Action Controls - Management Control Systems

Result control is not the only form of management control. Managers supplement or substitute the result control with other forms of management control to meet the same objective, that employees should act in the best interests of the organization. One important controlling category is the so-called action control, which involves assurance that employees execute (or not perform) certain actions to benefit (or harm) the organization. Action controls can be implemented and run effectively only if managers understand the desired (or undesirable) actions, and have the ability to ensure that the desired actions occur (or the unwanted actions do not occur). Action controls have 4 (four) basic forms: behavioral constraints, preaction reviews, action accountability, and redundancy.

Behavioral constraints

Behavioral constraints are a negative form of action control. Behavioral controls are meant to make things impossible, or more difficult for employees to do something that should not be done. Behavioral constraints can be applied physically (physically) or administratively (administratively)

Many companies implement various forms of physical constraints, such as locks on desks, computer passwords, and restrictions on access to areas that store valuable inventory and sensitive information. Some behavioral constraints tools are technically very complicated and expensive like magnetic identification-card readers, voice-pattern detectors, and fingerprint or eyeball-pattern readers.

Administrative constraints can also be used to limit the ability of employees to perform all or part of a particular action. One of the commonly used forms of administrative constraints is the limitation of decision-making authority. For example, lower level managers are only authorized to approve spending up to the $ 100 limit, and managers at higher levels up to the $ 500 limit. Another form of administrative constraints is separation of duties. This separation of duties involves division of work to accomplish certain important tasks to some employees, so that the task is not possible to be solved by one employee.

Preaction reviews

Preaction reviews are researching action plans of controlled employees. The researcher will approve or disapprove the proposed action plan, then request to be adjusted or request a more rigorous plan before final approval is given. Preaction reviews consist of several forms, both formal and informal. The formal form of these preaction reviews is the need to obtain approval for the expenditure of money for a certain amount.

Action accountability

Action accountability involves charging employees the responsibility for the actions they take. Implementing action accountability controls requires steps to: (1) define what actions are acceptable or unacceptable, (2) communicate the definition to employees, (3) observe or investigate what occurs, and (4) rewards good acts or punishes those who commit irregularities.

What actions are the responsibilities of employees can be communicated both administratively and socially. Matters communicated administratively include the use of work rules, policies and procedures, contract provisions, and company codes of conduct. The desired actions are certainly not always communicated administratively. It can also be delivered orally, either through meetings, in person, or through discussions.

In general, action accountability controls will be most effective if the desired actions are communicated well. But in reality that is not enough. Each individual employee must understand what needs to be done and be sure to do so, so that individual actions will be noticed, and rewarded or punished in a meaningful way.

Redundancy

Redundancy involves the appointment of more employees (or at least preparing an additional employee (or machine), for the execution of a very necessary task.This can still be regarded as control because this form of control may increase the probability that the task is satisfactorily completed Redundancy generally applied to computer facilities, security functions and other critical operations, but this form of control is not applied in other areas because it is very expensive.Action controls and the control problems

Action control, as any other control forms, is provided to remove one or more than 3 (three) control problems:

		Control problems
Types of action control	Lack of direction	Motivational problems	Personal limitations
Behavioral constraints		X
Preaction reviews	X	X	X
Action accountability	X	X	X
Redundancy		X	X

Prevention versus detection

Action controls can also be classified as either preventing or detecting undesirable behavior. This distinction is important because controls that prevent undesirable errors and mistakes are the most powerful forms of control, because the costs as a result of unwanted behavior do not occur. Detection-type action controls differ from prevention-type action controls, because detection-type action controls are applied after the unwanted behavior occurs. However, detection-type action controls can be effective when detection is timely and results in the termination of undesirable behavior and correction of the effects of harmful actions. Most action controls are intended for prevention, except for action-accountability controls. Although action-accountability controls are designed to motivate employees to behave well, it can not be proven whether good actions have been done, until proof of action is collected. However, when the collection of evidence coincides with the actions taken, action-accountability controls can be approached to the prevention of undesirable actions.

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Importance of Asset Management for Companies

Assets in accounting are the resources or assets owned by an entity. Where, every company must have an asset, whether tangible, such as land, buildings, equipment, or intangibles such as shares, copyrights, and brands. Assets are the most important part of a company that must be managed properly to benefit the company, as well as encourage the achievement of corporate goals.

Keeping Asset Value
With asset management, the company can keep the value of the assets held high, have a longer life, and avoid damage to assets that could lead to a decrease in the sale value. To maintain the value of the asset, the company must provide sufficient operational costs resulting in high output and in line with the company's objectives.

Monitor Asset Depreciation
Depreciation is one of the risks to the use of fixed assets, in which the asset will be depreciated, starting from the depreciation of the function to the value. However, with asset management, companies will more easily monitor the depreciation.

Easing Budget Creation
With asset management, companies will be easier to plan on asset financing such as funds for purchase or construction, maintenance, up to funds to extend life and remove company assets.

Avoiding Overpayment
By implementing asset management, companies can more easily control assets well so as to avoid unnecessary purchases. Without asset management, companies will have difficulty in determining priorities for the supply of goods.

Creating Risk Management
Risk management is a method of managing uncertainty related to threats, such as risk assessment. This is very important because it can create a company awareness of the dangers and risks of their assets. With asset management, companies can reduce risk by adding necessary control measures and making preventive measures.

Improve Security
By applying management assets, assets owned by the company will be well saved from first to last. This can reduce the risk of losing company assets.

Those are some of the benefits a company will get if it implements asset management in its business. However, managing assets is not easy and very inconvenient. Therefore, Journal is present to assist entrepreneurs in managing their company's assets. By using Journal accounting software, the entrepreneur will get an asset report listing the fixed assets at the initial acquisition price, the accumulated depreciation, up to the value of the asset.

reference : 
https://www.jurnal.id/id/blog/2017/6-alasan-pentingnya-manajemen-aset-bagi-perusahaan
https://us.123rf.com/450wm/dizanna/dizanna1602/dizanna160201807/52435665-asset-management-word-cloud-business-concept.jpg?ver=6

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Result Controls - Management Control Systems

Pay-for performance is an examining example of type management control that was encoded with result control, as related with rewards to create a good result, or punishment to the bad result. Giving priority (reward) relating to results are not only forware of compensation in money forms, but also in other shapes such as job security, promotion, autonomy and recognition. Result controls creating meritocracies. In meritocracies, awards are provided to the employees who work the hardest and have a consumer talent to those who have the last most possibility or social connection level.

Award combinations connected with results tell and remember employees about results which are important and motivates them to produce the 'result' for interest organizations. Result controls will influence the action, cause result controls cause the employees very possible attention to the consequences of the action that they do. Organizations no more employee employees about doing what to do, but they are provided to take various actions which they sure to produce expected 'result'. However, as any other forms of management control, result controls may not be implemented in any situation. Result controls will be effective when the 'suitable' results can be fully (or most) controlled by the employees and the controlled 'result' reliable areas can be measured effectively.

INSTANCES OF RESULT CONTROLS

Result controls is an important element in management approach to employ employees. This trend started in 1990an, and implemented in dominants to control the behavior of professional employees, they are responsible for result, and do not only implement the task. Result Controls is expressly required and consistent with implementation of the organizational desentralization concept, which is incorporated for autonomy conduct center.

ELEMENTS OF RESULT CONTROLS

To implement the result of controls required 4 (four) phase:

Defining performance dimension. Determining the dimension of performance is a critical thing for the purpose determined and followed by measurement, can make the way of employees about what is important. In business terminology out of hearing "what you measure is what you get". Why dimensions of this performance is not defined by appropriate, (the articles do not completely with organizational objectives or not compatible with strategy), result controls will encourage employees to do the missing things.

Measuring performance. Measurement, which is attaching the numbers of the numbers to certain object, is an important result controls element. Certain object is performance of employees (or groups of employees) in certain time period. Various different measurement results then can be connected with rewards, whether are financial or non-financial.

Setting performance targets. Performance targets or standards is the other important element of the control system results. In result control system, target must be removed for any aspect of performance measurement dimensions. Performance targets may influence behavior through 2 ways: (1) performance targets encourage action and increase motivation, through the presentation of expressed purpose which must be accessible by employees, and not statements of the caps. (2) performance targets provide employees for immune performance of their own performance. Everyone in the basics will not receive the feedback, unless they able to understand the articles.

Providing rewards (or punishment).Rewards and punishment is the lastest important element of the control system results. General advice included in contract can include institution of salary, bonus, promotion, warranty jobs, assignment of work, training opportunities, freedom, recognition and power. Punishment is are recovery from awards, such as protected, not approval from the exclusive, public embarrassment, failure to acknowledge such a work accepted, or loss of the job.

CONDITIONS DETERMINING THE EFFECTIVENESS OF RESULT CONTROLS

Managers Know What Results Are Desired In The Areas Being Controlled. Managers should understand the winning results in the area which they control, and communicate the effective desire effective with the employees working in a controlled such area.

The Employees Whose Behaviors Are Being Controlled Have Significant Influence On The Results For Which They Are Being Held Accountable. Employees which have been controlled to be able to influence results in a material way in a particular period of time. Controllability this principle is one of the important responsibility of accounting.

Managers Can Measure The Results Effectively. The ability to measure controllable resuts effectively is the last condition of the feasible result controls application. Outlooked resulted result, that is really inquired organization, can not be meaned effectively. Its own measurements become problems - all the situations a time can be meaned; but sometimes areas of key results (key result areas) can not be measured effectively.

EVALUATION CRITERIA. Precise. Objective, Timely, Understandable.

Reference:

Merchant, K. A., & Van der Stede, W. A. (2007). Management control systems: performance measurement, evaluation and incentives. Pearson Education.

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Base Erosion Profit Shifting (BEPS) Action Plan - OECD

Tax avoidance is increasingly widespread by multinational companies. Tax avoidance is a taxpayer's undertaking to minimize taxes by finding regulatory loopholes with aggressive tax planning. Inter-state tax competition is also a catalyst in tax avoidance. Multinational companies will make tax avoidance efforts from the country with high tax rates to low tax rates even tax rates 0 percent (not taxable). Tax avoidance is able to reduce the effective tax rate as low as possible. The tax base will be eroded if tax avoidance is not prevented and resisted.

Countries incorporated in the G20 declare joint action with the Organization for Economic Cooperation and Development (OECD). They formulate the idea of ​​an action plan to prevent tax avoidance through an aggressive tax planning scheme amidst conditions of inter-state tax competition. Based on OECD publication, Base erosion and profit shifting (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the inclusive framework, over 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS.

Addressing The Tax Challenges Of The Digital Economy

Action 1 addresses the tax challenges of the digital economy and identifies the main difficulties that the digital economy poses for the application of existing international tax rules. The Report outlines options to address these difficulties, taking a holistic approach and considering both direct and indirect taxation. 

Neutralising The Effects Of Hybrid Mismatch Arrangements

Action 2 develops model treaty provisions and recommendations regarding the design of domestic rules to neutralise the effects of hybrid instruments and entities (e.g. double non-taxation, double deduction, long-term deferral).

Designing Effective Controlled Foreign Company (Cfc) Rules

Action 3 sets out recommendations to strengthen the rules for the taxation of controlled foreign corporations (CFC). 

Limiting Base Erosion Involving Interest Deductions And Other Financial Payments

Action 4 outlines a common approach based on best practices for preventing base erosion through the use of interest expense, for example through the use of related-party and third-party debt to achieve excessive interest deductions or to finance the production of exempt or deferred income. 

Countering Harmful Tax Practices More Effectively, Taking Into Account Transparency And Substance

Action 5 revamps the work on harmful tax practices with a focus on improving transparency, including compulsory spontaneous exchange on rulings related to preferential regimes, and on requiring substantial activity for preferential regimes, such as IP regimes.

Preventing The Granting Of Treaty Benefits Inappropriate Circumstances

Action 6 develops model treaty provisions and recommendations regarding the design of domestic rules to prevent treaty abuse.

Preventing The Artificial Avoidance Of Permanent Establishment Status

Action 7 contains changes to the definition of permanent establishment to prevent its artificial circonvention, e.g. via the use of commissionaire structures and the likes.

Aligning Transfer Pricing Outcomes With Value Creation

Actions 8 – 10 contain transfer pricing guidance to assure that transfer pricing outcomes are in line with value creation in relation to intangibles, including hard-to-value ones, to risks and capital, and to other high-risk transactions.

Measuring And Monitoring Beps 

Action 11 establishes methodologies to collect and analyse data on BEPS and the actions to address it, develops recommendations regarding indicators of the scale and economic impact of BEPS and ensure that tools are available to monitor and evaluates the effectiveness and economic impact of the actions taken to address BEPS on an ongoing basis.

Mandatory Disclosure Rules

Action 12 contains recommendations regarding the design of mandatory disclosure rules for aggressive tax planning schemes, taking into consideration the administrative costs for tax administrations and business and drawing on experiences of the increasing number of countries that have such rules. 

Transfer Pricing Documentation And Country-By-Country Reporting

Action 13 contains revised guidance on transfer pricing documentation, including the template for country-by-country reporting, to enhance transparency while taking into consideration compliance costs. 

Making Dispute Resolution Mechanisms More Effective

Action 14 develops solutions to address obstacles that prevent countries from solving treaty-related disputes under MAP, via a minimum standard in this area as well as a number of best practices. It also includes arbitration as an option for willing countries.

Multilateral Convention To Implement Tax Treaty Related Measures To Prevent Beps

Action 15 provides an analysis of the legal issues related to the development of a multilateral instrument to enable countries to streamline the implementation of the BEPS treaty measures. On 7 June 2017, over 70 Ministers and other high-level representatives participated in the signing ceremony of the Multilateral Instrument.

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Thin Capitalization Rules Dilemma

Taxes bias business decisions. Every company has the same goal of maximizing shareholder's wealth. While in enterprise theory, the company's goal is not merely enriching shareholders, the company must provide added value for the government such as taxes, levies, economic growth, and so forth. But pragmatically, the company tries as much as possible to make tax savings. We are familiar with the term tax planning. In choosing various decision alternatives, the company will always consider the aspects of taxation. There are no decisions that do not take into account the tax aspects. It is not uncommon, then, that all firms will avoid taxes to enlarge profit after taxes, and reduce their taxes. 

Unacceptable tax avoidance practices.Large companies, especially multinational corporations, use their tax evasion practices to reduce their taxes. For example through the practice of thin capitalization, Controlled Foreign Corporation (CFC), transfer pricing, treaty shopping, and tax haven country. Of these practices, this paper will discuss more about thin capitalization. A company is called thinly capitalized when there is a high ratio between debt capital and equity capital. Treatment of deductible interest expense (deductible) against taxes will provide profit for after tax, even to return on investment and return on equity. A company is considered thinly capitalized based on the ratio of capital gear, leverage, or debt to equity ratio (DER).

Case illustration of thin capitalization. The company faces two decision scenarios with the following case details:

Decision I, debt ratio: capital = 1: 1

Decision II, debt ratio: capital = 4: 1

Interest of 10 percent of loan, dividend 15 percent capital, and 25 percent tax rate.

Profit before tax and interest of Rp 400 M. All profits after tax are distributed as dividends.

		Decision I	Decision II
Equity	A	1000	400
Liability	B	1000	1600
Earning before interest and taxes	C	400	400
Interest Expense (10%)	D = 10%*B	100	160
Earning before taxes	E = C-D	300	240
Tax (25%)	F = 25%*E	75	60
Earning after tax	G = E-F	225	180
Dividend tax	H = 15%*G	33,75	27
Dividend distributed	I = G-H	191,25	153
Tax Payment	J = F+H	108,75	87
Effective Tax Rate	K = J/C	27,2%	21,8%
ROE	L = I/A	19,1%	38,3%

Government response: anti-avoidance rule over the practice of thin capitalization. The practice of tax avoidance through thin capitalization has been banned in Indonesia. This is in accordance with the Law of Income Tax Article 18 paragraph 1.

"The Minister of Finance is authorized to issue decisions concerning the magnitude of comparisons between debt and corporate capital for the purposes of calculating tax under this Act."

In Article 18 paragraph 3 also the DGT (Indonesia tax authority) can determine the amount of debt as capital for taxpayers who have a special relationship. Regulation of the Minister of Finance No. 169 of 2015 provides a more detailed explanation of the magnitude of the ratio between debt and capital for the purposes of calculating the income tax is set at the maximum of four to one (4: 1). However, in reality, it is quite difficult to determine the structure of debt to the right capital for the company. There is a trade off between the business realities on the one hand and the limitation of the amount of interest costs.

Conclusion. Tax is one aspect that companies consider in making their business decisions. It can not be separated from the main purpose of the company, maximizing shareholder wealth. The Company will seek to increase profits and reduce taxes. How can? This can be done through tax avoidance practices such as thin capitalization, Controlled Foreign Corporation (CFC), transfer pricing, treaty shopping, and tax haven country. Thin capitalization is an effort for companies to reduce taxes through capital schemes where the composition of debt is greater than capital. Supervision of taxpayers under the Act of Income Article 18 paragraph 1, 18 paragraph 3, and PMK No. 169 Year 2015 can detect the practice of thin capitalization through supervision of the ratio of DER (debt to equity ratio) of a company. So that based on Article 18 paragraph 3, the Director General of Taxation can determine the amount of debt as capital to calculate taxable income. Whatever your company intentions against the thinly capitalized conditions, be prepared, the Director General of Taxes will correct your company's taxable income :)

Referensi:

Pemerintah Republik Indonesia. Undang-UndangNomor 36 Tahun 2008 Tentang Pajak Penghasilan.

Kementerian Keuangan. Peraturan Menteri Keuangan Nomor 165 Tahun 2015 Tentang Penentuan Besarnya Perbandingan Antara Utang Dan Modal Perusahaan Untuk Keperluan Penghitungan Pajak Penghasilan.

Danny Darussalam Tax Center. 2017. Perencanaan Pajak, https://news.ddtc.co.id/perencanaan-pajak-ini-beda-tax-planning-tax-avoidance-dan-tax-evasion-9750 diakses pada 22 November 2017.

Danny Darussalam Tax Center. DDTC Tax Newsletter Vol.2 No.1. https://issuu.com/ddtcindonesia/docs/ddtc_tax_newsletter_vol.2_no.1  diakses pada 22 November 2017.

Ikatan Akuntan Indonesia. http://www.iaiglobal.or.id/v03/files/file_publikasi/Darussalam%20-%20Short%20Version%20-%20Telaah%20Konstruktif%20DER%20di%20Indonesia.pdf. diakses pada 22 November 2017.

Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., & Burrow, M. (2015). Financial management: Principles and applications. Pearson Higher Education AU.

Rogers-Glabush, J. (Ed.). (2009). IBFD International Tax Glossary. IBFD.

Slideshare. https://www.slideshare.net/karomah95/pencegahan-penghindaran-pajak diakses pada 22 November 2017.

Suojanen, W. W. (1954). Accounting theory and the large corporation. The Accounting Review, 29(3), 391-398. 

        

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