261 Purpose and types of record keeping by SMEs Unlike in their larger

261 purpose and types of record keeping by smes

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2.6.1 Purpose and types of record keeping by SMEs Unlike in their larger counterparts, small business record keeping is largely for tax compliance purposes (Adams & Webley, 2001; Ashby & Webley, 2008; Sandford & Hasseldine, 1992), although some operators have used their records to manage their business (Evans et al., 2005; Lignier, 2009b). Most Australian SMEs have a computerised accounting system with a minority using the traditional paper-based manual system (Evans et al., 2005). Current research shows that Pacific SME operators in New Zealand adopt predominantly the manual system (Prescott, 2009; Prescott & Hooper, 2009) and they underutilise information technology in their record keeping system.
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28 One would expect those who are proficient in accounting to use a computerised accounting system to take advantage of the many “managerial benefits” of accounting information. However, tax practitioners have been disappointed with the extent of accounting errors made by SMEs, regardless of whether computerised or manual accounting systems are used (Evans et al., 2005). The question remains as to what type of accounting system is used by SME operators, as it affects their tax compliance costs and the ease with which they could retrieve tax information. Another interrelated question pertains to the record keeping function of SMEs, as it affects their administrative and psychological compliance costs, and timeliness of their tax returns. Given that, it would be beneficial to seek out the types of accounting system adopted by SME operators and their record keeping function and the rationale for their decisions. Pacific business operators in New Zealand have found the self assessment tax regime onerous and foreign to them (Prescott & Hooper, 2009). There is a deliberate reluctance to comply and the normal Pacific response is that “it is often ignored or pushed to one side for some calculation at some vague later date” (Prescott & Hooper, 2009, p. 296). Many also avoid tax compliance by deliberately operating below the tax registration threshold, with evidence of business failures caused by tax obligations. Pacific operators are also “reluctant to engage in written and on-going record keeping” (Prescott & Hooper, 2009, p. 297). Though the authors attribute the Pacific’s compliance plights to their collectivistic cultural value, there may be other cultural dimensions that can help explain their reluctance, fear and difficulty with tax compliance. 2.6.2 Cash flow management and tax payments In terms of tax payments, Wallschutzky and Gibson (1993, 1994) discovered that Australian SMEs do not have problems with accounting for taxes but they have tax payments and cash management problems. In particular, the collection of taxes which have to be remitted at a future date to the tax authority is a major concern for SMEs.
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  • Fall '16
  • tax compliance, SME Operators

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