Safety at Work: Policy meets performance

Featured

???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????discussion of Dr Sharron O’Neill’s research with Safe Work Australia in late 2014 – by WHS consultant Kevin Jones – highlighted how better WHS accounting might improve both work, health and safety (WHS) policy and performance.

Jones reported on the 2014 annual Australian Council of Trade Unions (ACTU) conference on occupational health and safety, which was held in Melbourne last October. The conference was addressed by the ALP Shadow Minister for Employment Relations: Brendan O’Connor MP.

According to Mr O’Conner, the Royal Commission into the Home Insulation Scheme risks distracting attention from broader deficiencies in the WHS laws that should ‘protect the interests of working people, particularly young workers’.

Whether legal reform can improve WHS outcomes is a matter of debate. Jones’s view is that the needed changes are:

unlikely to come through laws, particularly as OHS/WHS laws remain a State responsibility. Change will need to be attempted through modifying the public services’ processes of consultation and collaboration of safety-related matters.

However, the Shadow Minister also discussed the economic argument for improving WHS policy and performance, which suggests that WHS accounting has a critical role to play:

If you look at the costs that are borne by a community because of bad health and safety laws, on economic grounds you win the argument, leave aside the fact that you’ve torn a family or community apart because of injury or death.

If the economic grounds of WHS are indeed central to the public policy argument, then accounting needs to be able to bring the costs of WHS into both public policy discussions and organisations’ reports in a clear and comparable way.

As Dr O’Neill’s presentations on WHS reporting have shown, both financial and non-financial accounting has some way to go to adequately recognise either the community or organisational costs of WHS practices, or to effectively communicate good WHS practices to stakeholders.

But if the current standard of WHS reporting is part of the problem, then new WHS reporting mechanisms, which Dr O’Neill’s research is helping to develop, have the capacity to be an important part of the solution.

For more information on this research, or on improving WHS performance in your organisation, contact Dr O’Neill at: sharron.oneill@mq.edu.au.

What does the market expect of audit committees? Michael Coleman at the joint IGAP & CPA Australia Annual Forum.

Featured

MC picWhat does the market expect of audit committees? Increasingly, ‘everything’, Michael Coleman told the Annual Forum, held in October, 2014.

The joint IGAP and CPA Australia Annual Forum gathers leaders from industry, the accounting profession and academia to address key issues in contemporary governance and performance.

This year’s topic – ‘The  evolving role of audit committees’ – explored how audit committees are responding to rapidly evolving risks, liability, technological advancements and complexity in reporting, among a myriad of other challenges.

Coleman was Chair of the Financial Reporting Council (FRC), sits on a number of prestigious boards and has also had 30 years as an audit partner. He used his keynote address to highlight a potential expectations gap between what markets expect of audit committees and what directors can reasonably deliver.

Coleman highlighted several key challenges that audit committees are facing:

  • Changing expectations of regulators and the market; for example, that audit committees should be satisfied that auditors are doing their job or commenting on financial reviews;
  • A greater focus on risk; and
  • The proliferation of reports (e.g. Integrated Reporting).

A particular difficulty Coleman highlighted is the expectations for audit committees to form a judgement on audit quality:

“So whether it’s a good audit or not a good audit is a tough one and this is something that as audit committees we’re probably going to have to take a reasonable amount of time to consider.”

“We need to question amongst other things whether or not the auditor has been sufficiently sceptical. Now, how does an auditor demonstrate to the board that they’ve been sceptical?”

Coleman also highlighted how Australia has to some extent followed the United States trend of increasing the responsibilities of audit committees:

“In particular in my experience it’s become common for audit committees to approve fees over a certain level in relation to non-audit services provided by the auditor and audit committees have taken on a far more extensive role in relation to overseeing the financials.”

However, unlike in the United States, Australia still sees the audit committee as a sub-committee of the board:

“It’s not a separate creature, it’s not a separate animal and so therefore, and especially following Centro, we have the situation where boards, very, very rigorously in my experience, are actually as a whole considering the financials.

“The audit committee might look at the detail, but then the board as a whole still wishes to satisfy itself that it’s actually doing the right thing.”

Finally, Coleman observed how the expectations on audit committees would continue to evolve in the future with the release of a new auditing reporting standard in June 2016, which “will require the auditor’s report to include commentary on their key audit matters”. The new standards are likely to some interesting discussions, and to some changes to the dynamic of the relationship between the auditor and audit committee.

How Managing Tax Risk Impacts Tax Compliance

A recent study by Dr Catriona Lavermicocca, in the Department of Accounting and Corporate Governance at Macquarie University, and Professor Margaret McKerchar from the University of NSW, provides insight into the tax risk decision-makers and the tax risk management practices of large Australian companies.

????????????????????????????????????????????????????????????????????????????????????Benefits of Tax Risk Management

The study is based on in-depth interviews and a survey of tax decision makers from large Australian companies (turnover exceeding $250 million). It finds that companies that identify and manage tax risk improve their compliance behaviour in several ways:

  • Management of tax risks reduces the company’s acceptable level of tax risk;
  • Directors and tax decision-makers, including the CEO, CFO and tax manager, are more informed concerning the tax risk to which the company is exposed; and
  • In a majority of large companies, a tax risk management system identifies both non-compliance with the income tax laws and new opportunities to minimise income tax. It ensures that companies act on the tax issues they identify, and place greater importance on income tax compliance.

Tax Management Systems

Although identifying and managing tax risks does improve the income tax compliance behaviour of large companies, the study finds that the effects of managing tax risk depends on the specific tax risk management system.

Effective systems of managing tax risk improve the flow of information about tax risks within a company. More precisely, the systematic consideration of tax risk throughout a large company assists the company to achieving the tax risk profile it seeks.

Ultimately numerous factors, including pressure from shareholders and other stakeholders, influence the board’s decision about an acceptable tax risk profile. Nonetheless, this research found that a tax risk management system tends to lower the level of tax risk that company decision-makers find acceptable.

Understanding – not eliminating – tax risk

Tax adjustments and amendments still occur despite having a tax risk management system in place. These arise for various reasons, including ATO audits or when companies identify their own errors and make a voluntary correction.

Large companies also indicate that they are increasingly required to obtain the advice of an external tax specialist in an effort to minimise the risks associated with uncertainty and complexity of tax laws, despite the additional cost.

Whilst a tax risk management system cannot identify or control all external risks, the study shows that a documented and operationalised tax risk management system ensures that decision-makers are at least more aware of the tax risks they face.

– Dr Catriona Lavermicocca and Professor Margaret McKerchar