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A collision between the development of TASA reforms from the TPB Review and the PwC incident has seen significant amendments introduced, some with no consultation.
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Professional bodies struggling to hold back government overreach
01 March 2024
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The PWC Australia scandal understandably dominated attention in 2023. Whilst the scandal was unravelling, there were Tax Agent Services Act 2009 (TASA) reforms that were already in train.
The reforms are the result of the Keith James 2019 review into TASA. The review contained several recommendations that were accepted by the Government which will be implemented over many years. Unfortunately, the two separate events have collided.
There is no doubt that the Government intent is to use whatever it has at its disposal to respond to the fallout resulting from PWC matter. It already has other Bills before Parliament, strengthening the integrity of the Tax system outside of TASA. The PWC incident exposed some regulatory gaps that need addressing so it is understandable that the Government needs to strengthen governance to address some of these gaps. Notable changes before Parliament include:
- Increasing promoter penalty fines;
- Increasing the power of our regulators (changes to secrecy laws and disclosure to professional bodies);
- extending the tax whistleblower protections to eligible whistleblowers who wish to disclose alleged misconduct to the Tax Practitioners Board (TPB).
We fully understand that it is important to show to the public that the Government is addressing this highly embarrassing incident and restore people’s faith in government agencies such as ATO,TPB and Treasury and the accounting profession.
Consultation is important part of our legislative process in ensuring policy objectives are achieved without unintended consequences. Professional bodies including the IPA spend a great amount of effort in responding to discussion papers and draft law. Professional bodies take a public interest approach to matters under consideration, so we are generally supportive of changes that improve the operation and administration of our taxation and superannuation systems. The one thing bodies cannot guarantee is whether the Government will take onboard our feedback and/or recommendations. This is always a matter for Government.
A lot of the emerging TASA issues we are currently facing stem from laws that have been enacted by the current Government. No doubt the PWC incident has influenced the Governments position and interest in the rollout of TASA reforms.
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If we go back to March 2023 the Government tabled Tax Law Amendment (2023 Measures No.1) Bill (TLAB1). Contained in this Bill were certain recommendations from the James Review of the TPB. The contentious aspects included:
- Requiring tax practitioners not to employ or use a disqualified entity without the TPB's approval or enter an arrangement with a disqualified entity. We supported in principle the laws targeting the use of disqualified entities by tax agents but had some concerns around its board application beyond its intended purpose.
- Enabling the minister to supplement the existing Code of Professional Conduct. Giving the Minister the power to change the Code by legislative instrument. This was something we opposed (more on this later).
What happened next was the big surprise to everyone. The Government agreed to some late minute Greens amendments tabled by Senator Barbara Pocock which principally dealt with two key themes:
- Restrictions on the appointments to the TPB; and
- Dobbing in other tax agents accused of misconduct. These were inserted in TLAB1 without any consultation or explanatory memorandum.
The first-time that the professional bodies knew of these changes, was when an article appeared in a newspaper. The professional Bodies quickly mobilised as we only had a few days before the Bill was to be debated in the Senate. The Joint Professional Bodies wrote to the Assistant Treasurer and certain other Senators to have the Greens Amendment taken out of TLAB 1 so that further consultation could be undertaken, before these new rules were incorporated in a future Bill. Unfortunately, the Bill proceeded into law with the Greens amendments intact, in November last year.
We had no issue with the policy intent and policy objective, but good intentions do not equal good law, particularly when significant amendments do not go through a proper consultation process.
The amendment to TLAB 1, will require tax agents to notify the TPB if they have reasonable grounds to believe that another registered agent has breached the code, and that breach is significant. The provisions apply from 1 July this year. If you fail to dob in that registered agent (including yourself) who you believe has breached the code in a significant manner, then you will be facing a penalty.
These new rules create some very challenging scenarios and can have a devasting consequences on a tax agent who was falsely accused of misconduct. The TPB in conjunction with Professional bodies have to do their best, trying to make these new rules operative in a practical way before the laws come into effect as from 1 July 2024.
This is not the Government’s first example of significant changes without proper consultation. The right to disconnect rule changes to reform workplace laws, was only made public less than 24 hours before it passed the senate.
The next legislative change before us relates to the Minister’s power to amend the Code by legislative instrument (referred to above). TLAB1 has given the Minister the power to change the Code of Conduct and we now have the first use of this power in the form of an exposure draft of the Tax Agent Services (Code of Professional Conduct Determination 2023 (draft Instrument).
The Joint Professional Bodies have submitted a response to this draft instrument in addition to participating in Treasury consultations. Our initial concerns about this power are now playing out before our eyes, which is concerning. Some of the main points in the joint submission can be summed up as follows:
- The rules in the draft instrument are not easily understandable (either prescriptive and/or vague);
- The rules move away from a principle-based Code to a partly prescriptive Code leading to degree of duplication and overlap which will lead to difficulties in implementation; and
- The requirement for notification to clients of certain events (breaches of the Code) is overly broad.
The next reform that the Government has tabled is on the Consultation paper Enhancing the Tax Practitioner’s Board’s sanctions regime (Sanctions Consultation Paper), which was released early in December 2023. Once again, the Professional Bodies have submitted a joint response to the Sanctions Consultation paper. The James Review highlighted that improvements were necessary, and in principle we support a robust sanctions regime to deter misconduct and impose appropriate penalties proportionate to the level of wrongdoing. Notwithstanding the joint bodies have significant concerns with what has been proposed.
We are too early in the cycle to see whether our feedback through the consultation process on the above two matters will land, but these are important changes to TASA which should not be rushed for the sake of expediency in the wake of the PWC scandal.
What happened at PWC was an isolated incident of an individual at a large accounting firm doing something that was just blatantly wrong, and it’s not a systemic issue that’s widespread across the accounting profession in Australia. It appears that culture at some of our larger accounting practices works against some of well-established ethical and professional standards.
However, the incident has exposed some major regulatory gaps that need to be addressed in order to improve governance arrangements and prevent something like this from happening again.
While the highly publicised matter has tainted the profession in the public’s eyes, the professional bodies are advocating for a proportionate response from the government to avoid punishing all of the hard-working accountants that were doing the right thing.
The accounting profession already has strong ethical standard frameworks in place that govern professional behaviour, so it’s really more about improving the ability of the regulators and the professional bodies to enforce these standards, than it is creating new ones. Accounting bodies had already ramped up mandatory ethical training prior to PwC incident.
That said, there are also other things the government should consider like defining the term accountant at law to protect the public from unqualified accountants or require consultants to adhere to the same professional standards that govern accountants, as part of its procurement process.
Lastly there are various Parliamentary Committee inquiries underway (Ethics and Professional Accountability: Structural Challenges in the Audit, Assurance and
Consultancy Industry, Inquiry into management and assurance of integrity by consulting services) that IPA has been called upon to provide evidence. These Committees will also recommend changes to address perceived deficiencies in the regulatory framework. Again IPA wants a proportionate approach taken by Government so that the majority of accountants doing the right thing are not burdened with more regulatory imposts.
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