Please consider the environment before printing this document. Business Adviser Does your business have the right information to prepare for the future? For any business owner, the execution of business strategy can often be hampered by a lack of reliable information. In today’s constantly changing business environment, it’s more important than ever to have ready access to continuous market insight to ensure you have the ability to react quickly and make informed decisions about the business. Privately-held companies continuously need to adapt to new situations, and business intelligence should be an integral part of this evolution, placing information at the heart of all decisions. One of the biggest business myths is that more data will automatically improve performance, but information is only useful if it helps you make better decisions. Business owners are drowning in a sea of data when what they really need is greater clarity and insight. The vast majority of reports end up in a black hole and makes no contribution to important strategic or tactical decisions an owner or management team may need to make. While financial information is generally reported effectively, it’s probably defining the key performance measures and the analysis of market and competitor data that frequently creates the most value. The key for a business owner is to find a way to shift the focus beyond the efficient delivery of information to a strategic approach emphasizing the value of the information itself in order to achieve accuracy from the insight that will drive better business decisions and performance. By aligning information requirements with strategic needs you can create a foundation for better performance measurement, competitive intelligence, and effective decision making.
Financial reporting is key to managing your private company’s taxes By Theo Michalarias Taxes can often be the single biggest expense a private company will incur and will affect virtually every transaction it undertakes. Yet in many private companies, taxes can sometimes be treated as an afterthought or a secondary consideration in the decision making process. Private companies need to acknowledge the impact that taxes have on an organization as well as the necessity for accurate financial information used in tax computations for both tax compliance and tax planning purposes. Some vital examples of the link between tax reporting and underlying financial information include: Corporate tax returns – In addition to the obvious non-consolidated balance sheet and income statement used as the basis for the return, your company’s tax preparers must ensure that the underlying detailed information contained within the financial statements is accurate and readily extractable to facilitate the identification of items that can impact the computation of corporate income taxes including: the non-deductible portion of meals and entertainment, club dues, various reserves, expenses for repairs and maintenance related to capital expenditures, start-up costs, foreign exchange and financing costs. Tax incentives – All companies are required to perform certain prescribed activities in order to qualify for tax credits offered by federal and provincial tax authorities. These activities would typically be evidenced by the functions performed by your employees as well as any materials, supplies and overheads consumed in the process. Internal information systems that accurately capture this activity are the key to maximizing any benefits available to your private company. Employees – Private companies are typically good at withholding and remitting payroll taxes related to recurring payroll and periodic incentive payments. However, controls should exist to identify and track other uncommon types of benefits enjoyed by employees from time to time including: automobile benefits, interest free loans, club memberships and the use of any corporate owned assets. Information Management System--The preparation of tax returns and tax information returns requires detailed and accurate information. Management information systems and underlying general ledgers will often times be unsuitable to gather the necessary tax information from the accounts. As a result, the risk of including incorrect information into tax returns is increased when manual processes are introduced as a necessity resulting from existing management information systems that are not integrated with tax reporting needs. Exposure to Tax Penalties--Companies can be subject to penalties and interest for filing incorrect or inadequate information with their returns. In addition, your private company can also face reputational risk with your employees and the taxation authorities where employment related benefits are not adequately captured in an employee’s annual income and benefit summary and are subsequently discovered on audit by the taxation authorities. A lack of accurate information can also lead to missed opportunities to benefit from tax credits and other tax incentives. These risks and missed opportunities can usually be traced to broader issues related to how a company views tax reporting and the tax function. How tax savvy is your private company’s financial reporting system? Take our tax governance quiz.
The mitigation of risk and the maximization of opportunities are universal goals within any part of a private company – taxation being no exception. Given the trend toward increased enforcement, transparency and cooperation among tax authorities in Canada and around the world, as well as mounting pressures for governments to raise revenues, we expect private companies are likely to find that tax risk management, tax process improvement and use of technology will become much bigger priorities.
Beyond the numbers: the evolving leadership role of the CFO Submitted by the Canadian Financial Executives Research Foundation
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