management shall create and organize work of internal control service. Its functions comprise: monitoring of enterprise’s settlements condition, taxation accuracy of transactions and prevention of unreasonable exceeding of enterprise’s tax liabilities, which can cause additional financial expenses in form of penalty sanctions. Reliable information about condition of accounting and reporting system can be obtained at the expense of audit results, carrying out by independent external bodies– auditors and audit firms. In the process of audit, first of all they check internal control system, then – budget settlements accounting, tax and financial statements.

That’s why when making managerial decisions managers have to be governed by auditor’s conclusions, which give full and comprehensive information about economic activity of a business entity. Besides, due to audit results finctioning expediency of internal control service can be determined. Activity of modern enterprise is directed at profit maximization, therefore managers’ task consists of selection of two of the existing alternatives – create and finance the work of internal control service or engage external experts for audit.

Managers consolidate information about economic activity and define further policy and strategy of activity by making managerial decisions. Investigating philosophic meaning of category “decision” we came to conclusion, that this is the process and result of purpose selection and means for its achievement [11, p. 558]. That is, making management decision is carried out by means of passing defined stages of object research. On the other side such process stipulates achievement of stated purpose and has economic expediency.

Therefore making management decision concerning tax policy of business entity shall be considered as the selection process of optimum variant for economic activity organization and selection of further development strategy of an enterprise on the basis of comprehensive study of enterprises’ budget settlements condition. It shall be provided by carrying out of overall analysis of accounting information and report documentation of internal control system tax liabilities, as well as at the expense of complex audit of tax and charges indebtedness.

We are of the opinion that results of tax liabilities audit should be used when carrying out such measures of tax management: development of key principles of tax policy, optimization of tax burden, avoidance of tax penalties and interests, search of reserves for reducing of taxes payable and budgeting of tax flows (fig.).

Fig. Directions of audit results realization on tax liabilities and charges*

* Developed by author

Let’s consider tax measures in more details, which will contribute to improvement of tax liabilities and charges planning at domestic enterprises. Development of key principles of enterprise’s tax policy. Selection of enterprise’s tax policy is an important stage of its activity organization, because further accounting and reporting organization of tax liabilities depends on it, as well as other accounting objects associated with it. Results of selected taxation strategy are stated in regulations of accounting policy of an enterprise.

Besides, at management’s own discretion, it can be written in a seprate document – tax policy of an enterprise. Though making such document is not regulated and requested by any regulatory legal act, we believe that it should be made at enterprises with the considerable share of taxation operations and level of tax burden more than 15 %. Similar to regulation on accounting policy such document must contain such three important components: legislative and methodological provision tax liabilities and charges accounting, technical components of accounting process and peculiarities of accounting and reporting organization of taxes payable.

Optimization of tax burden. Another important element of tax management shall be tax planning. It is carried out according to selected tax policy. In the process of planning results of analysis and audit of economic activity have important role, on the basis of which strategy of further actions should be selected. On this stage it is expedient to study results of carrying out of analytical and other audit procedures with the purpose of optimization ways search for tax liabilities and charges, budgeting of its redemption. Besides, under the results of audit one can determine availability of overpaid taxes and charges to budget and estimate possibility of tax compensation. Result of tax planning shall be forming of complex measures for improvement of tax compliance, as well as methods as regards tax and charges liabilities redemption.

Reduction of tax payments by means of its optimization and planning should contribute to increase in enterprise’s profits, as well as meet the interests of owners, managers and employees of an enterprise. But this dependency is not always traced directly. Reduction of one taxes can cause increase in others, as well as tax interests from the state tax authorities. That is why the most effective means concerning increase in profitability is not mechanical reduction of taxes but minimization of tax burden with simultaneous growth of production, sales volumes and activity efficiency i.e. building of effective management system of enterprise and making decisions concerning optimization of the whole structure of economic activity. It is possible by means of funds investment, released in the result of taxation optimization, to production, development of an enterprise in general, as well as its separate assets. Taxation optimization and tax planning must maintain price competitiveness of enterprises by means of effective management of taxes and charges, which are included in goods and services price [8]. Besides, it must assist in obtaining of economic benefits and increase of transparency of accounting and control system of tax and charges liabilities.

Avoidance of tax penalties and interests. With the purpose of tax burden minimization management of enterprises applies to rather doubtful measures concerning minimization of tax and charges liabilities, which can contravene provisions of tax legislation or comply with it formally. But it should be realized that minimization of tax expenses within short-term period can cause considerable tax penalties and interests in the long view. That is why issue of economic expediency of such measures is doubtful, because its application influences not only on possibility of financial benefits loss, but also on enterprise’s image among creditors, enterprises-contractors and tax authorities.

Judicial doctrines are widely used in world practice, which are used by controlling authorities for differentiating of real economic transactions from such that are used by business entities exclusively with the purpose of gaining tax benefits. Such doctrines include: essence over form and business purpose. Doctrine of essence superseding over form means the following: legal consequences of economic transaction must be defined in a greater degree by essence and expediency of its fulfilment, but not by legally executed documents. According to doctrine of business purpose, a purpose must be defined first of all, under which such operation is carried out. If an agreement is concluded, under which tax benefits are stipulated for enterprises, but substantiation of such operation necessity is absent, such agreement can be considered invalid [9]. Therefore when making management decisions concerning optimization of taxation lawfulness of realization should be clearly established and application expediency should be confirmed by way of estimation of economic effect from applied tax measures.

Search of reserves for reducing of taxes payable. Work of analytical service of an enterprise is directed at investigation of economic activity condition, analysis of its main indexes and search of additional attraction sources or release of monetary assets. Stated information concerning financial compliance of enterprises can be obtained under the results of analytical procedures, which are used by auditors in the process of tax and charges liabilities checking. On the basis of generalization of received data from internal and external sources of audit tax managers have to reveal facts of untimely budget settlements and optimize structure of tax payments. With this purpose it is worth optimizing of taxation system with the help of tax policy forming and development measures on improvement of accounting and reporting of tax and charges liabilities. Effective means of enterprise’s tax liabilities monitoring is budgeting and financial plans forming.

Budgeting of tax liabilities repayment. Tax budgets - rather widespread monitoring practice of tax liabilities condition in the world. It allows to monitor facts of liabilities acknowledgment, redemption and timely detect outstanding liabilities. Financial plans are formed on the basis of budgets, which determine usage directions of financial resources of an enterprise, including for taxes and charges liabilities repayment. Besides, it is necessary to form minimum reserve for budget settlements, that will allow to make tax payments in time and without delays and prevent expenses occurrence of the enterprise, connected with coverage of charged penalties and interests.

When forming budget of tax flows it is worth considering not only charged and payable taxes and charges but also amounts of penalties and interests for untimely budget settlements. Therefore we suggest to use the following approach when planning taxes and charges liabilities repayment:

,

where – taxes and charges liabilities, which are mature in accounting period,

– charged tax liabilities,

– amount of taxes and charges, repaid from the state budget,

– penalties and interests, charged for untimely payment of taxes and charges to budget,

– overpayment of taxes and duties, which will be accounted in future accounting periods.

Thus, mentioned calculation method of taxes and charges liabilities allows monitor the whole process from its acknowledgement to repayment. Budgeting is rather effective in terms of high productivity of activity, because it helps reveal outstanding amounts of taxes and charges and prevent application of penalty sanctions by state tax authorities.

In the process of budgeting for redemption of tax liabilities it is expedient to estimate condition of budget settlements, activity peculiarities for the previous period, availability of specific taxation operations, changes in tax legislation, in operating activity, carrying out of new types of activity etc. Therefore budgets can be formed also in separate kinds of taxes and charges, that will assist in research of taxes structure change and its flows. Besides, it is necessary to define amount of tax payments and outstanding tax liabilities for the future period. Budgeting of taxes and charges liabilities should be carried out simultaneously with financial flows planning, because such measures allow to determine reserves for coverage of enterprises’ indebtedness.

ІV. Conclusions. Within modern unstable economic conditions role of audit is only strengthening as a principal instrument for accuracy and transparency confirmation of financial statements. Audit results of tax liabilities allow to obtain complete and transparent information concerning budget settlements condition of enterprises and before other contractors, latent liabilities, information falsification as a result of mistakes and deliberate tax evasion. Audit results of tax liabilities should be used when carrying out of such measures of tax management. With the purpose of effective management of tax flows it is expedient to use audit results in such directions: development of key principles of tax policy, optimization of tax burden, avoidance of tax penalties and interests, search of reserves for reducing of taxes payable and budgeting of tax flows. It will contribute to achievement of socio-economic and financial effects from carrying out taxation operations and increase of credit rating of an enterprise and confidence of other creditors, tax authorities, business structures.

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