Your Taxes: Israeli accounting bodies should proceed to shake up these matters

The current Israeli judicial crisis is all about checks and balances. Accountants and auditors (as well as judges and lawyers) are part of these checks and balances.

Calculating taxes (photo credit: INGIMAGE)
Calculating taxes
(photo credit: INGIMAGE)

The Institute of Certified Public Accountants in Israel has just published a report on how to improve the regulation of the Israeli accounting profession. The undated report was prepared by the Public Expert Committee for Regulating the Israeli Accounting Profession.

The Institute of CPAs report follows an accounting scandal in Australia in which a global accounting firm allegedly leaked upcoming tax measures of the governments of Australia and elsewhere to certain international clients.

The report also comes at a time when the future of the Israel Bar Association is starting to look doubtful, apparently for political reasons because it currently appoints some members of the Judicial Selection Committee.

What’s the problem?

A modern successful economy is based on trust, and accountants serve an important role, acting as an interface between the government, taxpayers, their investors, and others, the report says, adding: “The Israeli accounting profession is in perpetual decline.” The report seems to attribute this mainly to the Justice Ministry’s Auditors’ Council, which “doesn’t function as a professional regulatory body, and it lacks personnel.”

 Illustration of a sign leading to the Tax Authorities offices in Jerusalem.  (credit: FLASH90)
Illustration of a sign leading to the Tax Authorities offices in Jerusalem. (credit: FLASH90)

Comment: The Institute of CPAs is a separate body from the Auditors’ Council that does issue professional pronouncements and hears complaints against accountants. And yet, the bill to replace the democratically elected Bar Association with an appointed Lawyers Council cites the Auditors’ Council as a good example to copy.

Why regulate?

The Institute of CPAs report says regulation is necessary to maintain high standards and prestige of the profession, protect the consumer, and to align the profession so that it can act as intermediary between the public and the government.

What does the Institute of CPAs report recommend?

The report states as general objectives that accountants should undergo continuing professional development (CPD), the ethical code should be updated, and bad practices should be kept away.

Recommendations in the report include: appointing caring regulators; giving the Auditors’ Council regulatory teeth and the ability to lay down good practice; and the regulators should themselves be regulated.

The Institute of CPAs report then discusses various alternative ways of sharing out regulatory tasks between the Auditors’ Council and the Institute of CPAs and the double annual fees that most Israeli accountants pay. Alternative A is to strengthen the Auditors’ Council. Alternative B is to make the Auditors’ Council an elected body. Alternative C is to hive off training ethical development.

Comments: This author is an Israeli CPA appointed by the Auditors’ Council and a member of the Institute of CPAs.

Altogether, this report merely seems to be a bureaucratic reshuffling of the existing roles of the two accounting bodies, not a reform.

Accountants have a vital role to play in checking the profitability of businesses. Communism collapsed partly because there was no focus on profit.

The areas ripe for reform now in Israel include the following:

Introducing a proper detailed CPD program that requires all Israeli accountants to attend lectures of, say, 50 hours per year to keep themselves up to date. Many accountants learn things the hard way on the job (your job perhaps) rather than attend lectures or conduct verifiable research.

Overlapping taxes

We receive many inquiries about e-commerce taxation, suggesting that many other accountants (and lawyers?) don’t know what is happening internationally. In a nutshell, many online businesses of all sizes will soon face many overlapping taxes (income tax, VAT, sales tax, digital-services tax) according to differing complex rules in many countries. Why expand and make more money only to lose it all unnecessarily in taxes?

In Israel, private companies still require an annual audit. Your accountant could be more usefully employed reviewing your business profitability, budget, and cash flow. In most other countries, only public companies need an audit.

Also in Israel, there is still no system of tax tribunals (except for real estate), meaning that relatively small disputes with the Israel Tax Authority can drain your time and resources for several years in court. Most other countries have tax tribunals.

Also in Israel, the online tax reporting system (Shaam) is a weird hybrid mixture of DOS and Windows. Tax demands still get posted and often take months to arrive. And the accountant still doesn’t get a complete copy, just a general indication that something urgent was posted.

Most important, the current Israeli judicial crisis is all about checks and balances. Accountants and auditors (as well as judges and lawyers) are part of these checks and balances.

In short, the Israeli accounting bodies should proceed to shake up all these matters.

As always, consult experienced investment and tax advisers in each country at an early stage in specific cases.

The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.