Generating a tax provision for financial statement reporting purposes is challenging given the interplay of complex accounting rules with technical tax calculations, the vast amount of data needed to produce the results, and tight deadlines.
These among other challenges were identified as driving the need for change in the tax reporting processes according to PwC in its recent report, ‘Tax Function of the Future’.
The experts believe that tax functions must also coordinate with business units around the world to gather the information needed to satisfy global consolidated tax reporting requirements.
They noted that tax reporting has always been a core competency within the Tax function; adding that previous efforts to enhance tax reporting processes by moving beyond spreadsheets and isolated solutions have resulted in noticeable improvements.
“But the current environment requires further action to bolster the efficiency and functionality of these processes to increase value and improve readiness. The pressure to close the books in shorter timeframes requires tax functions to produce accurate tax provisions more quickly,” according to PwC experts.
It also noted that risk of financial statement errors continues to confound Tax functions. Another challenge is that which divergent global tax laws and regulations add, noting that actively monitoring the connections between group accounting, local country statutory accounting, and tax reporting requirements can help organisations avoid unnecessary foreign audit adjustments, assessments, and penalties.
“The tax provision calculation comes at the end of the financial statement close cycle, leaving Tax functions with little time, sometimes less than 24 hours, to provide final numbers… and to do it again when pre-tax book income changes. The Finance function may not appreciate the complexity of the calculation and may point to the Tax function’s outdated and inefficient processes as the reason that it may take considerable time for Tax to complete this process.”
“The necessary data comes from multiple sources across many geographies e.g. home and foreign Finance personnel, various systems, and business units. The information is needed in a tax-ready format and on a legal-entity basis, but often is received in less useful forms, with inadequate levels of detail. Tax functions spend significant time manually collecting, reviewing, reconciling, and organising this data, but these operations do not enhance data quality.
“This gathering process often relies on the emailing of ‘tax packages’ for requesting and receiving the required information. Business unit personnel responding to these requests may not have a tax background, often have other significant responsibilities in the close process, and may not fully appreciate the purpose behind certain requests due to limited direction or training by the home office.”
Iheanyi Nwachukwu
