Electronic Library of Scientific Literature - © Academic Electronic Press
Volume 50 / No. 2 / 2002
Iveta PAUHOFOVÁ – Artan QINETI
The main goal of this article is to analyze the changes that took place in the food market after 1997. Therefore the basic determinants of the price development in the area of agriculture and food industry are analyzed. The results of this analysis are compared with the price development and relationships before 1997. This procedure makes possible to conclude if the trends from the period at the beginning of economic transformation are confirmed or not. In our study we have used the methodology of multiply log-linear regression that has been derived from the linear regression model. For this purpose we have used the statistical software called STATA 6.0. The above mentioned model has been chosen not only because of a better interpretation of economic results (like price elasticity or marginal changes caused by changes in prices) but also other statistically relevant reasons (like for example reducing heteroscedasticity problems).
Our analysis has to be seen in the context of recent trends in theoretical and practical aspects in agro-food research. During the transformation process all eastern European countries faced distortions in the relations between different segments of food supply chain, from farmers up to food producers. Price liberalization has not been realized in all segments of food supply chain and this especially has damaged farmer‘s interests and worsened their already desperate situation. This has been another reason that motivated us in our research and studying the relations between different “players” of food chain and market from the aspect of their price relations. Updating price time series for different segments of food chain enabled us to analyzing recent tendencies in the food market and creates the possibility for further analysis of the effects of changes in the sector that may be caused by important future socio-economic factors like country’s accession into EU and the inflow of foreign direct investment into the sector as well. All this will be analyzed from price developments aspects. Main conclusions of our paper are as the following:
In 1994 the rate of economic growth created the space to stabilize the CPI groups and the dynamism of the foodstuff prices. From the agricultural and food producers point of view, this growth is desirable because higher food prices create the space for possible increase in prices for agricultural and food producers. The acceptation of higher foodstuff price level depends on the formation of the gross disposable income in Slovak households. After 1997 the developments in households income situation paved the way for an increase in demand for food consumption. Gradually the CPI stability has been shaken and after 2000 the price development was characterized by an expansion in the prices for housing services and partially in the transport prices. Although the household’s gross disposable income has increased no improvements could be expected from the aspect of consumer demand either in 2000 or in 2001. The space for an increase in food con-sumption prices (the final segment of food supply chain) has been slightly reduced again.
From the aspect of food price formation for different food chain segments, a relatively independent price development of the agricultural prices is expected for the period to come. This conclusion arises from keeping agricultural prices at a low level that allows only a simple reproduction of agriculture production. With regard to the existing agricultural potential, the low level of agricultural income conserves the prices of most frequent agricultural inputs at a relatively low level. In spite of this the trend of the “opening price scissors” between agricultural input and output prices continues (that can be explained as a further internal deformation in relations between different sectors). Between agriculture inputs that significantly affects prices of agriculture products can be mentioned: fertilizers, industrial fodder and plant protection facilities. Developments in agriculture input prices (at a certain level represented as a price regulation process) in connection with other administrative interventions created an artificial “interaction” model of above-mentioned prices. In the following period it is highly expected that agricultural input prices will not decline at rate that will make possible the closure of “price scissors”. On the other side an increase in the overall agricultural support represented by the indicator of Producer Subsidies Equivalent (PSE) it is not expected so far, given the limitations of the state budget and country’s accession process into EU. The negative effect of above mentioned factors and their persistence in the long-term perspective can lead to a decline in agricultural production, a further increase in the agricultural unemployment, a decline in the agricultural production basis, insufficient resource formation, increase farmers’ insolvency and finally reduction of Slovak agriculture competitiveness in general.
Deformation problems in price relationships are also present in the second level of the food supply chain represented by food producer prices. The low level of processing capacity employed in particular areas of the food industry (mainly due to high food imports level) and increasing food input prices intensify pressures toward price increases.
However, consumers’ demand in formation does not allow such a step. So it is expected the continuation of recent trends where food producer prices will continue to copy the line set by developments in food consumption prices no matter what the developments in agriculture products’ prices are going to be. It is a fact that (as regression analysis has shown), during the analyzed time period while food consumption prices increased agriculture prices fell. This confirms among others, the continuation of the exclusion of domestic farmers and processors from the food market and the gradual penetration and growing position of multinational food retailers in the Slovak market. As far as agriculture and food industry is concerned, this represents a certain pressure toward decreasing domestic production.
Conditioned by the rate of the economic growth predicted at 3,5 per cent level for 2002, the predicted inflation (7.3–7.7 per cent) and the formation of consumer demand represented by households gross disposable income and also regarding the state budged limitations for 2002 in relationship to agricultural subsidies, it is not possible to expect significant changes in the food market which can positively influence in short term period, the internal relationships between agriculture and food industry. To what extent it is a good solution to speed the convergence process toward the European common agriculture policy (which concepts are recently still very limited and reforming) is a matter of time that the long-term coexistence in the common market will show. It is evident that for the moment it is necessary to be focused on the adequate regulation of agrarian market and all its segments, aiming the stabilization of efficient domestic farmers and food processors.
Corruption and the rate of its dissemination in the Slovak Republic present not only moral, social and political, but also economic aspect. On the one side is the state of corruption described by official data on investigated and sanctioned corruption cases, on the other side methods based on perception.
According to the World Bank survey of the year 2000 the perception of corruption in Slovakia is spread mainly in health care, justice, public prosecution office, Fund of National Property, Customs and Police. According to CPI index (Corruption Perception Index) Slovakia, in spite of the slight improvement, is evaluated as the worst of the V4 countries.
Economic impacts of corruption are linked with the losses ensued from internalities in the decision making process, worsened resource allocations, deformation of economic competition, increased transaction costs, increased risk for investors, influence on the ex-tent and structure of public expenditure. Aside from economic impacts, corruption influences negatively social inequality of citizens, and makes rules and order questionable.
Corruption causes are connected with formal and informal rules. The space for corruption originates when there is a monopoly (significant unbalance of supply and demand, exclusiveness, information monopoly etc.), when there is too much freedom in the decision making in the public sector (discretion power) and low transparency. Corruption is influenced also by informal rules (corruption is often tolerated by citizens, shared values, accepted behaviour formulae, active or passive civil society).
Based on the identification of causes one can suggest also tools to limit corruption. In the area of formal rules steps are necessary in the prevention field (ensuring the transparency of the rules, processes and institutions, access of the public to the information, solution of the collision of interest, implementation of the public administration reform, reforming some sectors of administration, ethic reform, limiting administrative barriers for entrepreneuring, limiting freedom in making decisions etc.) The condition for the restriction of corruption, however, is also the efficient repressive system that could make corruption risk high. In the Slovak Republic the repression string (control, police, courts, prosecution) is a weak spot in the system of confronting corruption and citizens perceive its individual parts as stricken by corruption too.
Besides prevention and repression one can suppress corruption by increasing per-ception of citizen of the corruption problem, know-how, by participative model of public administration and by the education of citizen.
For more than four decades discussion in corporate finance concerns the question of optimal capital structure: Given a level of total capital necessary for supporting company’s activities, is there a way of dividing this capital into debt and equity which maximizes firm value? And, if so, what are the critical factors in setting the leverage ratio for a given company?
Under the assumption of a capital market in which corporate taxation is the single market imperfection Modigliani and Miller show that firms prefer debt financing if interest costs are tax-deductible. Others claim that the actual impact of the deductibility depends on the existence of a crowding-out effect by non-debt tax shield. After Modigliani and Miller a line of research emerged in which direct and indirect bankruptcy costs and their influence on the level of leverage were introduced.
Theoretical arguments also suggest that the debt-equity ratio is related to agency costs. A vast and rapidly growing literature deals with potential relations between this choice and agency problems. Three well-known predictions prevail. First, leverage aggravates agency conflicts between shareholders and bondholders. Frequently cited examples are the direct wealth transfer problem, the asset substitution problem and the underinvestment problem.
Second, leverage mitigates agency problems that arise from managerial behavior that conflicts with the interest of shareholders. Well-known example is the overinvestment problem.
Finally, the relative amount of debt raises the costs of agency problems with stake-holders like customers and employees.
In this paper we test agency theories within a framework of capital structure decisions. Data and the empirical method allow (1) to distinguish between tax and bankrupt-cy determinants of leverage and agency determinants and (2) to distinguish between de-terminants of leverage and determinants of agency problems. For analysis we use questionnaire data of non-financial firms in Slovakia. By means of a questionnaire we asked financial managers (CFOs) for their opinion about firm characteristics. The knowledge of these managers goes beyond publicly available data and includes internal information, such as the presence of agency problems.
The analysis itself uses structural equations modeling with confirmatory analysis. The structural equations model describes the relationships between the variables in the model. Five endogenous variables are leverage and the presence of four agency problems. Each of these five endogenous variables is potentially determined by a wide set of exogenous variables.
The main result of the research is that direct relations between leverage and agency problems seem to be absent. This does not imply that the agency problems are irrelevant. Other instruments than leverage affect agency problems. As expected, a positive relation between some exogenous variables and agency problems determinants has been found. The final part explains important reasons for described state. As the conclusion, some recommendations for CFOs in setting up the capital structure are mentioned. Particularly, in developing a sensible approach to capital structure strategy, the CFOs should start by thinking about firm’s target capital structure, that is a ratio of debt to total capital that can be expected to minimize taxes and contracting costs. In sum, to make a sensible decision about capital structure, CFOs must understand both the costs associated with deviating from the target capital structure and the costs of adjusting back toward the target. The next step forward in solving the capital structure problem is to involve a more formal weighing of these two sets of costs.
Štefan SLÁVIK – Benita JURIKOVÁ
Conventional approach to a research of competitive advantage deals with internal analysis of an enterprise. Reconceiving a firm’s internal potential into a real competitive advantage is determined by favourable external conditions too. Submitted paper searchs and evaluates dynamism and complexity of business environment in Slovakia as a principal condition for an uprise of a competitive advantage.
Research goal was to find in what extent the selected parameters of Slovak business environment are favourable or unfavourable for an uprise of a competitive advantage. Working hypothesis assumed that rising dynamism and greater complexity of business environment generate more favourable external conditions for acquiring of a competitive advantage.
Investigation of external conditions was accomplished by questionnaire method with a file of 350 enterprises on Slovak area. Four class students of Business Management Faculty of University of Economics in Bratislava realised it in period of october a and november 2000. One asking person judged the only entreprise, which he/she personally visited. Choice of an enterprise was free without limits regarding a size of an enterprise or a kind of an industry. For supporting of a credibility there was every question accompanied with detailed commentary. The research file represents 285 enterprises after knocking out duplicities and inaccuracies. The file was inserted in a database of Access 97.
Dynamics is expressed through an extent and a frequency of changes, which are being happened in business environment. Dynamics is recorded by means of partial characteristics:
Complexity is expressed through both an amount and a diversity of external and internal connections in an environment made available. An environment is complex as factors influencing its evolution are obscured and unsoluble. An environment complexity is pictured by means of overall and partial characteristics:
Economic, R&D and policy-legal impacts frame an area for an uprise of a competitive advantage in reviewed file of enterprises particularly. Environment turbulency shapes favourable conditions for an uprise of a competitive advantage approximately for one half, product and process innovations for one third and industry life cycle for one fourths enterprises of the searched file. Operational radius of competition and industry structure create suitable conditions of this kind for more than one half, environment complexity for two fifths, predictability for one fifths of enterprises. On base of competitive strengths searching it is possible to judge, that the only look-out starting-point for competitive differences occures in an escape to free fields of embryonic industries.
Bulk of connections between a competitive advantage measured by economic results and parameters of a business environment show a tendency, although not too massive, which is fitted with assumptions on consequences of dynamic and complex environment. Environment dynamism appears on the research base as more important factor for a competitive advantage uprise than a complexity of an environment. Some unmarked results or aberrations even can be referred to an unability of enterprises to make use of external conditions and re-form them into a competitive advantage, further to an underestimating of exhaustive monitoring of external environment and to a passive approach to external trends.
Anna KACHAŇÁKOVÁ – Oľga NACHTMANNOVÁ – Marieta MULÍKOVÁ
Results of Human Resource Management (HRM) survey presented reveal the fact that from the formal point of view the situation in this area in Slovak companies is being improved. In 2000, 86 per cent of the companies in Slovakia had an organised HRM department or personnel clerks. However, it is not always the fact that these departments ensure proper conception and methodology of services, but sometimes they are merely focusing on administrative work. The effectiveness of their work is also hindered by the absence of personal strategy in a written form in more than a half of the companies, therefore a question arises whether there can exist any aim, suitability and unity of all the procedures used. Also the top management does not fully accept the importance of HRM in fulfilling desired objectives. Only in 53 per cent of the companies the HR Manager is a member of top management team. One still cannot understand that human resource has at least the same importance as material, finance and information capital.
In terms of imposing the human capital potential, it seems to be a lack of control and system when executing several HRM activities and not applying new modern trends in this domain. The job analysis, which serves as the basis for systematic HRM, is still depending on subjective managerial point of view. The employees’ search and selection methods do also have some drawbacks, as only 50 per cent of companies do use available educational institutions or specialized recruitment and consulting agencies. In the stage of selection of employees, companies mainly confide to an interview and neglect more efficient approaches, such as assessment centre, which can provide more useful information about the prospective candidate. The introduction of new employees represents also a very underestimated area, with missing induction and training programmes in a written form. Similar situation exists also in the domain of further education and training of employees, where the companies use the traditional methods only and do not monitor the need for training. Also the evaluation of the quality of training is done merely formally and at its end, nobody checks up whether the learned skills are put into the practice or not. An independent and transparent performance appraisal system and the use of its results are still not used widely. That means the companies are ignoring an important tool for employees’ development and employees’ performance management.
Following the world-wide trends, also Slovak companies are starting to pay more attention to the issue of working time, its organization and its effective use. This brought about the use of flexible working time in 66 per cent of the companies. Considering the fact that flexible working time is one of the mostly used and acknowledged tools for improving of the quality of work and life of the employees in developed countries, we cannot accept the present state, even though there are some restrictions.
Our ambition was not to present a comprehensive analysis of the HRM system. We tried to point out the main areas, where improvement is very necessary and also to compare the development of HRM practices in Slovakia with the modern trends. The team of authors is involved in an international project researching the trends of HRM in medium and big-size companies. This research took part mostly in Europe, but it is presently expanding to North America, Asia and Australia. In the future we would like to continue in this research to compare the HRM practices across the world, to point out the differences and similarities as well.
Term reengineering was for the first time introduced in 1993 by Hammer and Champy in their monography: Reengineering – radical change of the company. Definition of this term is: “Reengineering means fundamental evaluation and radical reconstruction of company process for reaching significant improvement in point of view of critical efficiency measurements, for example costs, quality, services and speed”.
How was conception of a company reengineering created, and how the methodology of its application developed? Approximately, ten years ago, some companies significantly improved their efficiency in one or more fields of their enterprise, through radical change of working methods. These companies did not change the area of enterprise in which they were acting, they significantly changed processes, which were determined in their area of enterprise.
Real and exhasting work connected with reengineering, is the work of members of reengineering team. These workers have to create ideas and plans, and to introduce them into the real life. They actually reform the company.
It is not possible for one team to reengineer more than one process in the same time. It means, that a company which performs reengineering of more processes, should have corresponding number of reengineering teams. Reengineering requires invention and seeking, creativity and ability of synthesis. Reengineering team ought to have an ability to work on conditions of unstability. Members of a team have to be prepared for making mistakes and have to learn from them. People who can not work that way, do not belong to a team.
Reengineering teams should have from five to ten members, including external workers. It is generally true, that internal members of reengineering team should be the best and the most competent workers of the company. Their most important contribution to reengineering efforts besides the fact, that know existing process very well is, that their co-workers trust them. If they say, that new process will work, other workers will trust them.
When the introduction of new process has started, they play a key role in persuading the others to accept the changes and take part in their realisation.
The insiders are not able to be the only ones in reengineer processes. Their perspective could be too narrow, limited, only to one part of the process, they can be personally interested in existing processes and structures, and support them.
If we expected, that they overcome thinking and institutional stereotypes and submit a vision of radically new working methods without any external help, we would like to have too much.
Team consisting insiders would probably create what already exists, perhaps just about 10 per cent better. The team needs internal workers to understand, what will change, but the team also needs new impulses from external members for own change.
External workers don’t work in processes, which must be reengineered. Therefore they may bring a high level of objectivity and different perspectives. Function of external workers connected with a team, is to destroy stereotypes. Because they don’t take a risk of change, which they determine, they are therefore willing to take a risk easier.
Next, a potential and time obligation of members of reengineering team is described, its uncertainty, conflicts solution, communication, motivation and stimulation.
Developing the new project of reengineering process, represents an advancement, that contains the following integral parts – time schedule, matrix of responsibility, resources and costs, control procedures and risk.
In the last part, there is a description of practical approaches of industrial enterprises, that introduce reengineering.
Questionnaire research realized in 35 middle and large enterprises, which was oriented on problems of reengineering, leads to following conclusions:
Reengineering is one way of development how to improve transformation in enterprises sphere. Positive and negative experiences of enterprises, that introduced reengineering, definitely confirm, that a change from functional process thinking, is essential for radical restructuring of business process. The experience indicates, that this doesn’t go without strategic preparation and human factor. Internal enterprises transformation depends particularly, on a change of human beings themselves. A firm culture played an important role in management development. Stable and integrative connection of firm culture, with firm strategy, is a reliable basis for enterprises success. They together create a source of positive synergic effect.
Development of business sphere is closely connected with investment support, especially foreign direct investment, which would create more opportunities for economic development and creation of work opportunities.
Effect of taxes on development of business sphere could be examined from various views. Firstly it is an effect on economic behaviour of subjects and following effect of taxes on finance decisions of business subjects.
Effect of taxes on enterprise savings arises not only income effect (withdrawal of profit after taxation – savings), but also effect of substitution. Enterprises create savings by amortisation (depreciation) and non-divided (held profit), as a source of future investments. Lower taxation of non-divided profit than divided profit could have influence on decisions of enterprise on profit usage.
Effect of taxes on investments could be characterised in view of profitableness and venture of investments. Taxes from profit in examining of profitability of investments lower the expected net profit rate and from view of venture of investments, taxes lower disposition to expect the risk.
Effect of taxes on finance decision making of enterprises could be characterised in view of construction of individual tax codes (income tax, VAT, excise and property taxes), by which government influences behaviour, decision making and activities of enterprises. Extend of tax load has direct effect on finance decisions of enterprises. Development of business sphere in a great extend depends on reinforcement of incomes before taxes as a main instrument of economy development. Lowering of tax load should lead to higher work and business activity, higher savings and their exchange and to investments.
Reducing of tax load of enterprises has great influence on development of national, but also international business. Development of business sphere is closely connected with support of investments which would create more opportunities for economy development and creation of job opportunities.
The basic task of tax policy of each state should be creation of such business environment which would satisfactory influence development of business sphere (in our conditions mainly development of small and medium enterprises), which would secure also satisfactory tax income for the state.
Aim of this contribution is suggesting of investment model of taxation of enterprises, which would, if applied, have a positive influence on development of companies.
On the basis of this model would be possible in functioning companies use own resources for business development in a form of deduction of investments from tax basis. Similar tax stimuli exist abroad in a form of deducible investment item. For example in Poland if conditions of reaching of 8 per cent net profit from gross income in previous year is applied, firm could exercise its right for investment deducible item to 40 per cent of tax basis, if the investment belongs among preference investments (in other cases it is 20 per cent). In following years investment item would be 35 per cent, 30 per cent and 25 per cent (or 15 per cent, 10 per cent a 10 per cent).
Suggested investment model of taxation represent a tax stimulus in a form of 100 per cent in steps deduction of investments from tax basis during three years.
Prerequisites for Application of Investment Model of Taxation
Suggestion of this tax relief is not general for all investments. It has to be a well-thought-out business plan, which anticipates return of these state relieves in a form of higher incomes and successively also tax duties in following periods.
It could be used by production companies or companies offering services, for extension of production or its business activity on the basis of defined government preferences (branch or regional).
Possibility of misuse of these relieves must be excluded by legislation by paying of tax for deducted investment in case of non-fulfilling of business plan. It is necessary to set in legislation a period in which the deducible investment items should be paid to state.
The basis condition of implementation of investment model of taxation is stating of tax basis in necessary amount (in amount of used investment instruments, which we would like to deduct). Showing the right to use investment deducible item during following tax control has to be supported by business plan and documents about investment of resources.
The basic principle of implementation of investment model of taxation is obtaining of finance resources for investment from own sources on the basis of investment tax stimulus by deduction of investment from tax basis.
For comparison of advantages of the model different approaches to taxation of busi-ness are uses:
Foreseen Effects of Using of Investment Model of Taxation
If comparing or these three ways of taxation during 5 years could be stated that the total tax income for state is the same, however the support of investment according of stated model secures economic development of firms as well as income to state budget.
Comparing first two cases in the table there could be find that the tax income is during 5 years the same. However, if applying the deduction of investment company gains 6 mil. free finance resources more than without investment.
By comparing of usage of investment model of taxation in further 5 years with investment with credit we find out, that the way of investment through investment model brings highest income for state and at the same time secures the most free resources for compa-ny for further investments.
Slovak economy is under capitalised and business sphere inevitable requires finance resources for possible investment into modernisation and reorganisation. As these finance resources could not be obtained from inner resources, the most suitable solution is foreign capital, which brings necessary finance resources, modern technology, managerial know-how and approach to new market, which would without participation of strong international groups stay for Slovak companies closed. Tax system of Slovak Republic should create such conditions for foreign as well as national investors to invest willingly as much as they could. Possible solution, which is stated in this contribution, is invest-ment model of taxation.
Deferred taxes represent an important tool for the correct and objective declaration of the economic result and taxes in accounting and financial statements of the entrepreneuring subjects. By the application of deferred taxes one ensures correct tax periodicity in the statement of profits and losses and at the same time an objective presentation of assets and liabilities in the balance sheet.
The problem of the formation and necessity of deferred taxes’ application was identified in the U.S.A. in the year 1967. From the development point of view two concepts of deferred taxes existed: timing concept (e.g. concept of time differences) and temporary concept (e.g. the concept of temporary differences). Both concepts are based on the rational approach, on temporary and finite differences. According to generally accepted accounting principles – US GAAP and within the framework of international accounting standards – IAS 12 – Income Taxes the timing concept was replaced by the temporary concept. Slovak legislation currently uses timing concept.
Timing concept, e. g. the concept of time differences is oriented at the profit-and-loss statement – at the time differences between the economic result before taxation and income tax assessment base. When applying this concept the role of accounting consists in the achievement of the situation when one considers in the financial statement as “fictitious” tax assessment base the economic result primarily found in the accounting (before taxation), e. g. before its adjustment by incremental and deductible items. That means one does not consider the adjustments complying with the Income Tax Act – the “real” tax assessment base calculated in the tax declaration One secures thus the logic link between the economic result and the income tax.
Two cases can emerge:
When the economic result is higher than the tax assessment base, then the collectable income tax declared in financial statement is increased by the deferred tax – deferred tax obligation, e. g. the difference between the lower tax assessment base and the higher economic result.
When is the economic result primarily calculated in accounting is lower than the tax assessment base, income tax declared in financial statement is decreased by the deferred tax – deferred tax obligation, e. g. the difference between the higher tax assessment base and the lower economic result.
Differences between the economic result and tax assessment base could be:
Permanent differences between the economic result and tax assessment base are such differences that emerge in one term and do not vanish in the following terms – they are not extinguished. They emerge as a result of the fact that some costs, which affect the economic result, are not tax – acknowledgeable and thus do not affect the tax assessment base (for instance the provision of other reserves, travel costs exceeding the limit, entertainment expenses etc.). Likewise some incomes affect the economic result but do not influence the tax assessment base (e. g. accounting of other reserves, accounting of adjust entries relating the fixed assets, stocks etc. These permanent differences do not provide any deferred taxes.
Temporary differences are characterised by the fact that some costs and incomes affect both the economic result and tax assessment base, yet in various terms. As the time goes by these differences gradually settle and vanish. The existence of deferred taxes is based just on these time differences.
Almost time-unlimited differences are such differences, that do not vanish automatically as time goes by, but their elimination depends on the decision of the enterprise. In some cases they can be eliminated as late as by the winding-up of the enterprise or by the sale of a relevant property. As there are in principle almost permanent differences, deferred taxes are not applied there.
Timing concept of deferred taxes is based just on the temporary – time differences. The effect of deferred taxes causes the correction and equalising of the magnitude of the economic result in individual terms. Depreciation of long-term assets (fixed assets) is a typical example of the generation of time differences between economic result and tax assessment base.
Temporary concept, e. g. the concept of temporary differences is oriented at the balance sheet. Temporary difference is every difference in the evaluation of individual items of assets and liabilities in balance sheet (by their boo value) and their value for the taxation purposes (their tax assessment base). Temporary difference does not need manifest itself in the profit-and-loss statement at its origin (e. g. at the revaluation of fixed assets it appears in equity). Whether this difference is tax-acknowledged in future or not is inessential here. By this concept it is not important when temporary differences are eliminated or vanish, this can take place as late as at the winding-up of the enterprise. This concept is based on the temporary differences – time limited and almost time unlimited.
When applying temporary concept the deferred tax arises from the differences between book value of assets and liabilities in financial statement and their value for the taxation purposes (tax assessment base).
Temporary differences are therefore of a wider meaning – they include time differences limited and almost time unlimited. They do not include such differences that already influenced economic result (profit-and-loss statement) and do not affect tax assessment base, are not tax-acknowledged – so called incremental items, or are not taxed – so called deductible items.
In case the book value of assets is higher or the liabilities lower than their tax assessment base it is necessary to generate deferred tax obligation. In case the book value of assets is lower or the liabilities higher than their tax assessment base it is necessary to generate deferred tax claim.
There are several methods to calculate deferred taxes:
The problem of deferred taxes is in complexity dealt with in the international accounting standard IAS 12 – Income Taxes.
The aim of IAS 12 – Income taxes is to define the accounting procedure for the income tax. This standard refers to all income taxes calculated of the tax assessment base paid at home and abroad and to deduction taxes from dividends.
Fundamental terms in IAS 12, which are linked with the declaration of deferred taxes are:
This can refer to:
Deferred tax obligation should be declared from all taxable temporary differences where the book value of assets is higher than its tax assessment base and book value of a certain obligation is lower than its tax assessment base.
Deferred tax claim should be declared when the book value of assets is lower than its tax assessment base and book value of obligation is higher than its tax assessment base.
Deferred tax claims and obligations should be evaluated by the expected tax rate, which will be valid in the term when the claim will be implemented or obligation settled.
When the taxable profits (or incomes) are taxed by various tax rates depending on their amount, deferred tax claims and obligations are evaluated by the use of expected average rates, which will be valid for taxable profit (taxable loss) in terms when one expects the elimination of temporary differences.
The accounting of deferred taxes linked with a certain transaction depends on the character of this transaction. Deferred taxes are accounted as costs or benefits, e. g. including the influence on the economic result or are accounted directly with own equity, e. g. without the influence on the economic result.
Deferred tax claims and obligations should be diversified from the matured tax claims and obligations.
The enterprise should declare deferred tax claims and obligations as non-circulating.
The enterprise should compensate deferred tax claims and deferred tax obligations only in case they relate to income taxes extracted by the same tax office and refer to the same subject.
Within the framework of the national arrangement in the Slovak Republic the problem of deferred taxes is dealt with by Postupy účtovania pre podnikateľov (Accounting procedures for entrepreneurs issued as a decree by the Ministry of Finance of SR), which distinguishes tax liability as mature and deferred in a relevant accounting and taxable term.
Deferred tax liability is determined in enterprises, which form a consolidated area in case when there are differences between tax assessment base and economic result before tax discovered in the books. This refers to such differences caused by the difference between depreciations of tangible and intangible property in compliance with the Income Tax Act (tax depreciation) and depreciations of said property according to the depreciation plan of the account unit (account depreciation).
The size of the deferred tax liability is found as the product of the difference between the tax depreciation and account depreciation and the income tax rate set by the Income Tax Act for the following account and tax term.
At the elimination of the tangible and intangible property because of its sale or disposal substantiated by its further redundancy one uses in the calculation of the deferred tax liability the difference between the depreciated price calculated in accordance with the Income Tax Act and depreciated price determined in bookkeeping.
Deferred taxes are related only to the temporary differences between account depreciations and tax depreciations and between depreciated prices set in accounting and determined in accordance with the Income Tax Act.
When calculating the size of the deferred tax one uses the tax rate set for the next account and tax term.
Deferred taxes represent very difficult and complicated area of bookkeeping and financial statement. Within the framework on harmonisation of our legislation with the international accounting standards it will be necessary to consider the extent and efficiency of the application IAS 12 – Income Taxes (revised as of 1. 1. 1998 based on temporary concept) under the conditions of the Slovak Republic.
The approach defined in the international accounting standard before its revision, which was based on the timing concept was relatively easily applicable in SR, because it was more comprehensible. Balance approach is under our conditions new and its adoption by our professionals will demand some time.
The consolidation of balance sheet is presented in the paper as an actual topic linked with the social movement and related to the economic development with a markedly characterised trend aiming at globalisation.
All entrepreneurial subjects – business companies (in future all types of entrepreneurial and non-entrepreneurial subjects) that invested property in a defined volume and form into another subject – company must consolidate accounting documents and prepare consolidated balance sheet. Such a business company needs to identify the state of property, equity capital and liabilities supposing fictitious legal subject, e. g. supposing they did not create by their investment an independent legal subject, or supposing they did not increase its fixed assets in case it existed as an individual legal subject.
This in principle is an accounting view at a defined type of business with bonds or deposits. As commonly known, the trading with bonds and deposits under the conditions in the Slovak Republic was practically restored only after the transformation of accounting in general and reporting in particular as late as 1. 1. 1993. We do not take into account joint stock companies – foreign trade enterprises, which existed in centrally planned economy with the state as their solely shareholder; these companies did not create any property chains, and thus it was unnecessary to make consolidated balance sheet.
The situation has changed considerably by the legislation valid since 1. 1. 1993 that introduced the obligation of consolidating the balance sheet. The paper emphasises that the problem of consolidated balance sheet in the Slovak Republic has no natural backing in history. This is explained by a short excursion into the history of origin and development of balance sheet consolidation from the very beginning at the end of the nineteenth century up to the seventies in the late century. Therefore the management of business companies that are according to law obliged to prepare consolidated balance sheet and let it acknowledge by an auditor is unable to utilise it for their own purpose at control and decision-making. They perceive it as senseless and arduous burden. (The banks are an exception here as they utilise the data in the consolidated balance sheet when deciding whether to grant the credit to the applicant who is a member of a group of enterprises.) This is an important phenomenon that should be reflected in order to create gradually the conditions for changing this situation and thus make the advantages of consolidated balance sheet an effective and used management tool. Above all it is necessary to create the method of analysis of this balance sheet based on foreign experience for the conditions in the Slovak Republic.
The development definitely suggests that the penetration of foreign capital into the Slovak economy, and maybe also gradual exports of Slovak capital abroad will further increase the importance of consolidated balance sheet. This judgement of mine is based on the fact that one approaches towards the implementation of international financial standards (IAS, since the year 2002 already IFRS – International Financial Standards, e. g. international standards of financial reporting) into the Slovak legislation on the accounting. I have in mind the new Act on Accounting, which is now entering the adoption procedure in the Slovak Parliament. International accounting standards are one of the most successful tools of the international harmonisation of accounting. The paper presents only such selected standards that immediately arrange the set-up of the group of enterprises, which are obliged to prepare consolidated balance sheet according to IAS, and also the procedures for its configuration for exactly defined property relations. At the same time it stresses the fact that international accounting standards preferentially define consolidated balance sheet, e. g. one assumes that all principles, rules and definitions are preferentially applied under the condition of the consolidated balance sheet. Only when, based on defined rules, one finds out that the conditions for consolidation are not fulfilled are the international accounting standards applied for individual balance sheet.
The aim of the paper is not the comment on the individual consolidation procedure, nor the solution of some of the highly specific problems, which are brought about by almost every consolidation of original enterprise – business companies’ grouping. The aim of the paper was more modest: to introduce into the awareness of the broader professional public the fact that the problem of balance sheet consolidation cannot be neither neglected not underestimated. One should learn to accept it as a natural management tool above all in the parent company, which could act as a feedback supporting the formation of further parent companies. I consider it to be a part of the preparation and eventually the readiness of the Slovak Republic for the worthy accession into the European Union.
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