Earnings and Management Guidance Strategy †MyAssignmenthelp.com

Question: Discuss about the Earnings and Management Guidance Strategy. Answer: Introduction: The internal information of the firms play a major role in tax planning and that plays a major role in tax avoidance. If there is no adequate information that is available then companies might end up losing tax cuts. It is difficult to coordinate the different department of the firm for the sake of tax planning and sometimes the tax documentation might be so much that the tax authorities will nullify the same. It is thus important that awareness must be there and all departments must be coordinated to make sure that effective tax planning is done(Mayntz, 2017). However strangely in todays time the presence of evidences states that the importance of the internal information of the firm might end up affecting its tax avoidance capabilities. In this research paper we will try to understand how the internal information of any company might affect its overall tax avoidance and what role does it play in it. The report will follow the flow of information towards the concept of tax planning and that might end up affecting its prospects of tax avoidance. Tax avoidance is legally practiced but there is a very thin line between tax avoidance and tax evasion. Often while planning ethically people end up hiding their income by unlawful means thus that must be avoided. We will also study the overall role of the internal information in tax avoidance and judge the various aspects of the information that is available on the basis of various parameters like availability, accessibility, quality, importance to the firm in regard to the overall financials of the company. If the firm employs high quality accounting information system it will be able to use the same to extract high quality information accordingly(Minnis Sutherland, 2017). The various aspects of internal information have still been neglected in terms of tax planning but slowly its importance is being established. If good information is not available, tax planning might not be up to the mark, and that might affect the overall flow of data. It is difficult to establish effective coordination of tax planning across business or geographical segments. There is huge risk involved in the same as the firm documentation might not be able to prove the same and hence that will bring the firm in worse position. It is thus important that internal information must be properly regulated to avoid any kind of flow of such data from one source to another without regulation. For example Bayer has suggested in its reports that it might take several years for it to provide Research and development documentation and that has affected the overall tax standing of the company. Moreover companies around the globe are facing issues in managing their transfer pricing data, only 49 percent of all the countries globally flow their transfer pricing data through automated systems rest all are still struggling with the same. So that is affecting their overall standing in terms of tax prospects, if they dont have proper documentation they will not be able to prove their stand in front of the tax authorities. Thus the importance of effective documentation and the use of proper accounting system to maintain the same are very vital for any firm(Pape, 2017). The managerial decisions also pay an important role in case of the same. Thus as much as it is important to identify the correct information that will help in tax avoidance that must important it is to make sure that firms take necessary steps in maintenance and documentation of the same. Even if the firms are able to do practice effective tax planning that reduces their tax liability considerably, if they are not able to prove the same in front of the taxation authorities through proper documentation it will in crease more risk for the firm. In this research paper the need and importance of the same will be explained with support of examples and theories(Rodriguez Kaczmarek, 2016). To ascertain the importance of the internal information of the firm for the prospects of tax avoidance. To ascertain the need for good accounting management system that will help in maintenance of the documentation related to the internal information system and will also help in the flow of data from one department to others. The resilience that the firms put on tax avoidance to make sure that they end up paying less taxes and how the government is effected by the same. The steps that the government has taken in recent times to reduce the tax evasion and tax avoidance and the importance that it stress on documentation will be explained briefly. The research questions forms the basis that decides the flow of the research paper. In this assignment we will focus on certain aspects of tax avoidance and internal information importance will be highlighted in the same. The basic questions will cover coordination requirements between the different departments of the organization. Most of the departments practices decentralization in todays world, as per which the information is not accumulated and stored at a single place but is widespread across various locations on a rational basis. But this information is not available to the managers and they often fails to locate the flow of the same thus affect the tax planning that is done by the company(Werner, 2017). In case of active businesses the level of interaction is very high but when it comes to businesses that have been operating from many years and in which some departments ceases to exist, it becomes difficult to trace the flow of information and document the same in that regar d. Thus decentralization of information on a rational basis and ascertaining that flow of data happens accordingly is very important from the prospects of tax planning(Visinescu, Jones, Sidorova, 2017). And thus same will be discussed in this research paper, as on how the companies can employ good accounting software that can help them in managing their data effectively. In case of tax planning there is presence of huge uncertainty as the tax rules and guidelines are changing continuously, the government is always looking for rules and ways by which it can prevent companies from avoiding their tax avoidance. It is thus important that while planning for the tax elements the companies must see to it that the managers and the people who are given this responsibility must have proper knowledge in that regard that will help them in reducing the issues that they face with the tax department in terms of wrong tax rules or lack of effective documentation(Trieu, 2017). Thus the research question can be on how the managers can make sure that the level of uncertainty is reduced to acceptable level and they should make sure that they are employing experts who have good knowledge of this field of study. Thus that will help in reducing the tax issues. The tax avoidance planning also consists of tax risk. Tax risk occurs in case the management is not able to prove their tax calculation on the basis of the taxable income that they have shown; it might affect their business very badly and can cause them huge penalty. It is always preferable that level of risk must be comprehended beforehand, and then tax planning must be done. If there are two companies that have employed tax avoidance methods that have reduced their liability to a certain level then out of the two company the company that have better documentation and will be able to prove the department will have better chances of not facing any issues(Maynard, 2017). Thus there is a significant level of risk that must be avoided. And the research question will be formed on that regard ascertaining the ways by which the company can avoid their risk elements. What is the need of decentralization in case of tax avoidance and maintenance of the quality of internal information of the company? What are the ways in which the company can avoid the risk that is involved with tax planning and management? What are the methods that the company must follow if they want to reduce the high level of uncertainty that is involved with tax planning? How important it is for the companies to maintain quality internal information to satisfy the needs of the department and what role it will play in tax avoidance is the most important question that will be covered in this research paper. A wide and elaborated research was conducted by Jafari Amine Isfahani (2014) that focused on the corporate social responsibility of the companies around the globe to practice tax avoidance. For his research he studied at least 92 firms and drew up a report on how effective were these companies in suing their internal information for avoiding their taxes considerably. The results of his research stated that social responsibility had on effect on tax avoidance. There was no connection between tax avoidance and social responsibility(Trieu, 2017). It was important for the firms to make sure that they were avoiding the taxes on ethical basis and this in no way made them non ethical towards the government. Tax evasion was illegal but same cannot be said for tax avoidance. But what was the responsibility of the government was to make sure that they were practicing tax avoidance activities in such a way that they had proof for the same for the department. It is thus important that they must have proper documentation in that regard. If they are not able to proof the context on the basis of which they were avoiding the taxes that will become unethical. Even if they have no social responsibility they were responsible to avoid the tax disputes that might occur in case they practice wrong tax practices. That forms the basis of the research that was done by Jafari. Relation between Taxable income and Planning of Tax A simple study was carried out a study to study the relation between the taxable income and planning of tax avoidance based on the same and ascertaining the sensitiveness of the information in that regard. This research was conducted to ascertain the smoothing effect of tax avoidance on the overall profitability of the company. He also made investigation on 92 firms that were paying taxes and the main basis was the rate on which the taxes were paid by the company. It was reflected that there was a negative relation between the tax smoothing for income purposes and tax avoidance by applying different laws and principles. It was stated in this regard that smoothing for tax purposes the income might end up lacking the certainty for future tax advantages and provides the firm with abilities to implement better taxation practices. It also stated that exists a negative relative between the smoothing of information and the related information in that regard. It was highlighted that smoothin g the tax included income might end up reducing its overall information content that is related to it. In this research, the author made a note on the various aspects of the information that is related to the overall smoothing of information and taking necessary decisions in that regards. It highlights the issue that is associated with information related to smoothing of information for the purposes of tax. The managerial accounting research has struggled from previous ages on the lack of proper information for tax purposes. Effective management accounting is important for managing the level of internal information that is made available for the companies for tax purposes. The basic issues that relate to the internal information like uncertainty, lack of proper source, lack of proper acceleration might cause deviations in the overall tax planning for the company. This effect the tax avoidance practices a lot and might cause overstatement or understatement of income. There are few public proxies in this regard that deals with the overall quality of the internal information that is available for the managers of the company. Each of these proxies are discussed below in detail(Hanlon, 2010). Use of Accounting Information System Jennings 2012, states the importance of using sophisticated system of accounting for maintaining the internal information and recording the same through accounting information software. It paid resilience on coordination of the information and that helps in solving many issues like increasing the accuracy, removing manual intervention, streamlining reporting of information from time to time. Previously manual method of data collection and analysis was followed but now with advent of technology the same has changed a lot and automatic method of data retrieval has taken place. The companies must appoint experts to make sure that there is no loss of data from such system, proper security is maintained. The data must be entered into such system from regulated sources and then analysis of the same must be done. There are not much issues while using such automatic system the major issue is with security and training must be provided to employees to avoid the same. Else it is very fast and very effective method that might help in collecting the data from various departments, analyzing the same and converting them into such forms that they can be easily used by the managers or the people who deal with the same(Jennings, Stoumbos, Tanul, 2012) Second there was Williams 1996, which stated on the importance of the management forecast accuracy. It is important that the managers trace the sources of data on which the forecast is based. Management forecast is an important aspect of tax avoidance and an important source of data also. There must be a positive correlation between the information provided and the management forecasts. In this way, the managers will be applied to rely on the information that has been provided from various sources if they streamline the same to specific sources. This is how management forecasts helps in maintaining the quality of the internal information available for tax purposes. It is important that good quality information must be circulated so that while tax planning is done that information must be taken into place. Thus it is important that the source form and method of circulation of data must be traced so that in future there are no complications because of the same. It is important that pas t data must be studied before making any future forecasts and care must be taken in that regard. The managers of the company must be trained to study the flow of information and take important decisions based on the same y (William, 1996). Material weakness in Internal Information Third article will involve Feng et al. (2009), that stated that if there any material weakness in the internal control system that might affect the internal information very badly. Material weakness might lead to error in the internal information that the organization is using for the prospect of taxation purpose. Thus, care must be taken to remove all such internal weakness from the system. Weakness might also lead to untimely weekly information and the information might become stale. Information from different departments might not be reported to the headquarters on time and then that might not be considered for tax avoidance. Therefore, it is very important that proper audit of various control elements must be done in the organization. It has also been stated that firms that are using good quality ERP system will not be able to identify the material weakness very easily, thus it is important that companies must take necessary steps to reduce the same. If there are huge material we akness then that will lead to huge loss of investment that will be reflected in the overall tax penalty of the company. Thus, we see how sensitivity of the internal information are related to the position of the company and the actions of the management that are taken to maintain effective flow of the same. Other proxies that will be applied in this case will consist of better environment analyst and better market analyst that will be a great indicator of an effective external environment in which the company will operate(Root, 2011). It can thus be said that there is a strong connection between the internal and the external environment in which the company is operating if one does not function the other will also be affected. It is thus important that the overall quality of information that the internal environment is having must be in synced with the information that the external environment possess. This is how the organization can make sure that there are no issues in the intern al environment by making sure that it is in sync with the external environment and based on the market research that has been done in that regard. A higher level of internal information is a pre-requisite for error free external information that the analyst offers after conducting the required level of research and development. These two are the most important variable while designing the research study and effective analysis of the same on that regards(Feng Koch, 2010). Conclusion Thus, based on the above analysis it can be said that effective internal information plays a very important role in maintaining the level of data that is used for the prospects of tax avoidance. Companies while dealing with the same must keep some important point in mind like maintaining the data accessibility and viability and it must be available from secured sources. Timely audit must be done to make sure that there are no loopholes in the internal management system which could lead to adulteration of the data. Effective tax planning by taking necessary steps for maintain the quality of internal information can be done by various methods that includes a) Resolving the uncertainty of the information through better information acquisition b) coordination through various information dissemination tools c) Reducing the overall risk that might be involved in taxation process. The various theories and proxies that have been stated in the assignment can be used accordingly to find the so lutions to the issues that the company faces about maintaining the quality of information. The focus of this paper is on tax avoidance and the companies should see on how they can practice the same ethically. That will help in proofing the same in front of the departments and help them in proving their stand. The main research objectives have been fulfilled stressing on important points related to the overall flow of information, flow of data, assimilation of results and taking decisions accordingly based on the same(Rezai, 2013). The basic recommendations that can be provided to employ better and new methods that might help in keeping the data safe, securing the flow of data from one source to another. Managers can be trained to use the data effectively that the receive and make sure that it matches to their external environment in which the company might be operating. Thus, based on all this we can say that better future prospects will be there fueled by better decisions and that will help in keeping the information flowing and maintain the authenticity of the information that will help the company in practicing better taxation avoidance practices. This will help the company in paying of taxes ethically without any malpractices in that regard. Few other sections that are relevant to this research will help in ascertaining the importance of taxation policies about the tax avoidance practices. It is very important that companies must follow various accounting policies and accounting practices that will help them in tax planning in an innovative way. Tax planning is a very wide field and the companies must employ experts that can help them in this regard. The importance of the internal information of the companies has been stated clearly in this research paper and all the companies must pay heed to the same. The above discussed issues must be taken care of and then the company will be in a good position economically and will be able to avoid the level of taxes that the company must pay to the government. Thus, various taxation provisions must be studied in detail, the rules of the government in that regard must be studied and then the managers must go forward with making better analysis and better forecasts and making the tax avoidance planning based on the same(Blessings, 2010). The most conclusive thing from this research paper is how the companies can go forward and take necessary steps in that regard that will help them in maintain the effectiveness of their information and make sure to use it economically. This research is good in ways as it highlights the major issues that the companies are facing with respect to tax avoidance and sometimes fails to identify the thin line between tax avoidance and tax evasion(Mullineus, 2014). This research highlights the basic issues that company faces with respect to maintaining the quality of the information that the internal environment must offer, and make sure that the external environment is in sync with the same. The research consists of various articles with respect to the same, that supports the stand of the company in that respect. The uniqueness is there in the points highlighted and the support documents in respect to the same. References Blessings. (2010, JANUARY 02). Strategic Management Accounting Knowledge. Retrieved October 31, 2016, from Maximin, Maximax and Minimax Regret Decision Criteria: https://apmstuff.blogspot.sg/2010/01/maximin-maximax-and-minimax-regret.html Feng, M., Koch, A. (2010). Once Bitten, Twice Shy: The Relation between Outcomes of Earnings Guidance and Management Guidance Strategy. The Accounting Review, 85(6), 1951-198. Gartland, D. (2017). The importance of audit planning. Journal Of Accountancy. Hanlon, M. a. (2010). Review of Tax Research. Journal of Accounting and Economics 50, no. 23, 127-178. Jennings, J., Stoumbos, R., Tanul, L. (2012). The Effect of Organizational Complexity on Earnings Forecasting Behavior. . Kohtamki, M. (2017). 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