Below is the Preface excerpt from the Australian Master Bookkeepers Guide – 6th Edition, providing a detailed overview of how the bookkeeper’s role has evolved with changing legislation.
Today’s bookkeeper must master the interrelationship between bookkeeping, accounting, income tax, GST and FBT.
Specifically, this upcoming edition incorporates new content in relation to the simplified depreciation method available to small business entities (SBEs) whereby assets costing less than $20,000 can be immediately written off.
It also covers recent changes relating to superannuation and fringe benefits tax, which has implications for relevant tax rates, and the purchase and sale of a luxury car.
Bookkeepers are an integral part of every business, large or small, and are the ones entrusted with the responsibility of entering transactions from source documents and bank statements into the accounting system.
From this, management accounts, usually consisting of the profit and loss statement and balance sheet, are prepared and provided to the client. A range of reconciliations such as bank, payroll and GST reconciliations are also typically prepared by the bookkeeper.
Prior to the introduction of GST in Australia, the primary role of the bookkeeper was to ensure that transactions were correctly recorded in the accounting system and all relevant reconciliations were attended to.
Typically, at the end of the financial year, the bookkeeper would print off management accounts (consisting of the trial balance, profit and loss statement and balance sheet) and provide them to the external accountant or tax agent, who would then prepare external financial statements and the income tax return of an entity.
Introduction of the GST
However, all of that changed with the introduction of the GST on 1 July 2000. From this date, the role of the bookkeeper greatly expanded. Not only were bookkeepers required to prepare the books on behalf of the entity, but they were generally preparing and lodging their client’s Business Activity Statements (BASs) with the Australian Taxation Office (ATO).
The BAS requires an entity not only to report key figures like sales, purchases, salaries and wages and assets acquired every month or every quarter, but also to report the amount of GST collected and paid and calculate and report the entity’s pay as you go (PAYG) instalments, PAYG withholding, fringe benefits tax (FBT) instalments, luxury car tax (LCT) and fuel tax credit laws.
Within a year after the introduction of the GST, it was reported that bookkeepers lodged around 8% of all BASs with the ATO on behalf of their clients.
The requirement to prepare and lodge Instalment Activity Statements or BASs with the ATO on a monthly or quarterly basis meant that businesses required fully reconciled management accounts on a regular and timely basis.
Furthermore, because figures contained in the management accounts form the basis of information included not only in the BAS, but also in FBT and income tax returns lodged with the ATO, today’s bookkeepers are expected to have a basic understanding of a range of tax-related issues, such as income tax, PAYG withholding and PAYG instalment regimes, payroll and superannuation matters, inventory, depreciation, GST and FBT.
It is not only clients and the external accountant who rely on the work performed by bookkeepers. Management accounts drafted by the bookkeeper are typically passed onto other interested parties, such as banks, financial institutions and financial planners who use these figures to make important financial decisions about the client’s financial affairs.
While the external accountant usually checks key figures in management accounts, they rarely check every transaction. Accordingly, the external accountant relies heavily on the integrity of the data contained within management accounts prepared by the bookkeeper when preparing the client’s annual external financial statements.
Tax Agent Services Act 2009
As a result of the introduction of the Tax Agent Services Act 2009 in March 2010 and the subsequent formation of the Tax Practitioners Board, bookkeepers are now governed by a new set of rules and regulations.
From 1 March 2010, the Tax Agent Services Act 2009 requires that any bookkeeper that provides a bookkeeping service for to their clients for a fee, including providing BAS advice and lodging BASs on behalf of their clients, must be registered as a ‘‘BAS agent’’ with the Tax Practitioners Board. These bookkeepers are also commonly referred to as ‘‘contract bookkeepers’’. Services provided by a BAS agent are referred to as ‘‘BAS services’’.
BAS agents play a vital role in looking after their clients’ bookkeeping affairs. For instance, according to a speech given by Mr Dale Pinto, the former Chair of the Tax Practitioners Board on the Gold Coast on Friday, 19 March 2010, at the time, it was estimated that there were over 120,000 people working in the bookkeeping profession in Australia with around 12,000 to 18,000 (or around 10% to 15%) acting as contracting bookkeepers charging their clients a fee to prepare and lodge BASs on their behalf.
According to p 31 of the ATO’s 2015 Annual Report, it was reported that more than 18.6 million activity statements were lodged in the 2014/15 income year, the majority of which were prepared and lodged by tax agents and BAS agents.
At 30 June 2015, the Tax Practitioners Board reported that there were a total of 14,936 registered BAS agents in Australia.
While bookkeepers do not necessarily provide advice to clients on a range of tax issues like tax agents, they do play an important role in ensuring that transactions have been correctly entered into the client’s accounting system so that the external accountant is alerted to transactions or account balances appearing in management accounts which may have income tax, FBT or GST consequences.
For this reason, it is essential that all bookkeepers have a basic understanding of taxation law and accompanying tax issues faced by their clients, such as GST, FBT, superannuation, depreciation, PAYG withholding and PAYG instalments.
While there are many excellent introductory accounting textbooks on the market, virtually no books are written specifically for bookkeepers. The accounting textbooks are primarily written for students studying accounting courses at university. Typically, these textbooks only devote a handful of pages to GST and virtually none of them address the interrelationship that exists between accounting, income tax and GST.
As these disciplines are so closely related, inevitably, the study of one involves knowledge and a basic understanding of the other three. The motivation to write this book was driven largely by this deficiency.
For more information on the latest Australian Master Bookkeepers Guide and how it can help you, visit the new online CCH Bookshop where you will now automatically save 15-20% when you order two or more books.