Our tour of Australia is nearly complete.

Step: #11: Before purchasing an accounting package, ask if it will meet the Information Systems Risk Assessment. According to the ATO, “the integrity of information systems you use to support your business operations affects the accuracy and completeness of your reporting and lodgement activities. The information systems risk assessment (ISRA) (click here for a fact sheet) is a process we carry out that provides you with a high level overview of your information systems and a risk rating for key elements of your system.” For example, as part of its compliance measures, the ATO prefers companies provide Computer assisted verification (CAV), which makes it cheaper and more efficient to provide information electronically for the ATO to monitor compliance, while reducing the time tax officers need to spend on-premise.

Step #12: Discuss a disaster recovery process that stores key records in the cloud. Since the ATO requires businesses to maintain records for at least five years, consider storing records in the cloud. The most efficient way to handle this is use an accounting package that is cloud-enabled.

That wraps up our take on doing business in Australia. As with the countries we ‘ve previously profiled, some of the tips can be applied to other countries where you ‘re considering expansion.

To encourage multinational companies to do business in Australia, the Australian Security & Investment Commission (ASIC) enacted changes to a number of processes, including adopting IFRS. A decade ago, ASIC started preparing for IFRS adoption by narrowing the number of differences between IFRS and Australian GAAP (AGAAP). For-profit entities should comply with IFRS…but at the same time, they should also be compliant with Sarbanes-Oxley.

Step #9: Use an accounting package that can handle IFRS for the Australian subsidiary and US GAAP for the parent company. Being able to manage in both systems in Australia will make it easier for the parent company to integrate and generate reports in US GAAP. Your software should also be able to ensure SOX compliance.

Step #10: Make sure the package you purchase for Australia can work with other systems used in-country. Your Australian affiliate may use a different infrastructure so you need a solution that can operate across different platforms. (In other words, don ‘t assume that the software you use in the U.S. will automatically interoperate with the infrastructure in use in Australia.)

We’ll wrap up tomorrow.

 

One way that Australia makes things easier for businesses is through the ATO ‘s online business portal. Today we look at some of the online processes your accounting system should be able to work with.

Step #7: Make sure your accounting solution can work with Australia ‘s online systems and processes. The first thing you ‘ll need is an AUSkey, a single electronic key to access government online services, including the Australian Business Register (www.abr.gov.au), and to lodge (Australian for “submit”) reports directly to the ATO through Standard Business Reporting (SBR) enabled software (more on that in the next step). The system you select must be able to generate and transmit the various monthly and quarterly reports required by the ATO. Continue reading →

Perhaps the only thing worse than having to track and pay taxes is the legal and financial hassle of not paying taxes. While we are not dispensing tax advice, we do want to provide an overview of the Australian tax system so that readers can gain perspective and insight as they select an accounting solution to deploy for Australian operations.

Step #4: Look for an accounting solution to determine your Goods & Services Tax (GST) liability. The GST is Australia ‘s version of a value-added tax (VAT) used in the EU. The GST is simpler and is applied to most goods and services, excluding some basic foodstuffs, medical and educational services. However, to register for GST, U.S. companies opening operations in Australia need to request a Tax File Number (TFR), a nine-digit number much like a Social Security number in the U.S. or the Social Insurance Number in Canada. Once you have a TFR, you need to request an Australian Business Number, an 11-digit number that aims to reduce fraud and to provide an efficient means by which to determine companies that pay GST. (If you don ‘t request an ABN, other businesses may withhold 46.5% of payments to you.) The accounting system you choose should be able to track GST liability – typically one-eleventh of your taxable sales – and pay that amount to the Australian Tax Office (ATO). Companies can claim GST credits for charges included in business purchases. There are two methods of accounting for GST: on a “cash basis” or a “non-cash basis.” The method you use affects when you must account for GST and when you are able to claim GST credits, and is best decided in a discussion with your tax advisor.

Step #5: Select an accounting solution that is flexible enough to meet the tax and reporting needs of your parent organization as well as your Australian subsidiary. For example, the U.S. tax year ends Dec. 31^st while the Australian tax year ends June 30^th, so your accounting package should enable you to close your books for each country ‘s respective tax year (that ‘s Oct. 31^st for Australia). Meanwhile, corporate taxes are a flat 30%, but above a certain level the ATO requires Pay-As-You-Go (PAYG) installments towards your expected income tax liability on your business income. You can make changes to the PAYG payments you make, but your activity report (as generated by your accounting package) must include a reason code for any change in PAYG installments. Your company ‘s actual tax liability is determined after the end of the tax year (June 30^th); PAYG installments are used to determine if you owe more or are due a refund.

Step #6: Make sure your accounting solution can handle payroll taxes and superannuated payments. Australian employers are responsible for payroll taxes paid to Australian state governments. The amount of payroll tax and other regulations are determined by each Australian state (Western Australia, South Australia, Northern Territory, Queensland, New South Wales, Victoria and Tasmania). Any solution will be able to track payroll taxes paid but Australian companies are also responsible for superannuation – Australia ‘s version of pension funds. These are compulsory for employees paid more than A$450 per month or are over 18 and work more than 30 hours per week. Employers must pay a minimum of 9% of each eligible employee ‘s ordinary wages. These amounts must be paid at least four times each year into a fund nominated by the employee within 28 days of the end of each quarter. (Companies that do not pay within 28 days of a quarter ‘s end may be liable for a nondeductible fee and other penalties.) Companies should periodically audit the rules, how much they need to pay, etc. to make sure they ‘re in compliance.

Tomorrow, we ‘ll look at some of Australia ‘s online initiatives.

Welcome to “Doing Business in Australia,” the eighth and last in our “Going Global” blog series. Designed for companies looking to expand globally, our series has already covered China, the Czech Republic, Hungary, France, Italy, Canada, the United Kingdom, and Germany. This series is intended to address important but below-the-radar finance and accounting issues. (Please note: this series is not intended to provide cross-cultural tips.)

Australia is a particularly good location for U.S. companies looking to expand operations in the Pacific Rim – and not just because they speak English, too. Australia is the world ‘s 19^th ranked country in terms of purchasing power, and is the world ‘s 22nd largest exporter and the 21st largest importer, according to the CIA World Fact Book., The two countries already had a strong trade and investment relationship in 2005, when the Australia-U.S. Free Trade Agreement (AUSFTA) went into effect. Today, the U.S. is Australia ‘s fifth-largest trading partner, generating $14.3 billion in exports, according to State Dept. fact sheet published earlier this year while the U.S. is its second-largest source for imports at $36.3 billion (behind China at $44 billion and ahead of Japan at $18.8 billion). The good news for U.S. companies is that the exchange rate has been fairly stable and roughly equal. According to the U.S. Dept. of State, the U.S. is Australia ‘s largest source of foreign investment while the U.S. is the largest destination of Australian foreign investment.

The Australian economy is dominated by its service sector. The country has nearly three million small businesses, employing “about one in five of the Australian workforce…Most (of those) operate as sole traders or family businesses and they are sometimes referred to as the backbone of the Australian economy,” Australian Commissioner of Taxation Michael D ‘Ascenzo, said in a talk to the Council of Small Business of Australia in Aug. 2012.

And, for the past three decades, the country “has transformed itself from an inward-looking, highly protected, and regulated marketplace to an open, internationally competitive, export-oriented economy,” reported the U.S. Dept. of State. Australia has also reformed its “taxation system, including introducing a broad-based Goods and Services Tax (GST) and large reductions in income tax rates.” (We ‘ll get more into that, in tomorrow ‘s post.)

Australia’s economic standing in the world is a result of a commitment to best-practice macroeconomic policy settings, according to the U.S. Dept. of State, “including the delegation of the conduct of monetary policy to the independent Reserve Bank of Australia, and a broad acceptance of prudent fiscal policy where the government aims for fiscal balance over the economic cycle. Economic recovery is strengthening, with GDP forecast to grow by 3.25% in 2011-2012 and 2012-2013. The success of monetary and fiscal stimulus is projected to return the budget to surplus in 2012. Net debt is forecast to peak at 8.9% of GDP in 2011-2012.” According to the CIA World Factbook, Australia ‘s GDP in 2011 was 2%, placing it at 146th in the world. Taxes comprise 31.8% of the GDP, ranking 82nd in 2011 in the world (the higher the number, the lower the percentage).

In 2012, the World Bank ranked Australia 15^th (out of 183 economies), based on ease of doing business there as determined by 10 different variables. Some of the factors include the ease of starting a business: (2^nd), trading across borders (30th), and getting credit (8^th) – all good criteria for U.S. companies considering expansion into Australia.

Ok, so here ‘s our first tip.

Step #1: Make sure the accounting solution you choose can handle multiple currencies – particularly two different “dollars.” While traders often refer to Australian currency as the “Aussie,” it is officially known as the Australian dollar. While the good news for U.S. companies is that the exchange rate from the Australian and U.S. dollar has been fairly stable and roughly equal (in part because Australia has valued its dollar against the U.S. dollar since 1974), you need to make sure your systems don ‘t confuse the two. Make sure your solution can allow you to set currency as Australian (either A$ or AUD$) and American (USD$).

Step #2: Make sure you know the key acronyms. We ‘ll address most of these acronyms in the rest of this blog series.

• ABN – Australian business number
• AIIR – Annual investment income report
• ATO – Australian Tax Office
• FBT – Fringe benefits tax
• GIC – General interest charge
• GST – Goods and services tax
• PAYG – Pay as you go
• SAP – Substituted accounting period
• SGC – Superannuation guarantee charge
• TFN – Tax file number
  

Step #3: Save time at the end of the month by choosing a solution that offers automated currency rebalancing. Given the significant difference in time zones between the U.S. and Australia – which can range from 12 to 14 hours (including some cities like Adelaide that are 13 ½ hours ahead of New York) – it is important for U.S. companies to select an accounting solution that can import currency rates and pull together those numbers automatically, and set a policy for doing so. Otherwise, there may be confusion when the Australian entity closes its books at 5:00pm, on Dec 31^st in Adelaide when it ‘s is 10:30pm on Dec. 30^th in Los Angeles. That time difference can lead to tricky currency valuations and a lot of headaches. Automating currency rebalancing by establishing a set rule for currency valuations can reduce errors and discrepancies. Your accounting solution should also handle any inter-company transactions via different policies – the original rate (at the start of the month, for example), the rate at the time of the transaction or the rate at the time the transaction posted. The point to keep in mind is that you don ‘t want rate changes to impact the profitability of either the local or the international unit. That ‘s why you should also look for a solution that will let you to override the scheduled rates to enable you to keep things balanced.

Tomorrow we ‘ll look at the Australian tax system.

Job growth isn ‘t in the immediate plans for finance departments according to our recent “Coda Financials Mind Meld™” survey of finance and software executives. In keeping with the trend of trying to do more with less, these execs are planning to keep headcount steady while growing their business. Ninety percent of finance and software executives predict revenue growth at or above their current performances, yet an aggressive 68 percent predict no headcount growth within their departments. To help drive efficiencies throughout their finance operations and accomplish more with fewer resources, many CFOs are turning to technology solutions.

Check out the infographic from our IT and Finance software Executives survey with more information on the findings.

Our tour of Germany is nearly complete. Of course you ‘ll need a solution that can handle at least two currencies (dollars and Euros), two languages, and three accounting systems (U.S. GAAP, German GAAP and tax books).

Step #9: Be flexible to fulfill local law, regulations and practices. Keep the control of your company by selecting a system that can easily link other systems and software. Your German affiliate may use a different infrastructure so you need a solution that can operate across different platforms.

Step #10: Make sure you understand local requirements and enforcement. Before opening operations in Germany, make sure to get the advice of a local attorney and accountant who are familiar with the regulations of the German Financial Reporting Enforcement Act (Bilanzkontrollgesetz or BilKoG), which established a two tier system of enforcement in Germany. It combines elements of private and public law.

That wraps up our take on doing business in Germany. As with the countries we ‘ve previously profiled, some of the tips can be applied to other countries where you ‘re considering expansion.

Watch for our next blog in our Going Global series, “Doing business in Australia.”

Today we ‘ll discuss three German requirements that require specially designed localized solutions.

Step #7: Make sure your accounting package can handle the following:

• GDPdU: Known in German as Grundsaetze zum Datenzugriff und zur Pruefbarkeit digitaler Unterlagen, GdpdU is an electronic transfer of accounting data for tax audits. The German tax administration now requires the submission of electronic accounting data for tax audits. GdpdU should speed up and facilitate tax audits for U.S. companies operating in Germany. GdpdU makes it faster to find mistakes. You need an accounting package with an integrated GdpdU solution.
• Elster: Known in German as Elektronische Steuererklaerung, Elster is the electronic transmission of VAT declaration to the tax administration. Look for accounting packages that have an Elster component.
• Local payment files: There is a data standard for German banks called DTAUS (domestic payments) and DTAZV (foreign payments). They currently use this standard for transmission of payment files. In near future DTAZV should be replaced by Single Euro Payments Area (SEPA) as long as European payments are executed. If U.S. payments are executed, DTAZV remains in place.

Step #8: Find out if your accounting package can handle E-Balance (electronic transmission of balance and P&L data known in German as e-Bilanz). E-Balance is the electronic submission of the balance and P&L data to the tax administration. This is new a requirement for 2012, which needs to be submitted in 2013). The new E-Balance standardizes some reporting lines for local transmission, defined by local GAAP. On an account level, companies are free to use whatever works for you in your chart of accounts. However, you need to remap your accounts to ensure they work with E-Balance requirements. To be able to transmit in 2014, you need to start booking in the right way. (There is a one-year grace period in which you can still file on paper and won ‘t be fined. However, by 2014, you need to submit electronically.) Coda Financials does have an E-Balance solution available, but most other solutions do not yet have a solution. Make sure to ask when your provider will have a solution ready; if it ‘s after Q4 2012, it may be worth switching to another system.

We’ll wrap up tomorrow.

The German Accounting Standards Committee (GASC) is the body charged with bringing German GAAP in line with international accounting standards. Germany began modernizing its accounting processes in 2005, but German GAAP has some key differences from IFRS. Today, we ‘ll look at two differences.

Step #5: If you operate in other countries that require IFRS, you still need a system flexible enough to handle GAS and U.S. GAAP. With the “modernisation law” (Bilanzrechtsmodernisierungsgesetz in German, often abbreviated as BilMoG), local GAAP comes closer to IFRS, but there are still differences. Please be aware that international companies operating in Germany need to close their local books under local GAAP for external reporting purposes as well as for tax purposes. Either way, you need to prepare a tax book, which is the basis of tax audits and tax laws that usually are based on GAS and describe only the differences between GAS and tax laws. (Please see Step #5 regarding tax books.) Tax laws have not been renewed to come closer to IFRS. Meanwhile, your system in Germany must also interoperate with your U.S. solution, to ensure automated results. Also, according to the GASC, “enterprises applying international accounting principles shall continue to apply German Accounting Standards (GAS) to the extent international accounting principles do not include any requirements. This holds especially for the German Accounting Standards concerning risk reporting and management reporting.”

Step #6: Realize GOB also known as German GAAP or GAS has at least five key differences from IFRS. GAS gives more flexibility in terms of options within the accounting rules, while the requirements for the German tax books are stricter. Local GAAP is focused on risk, seeking to protect local creditors more than IFRS seems to do. Your accounting system should be able to handle key differences that include:

• Capitalization of R&D: Under GAS, you can capitalize R&D costs, as in the U.S., but not in your tax book.
• Goodwill: Under GAS, you can capitalize Goodwill, but not in your tax book.
• Fixed assets: These are handled differently in the U.S. from the way they ‘re handled in Germany. There ‘s an additional complication when it comes to German tax books, with defined depreciation rules and periods from U.S. GAAP. Your system should maintain two separate calculations levels for U.S. GAAP and local GAAP. You need a system that can report depreciation of fixed assets according to U.S. GAAP as well as GOB. Ideally, the system should be automated because errors can creep in when conducted manually.
• Pensions: Pensions need separate actuarial calculations from the way they are accounted for in Germany. That means you need a solution that can handle the German process and the U.S. process.
• Valuation of inventory: There are different valuation rules for different counties. Again, you need a solution that can handle both sets of rules for any inventory.
• Chart of accounts: (see Step #3).

For a good comparison of IFRS vs. GAS, check out this PwC presentation: “IFRS versus German GAAP (revised): Summary of similarities and differences.”

Tomorrow, we ‘ll look at some additional ways German accounting practices require localized solutions.