Issue 24 - 2014—Are your tax provision and compliance processes improving? If not, it’s time to take a look at automation and integration solutions. Is this the year you take the time to evaluate your tax provision close and compliance processes to develop a plan for change? Make the decision today.
Did your year-end provision close process improve over last year’s close process? How would you rate your year-end close experience? Is your compliance process integrated with provision? Do you seem to be spending more time and effort to get through the process when it should actually be getting easier?
This is the year to evaluate your processes and change the tax provision close and compliance processes for good. Leveraging provision data for compliance purposes is rapidly becoming a “best practice,” so it is time to start looking at the possibilities. Automation functionality is also improving, with enhanced techniques and tools available from software vendors. In this edition of Tax Advisor Weekly, I discuss the reasons why it is important to start evaluating this now, some of the challenges faced with implementing change, and some practices to overcome these challenges.
Why is now a good time to evaluate these processes?
We all know the adage that “time is fleeting.” With what seems to be a never-ending close cycle mixed with compliance season, tax professionals are challenged with finding the time to evaluate and implement change to their processes. Even though compliance season is in high gear and the second quarter close is upon us, now is a perfect time to start addressing the challenges faced during the provision and compliance process. For those of you who have completed your compliance season or have a fiscal year-end, I think you will find the same theory will apply, albeit in a different part of the year.
Why am I suggesting that now is a good time for this evaluation? Since the year-end close was not that long ago and the compliance process is well on its way (hopefully), it is an opportune time to start a discussion addressing the challenges faced with the tax provision and compliance processes. Start the evaluation process by taking a few hours a week over the next several weeks to address the following:
- What were the major challenges with each process and sub-process?
- Document each one so you can discuss in detail why these challenges are occurring and solutions to avoid them in the future.
- Did you load your provision data via an extract from the source data?
- If not, what is the challenge for doing so?
- If you are using a data extract file from the source, have you maximized the amount of items that can be automated?
- Are you challenging yourself to find ways to reduce the amount of manual inputs required in your current processes?
- What caused the provision to be recalculated?
- How many times did you have to recalculate the provision?
- Does the matrix reference the source data and how it is calculated?
- If you have determined the tax adjustment cannot be automated, have you documented why?
- How are tax adjustments handled for interim vs. year-end purposes from a calculation and data load perspective?
- If no, why not? Start thinking of ways to eliminate duplication of effort.
- Give some thought on how the provision might be tweaked to provide a smoother transition into compliance.
- Are you generating the journal entry automatically with your provision software or model?
- Do you have a detailed matrix for every tax adjustment?
- Did you start with the provision data for compliance purposes?
Document the issues and challenges for now. The purpose of this exercise is to start the process to prepare discussion points that will be addressed later when you have more time to go through the processes in detail to discuss solutions and alternatives.
There are several more questions that you can ask as well, but keep in mind that this is to get the process moving until you have the available time to take a deeper dive with this exercise. Each situation is unique, so your questions and analysis will need to be tailored for your specific facts and circumstances.
The reason that now is a good time for this exercise is so that you start the process before the Q3 close and will be able to carry this momentum for change after the Q3 close is completed and before year-end close hits. You can decide if it is worth implementing a few changes before year-end close or wait until after the year-end close to update your analysis and start implementing changes before the beginning of the Q1 close. It may seem like 2015 Q1 is a long way off, but as we all know, time always goes by so quickly between September and March.
Planning is key when you are trying to implement changes to your processes. Without planning or prioritizing what is required to make the necessary changes, you might find yourself in the exact same place this time next year.
Why does every close process or compliance season seem to have the same challenges period after period?
One common theme that tax professionals are well aware of is that we have to do more work in a shorter period of time in order to meet our deadlines. The window of time given to the tax function to complete their requirements for the quarters and year-end seems to be shrinking every year. Since tax functions can rarely move deadlines, maximizing the efficiencies of your systems or implementing new systems is critical to winning the battle. Here are four challenges that seem to be common when addressing hurdles for change:
- Available time: One reason for facing the same challenges period after period is the lack of time that tax professionals have during the year to implement real change to their processes. With lean tax functions that have reporting and compliance obligations occurring throughout the year, process improvement initiatives typically find their way to the back burner.
- Data: Obtaining the required data in a format that can be easily used is a common issue for tax functions. Several hours can be spent on data manipulation instead of preparation and analysis, causing the process to take longer than it should.
- Receiving multiple revisions from accounting/finance for actual or forecast data or possibly foreign tax packages that are not completed or that are incomplete will also cause challenges.
- Organizational changes: Growing organizations may add, divest and acquire companies or assets during the year. The impact of these changes can cause issues for several of the tax processes, depending on how the financial systems are set up and how tax receives (or retrieves) the required data from their systems.
- Training: This is the one area that seems to be frequently overlooked when dealing with systems and processes. Tax professionals may have received training on the nuts and bolts of the systems that are in place, but not in a way that will allow them to maximize the process or establish best practices.
What are companies doing to overcome these challenges?
Here are some suggestions that we have seen in practice to overcome these hurdles:
- Available time: Develop a plan for action
- Assign someone who will be responsible for overseeing the discussion phase for this analysis.
- Take small steps by starting with a few meetings to discuss the challenges you are facing to get the ball rolling. Be proactive to keep the momentum moving forward toward your goal of effecting change.
- This does not apply to all cases, of course, but for most cases, the only way for the processes to become more efficient is to leverage off the enterprise resource planning, general ledger, consolidating tool, provision and other systems available to the tax function. So, give this some serious consideration as you have your discussions.
- The tax functions that are successful at implementing real change will dedicate a tax resource to oversee the agreed-upon enhancements. This will be a challenge for most organizations. So, addressing the options that are available to have the dedicated focus for implementing change at the beginning of the implementation phase is a critical success factor.
- Data: Working with IT to get what you need may not always be easy but could be well worth the effort. Map out what you need in a document that best conveys your requirements, and use this as a starting point for discussion purposes with your IT group. We often find that having a flow chart and/or written document will help drive the conversation toward your expected goal.
- Another option, if you are not receiving the data in a format that you need, is to incorporate macros into the process to generate what is required.
- Focus on leveraging data that you have available from the source and eliminate multiple inputs of the same data.
- Organizational changes: Constantly stay on top of the changes within the organization by getting involved with other departments like legal, finance and operations on a regular basis. Build relationships with key employees in these departments and attend their status meetings when appropriate.
- Training: Training needs to be tailored to meet your company’s requirements by focusing on your specific processes. This is completely different from just understanding how your systems work. Finding the right resource that understands your organization, processes and systems is invaluable from a training perspective.
A few other considerations to keep in mind when going through this exercise, as well as when looking forward to the implementation phase, include:
- Is there buy-in for change from all stakeholders?
- Have you completed an evaluation of your systems for functionality and effectiveness?
- How long will the assessment and implementation phases take?
- Who will oversee the implementation phase of the project?
- What will the tax function truly gain from this exercise? How will it benefit the organization?
Alvarez & Marsal Taxand Says:
Tax functions are only getting busier, with more responsibilities and less time to complete the ever-growing amount of deliverables. You owe it to yourself to evaluate the tax close and compliance processes as well as automation and integration capabilities of your systems to establish best practices and deliver the requirements of the tax function in the most effective manner. The elimination of duplicated efforts will reduce errors, mitigate risk and allow for quicker turnarounds, which will free up time for more value-added strategic services and projects. It all starts with a decision to move forward. Why not make that decision today?
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The information contained herein is of a general nature and based on authorities that are subject to change. Readers are reminded that they should not consider this publication to be a recommendation to undertake any tax position, nor consider the information contained herein to be complete. Before any item or treatment is reported or excluded from reporting on tax returns, financial statements or any other document, for any reason, readers should thoroughly evaluate their specific facts and circumstances, and obtain the advice and assistance of qualified tax advisors. The information reported in this publication may not continue to apply to a reader's situation as a result of changing laws and associated authoritative literature, and readers are reminded to consult with their tax or other professional advisors before determining if any information contained herein remains applicable to their facts and circumstances.
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