Governance principles and good practice in tax services
The concept of good governance is commonly associated with corporate governance. Corporate governance is the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimised.3 A good governance framework can benefit any entity, not just corporations.
The three basic principles of effective governance are:
- transparency
- accountability
- control.
Entities that have good governance and an effective compliance program are in a position to guard against risks and the consequences of the risks faced by organisations when exposed to them.
Risks include:
- reputation risk
- market risk
- viability risk
- legal risk
- regulatory risk.
With good governance and a compliance practice in place, the effects of the following possible outcomes are removed.
Risk outcomes:
- intense media focus leading to damage to reputation in the marketplace
- loss of shareholder and broader community confidence because of changes in attitudes of the public after intense scrutiny
- flow-on effect to operations, resulting in decreased effectiveness and efficiency due to uncertainty in the workplace
- inability to meet financial commitments in a cost-effective and timely manner
- threat of litigation and the subsequent financial impact due to legal costs
- financial loss as a result of exposure to penalties imposed by statutory and regulatory bodies.
Better practice
Better practice for tax advisers (and other tax intermediaries) is to have appropriate governance arrangements for the tax services that they provide.
Better practice is for your key people to ensure that these governance arrangements are being met by having appropriate oversight, proper systems, clear accountabilities, strong controls, ethical behaviours and highly skilled people supported by robust processes and procedures. Your firm would then have the capacity to identify, assess and mitigate tax services risks.
We strongly encourage you to ensure that your internal governance arrangements effectively deal with aggressive tax planning, in particular risks of exposure to promoter penalties.
Last Modified: Wednesday, 9 January 2013