ICFR Over The Tax Function

Transcription

1 ICFR Over The Tax Function Presenters: James P. Silvestri Alan Frank Peter Bible September 30, 2016

2 Polling Question #1 Do you work for a company registered with the SEC? Yes No 2

3 Polling Question #2 Have you ever had any ICFR findings related to tax? Yes No 3

4 Its 2016, why are we still talking about this? 4

5 Regulator s Focus - SEC Comment Letters Comment Letter Topic Ranking 2016 Ranking 2015 MD&A 1 1 Non GAAP Financial Measures 2 4 Fair Value Measurements 3 2 Revenue Recognition 4 3 Segment reporting 5 7 Income Taxes 6 6 Intangibles & Goodwill 7 8 Business Combinations 8 9 Commitments & Contingencies 9 5 5

6 Restatement Topics Top 3 Topics # # % Top 3 Topics 2014 # % Income Taxes Income Taxes Revenue Recognition Revenue Recognition Cash Flow Statement 56 7 Cash flow statement

7 Income Tax Restatement Statistics 2014 & 2015 Cause Nature % Calculation errors Classification & Disclosure Completeness of timing differences Legal entity issues True up errors Improper netting of DTA s & DTL s OCI/continuing ops tax allocation Transaction based Valuation allowance International & other Characterization of distributions PPA Goodwill and intangibles Carryback availability Forecast errors Lack of understanding foreign laws Outside basis errors Employment taxes

8 Your audit firm is subject to constant inspection Internal PCAOB Peer 8

9 Regulator s Focus 2016 PCAOB Inspections 210 US firms to be inspected 60 Non-US firms to be inspected 145 Global network firms inspected at least triennially Global network firms audit ~ 99% of the total market capitalization of issuers audited by firms registered with the PCAOB 9

10 Regulator s Focus 2016 PCAOB Inspection Focus ICFR Review controls Accounting estimates Income tax accounting Going concern Segment identification & disclosure 10

11 So, how do I design a good defense? 11

12 Some Overriding Considerations Application of tax rules and regulations to GAAP amounts Need to be bilingual and/or partner with financial reporting Taxes are accessed by jurisdiction GAAP records may not be maintained by Jurisdiction By business unit with multi-jurisdiction locations 12

13 Some overriding considerations Preparation controls Each control needs an owner Controls over analysis, journal entries, estimates returns, etc. Focus on completeness of populations and accuracy of amounts 13

14 Polling Question #3 Has your auditor ever mentioned precision? Yes No 14

15 Some overriding considerations Review controls Controls over recorded amounts entity level controls usually not applicable Review Needs to be Documented Sign-off is just an element Not all that is currently required Consideration of estimates and judgements require documentation The P word Precision 15

16 Precision Exactness Accuracy Care Meticulousness Correctness Exactitude Issuers need to establish and document the precision used in review and approval of recorded amounts 16

17 Accounts, processes and controls to consider By Jurisdiction Balance sheet Income taxes payable / receivable Deferred tax assets Recoverability Classification Deferred tax liabilities Classification 17

18 Accounts, processes and controls to consider - By Jurisdiction Balance sheet (continued) Tax effects of items included in equity Other compressive income Noncontrolling interest Uncertain tax positions Tax basis balance sheet 18

19 Accounts, processes and controls to consider By Jurisdiction Income statement Current provision Deferred provision Uncertain tax positions Intra-period tax allocations Tax return to provision adjustments Effective tax rate reconciliation (jurisdictional & consolidated) 19

20 Polling Question #4 Do you have an up to date earnings and profits calculation? Yes No 20

21 Polling Question #5 Do you have an up to date 382 study? Yes No 21

22 Accounts, processes and controls to consider By Jurisdiction Tax Attributes (adjusted for audit, UTP and returns) Bases Earnings & profits Credit carryforwards 382 and SRY limitations for carrybacks Loss carryforwards Capital gains and losses Unrepatriated earnings 22

23 Income taxes payable / receivable Often, the orphan of income tax accounts Several inputs Into account(s) from several different owners / sources Unreconciled balances can accumulate resulting in significant adjustments and potentially Significant Deficiency Material Weakness Account(s) need to be reviewed in light of the following 23

24 Current provision Deferred tax analysis Income tax payable receivable Estimated payments Refunds Return as filed adjustments 24

25 Polling Question #6 Do you have a working knowledge of OCI? Yes No 25

26 Deferred Tax assets Generally, more complex the deferred tax liabilities Valuation subject to a significant amount of judgement Complications arise with NOL s and tax credit carryforwards Preparation and review controls Document, document & document Accounts need to be reviewed in light of the following 26

27 Deferred provision Tax basis balance sheet analysis Deferred tax asset Estimated payments Valuation Analysis Considerations Return as filed adjustments 27

28 Deferred Tax Liabilities Issues related to completeness vs. valuation Identification of amounts that are not available to absorb reversal of deferred tax assets Deferred tax liability related to indefinite lived intangibles 28

29 Deferred Tax Liabilities Unrepatriated earnings Financial & economic plans and forecasts (reviewed and approved) to support permanent reinvestment Accounts need to be reviewed in light of the following 29

30 Deferred provision Amounts available for DTA s Repatriations Deferred tax liabilities Estimated payments Tax basis balance sheet analysis Return as filed adjustments 30

31 Tax effect of items included in equity Usually a late game drill Financial statement disclosures require balances and movements in accumulated OCI Support with a reconciliation Determine appropriate tax rate Document tax status of subsidiaries that have outside ownership 31

32 Marketable securities Foreign currency transactions and balances OCI Estmated payments Postemployment Health care Pension Plans 32

33 Intraperiod tax allocation Principally relates to discontinued operations Allocation of consolidated provision Usually not an area of material misstatement 33

34 Polling Question #7 Have you ever considered whether your return to provision adjustments were an error? Yes No 34

35 Tax return to provision adjustments, a/k/a, return as filed adjustment Error (bad) or change in estimate (good)? 35

36 Error or change in estimate? Considerations Oversight or misuse of facts Was amount included in provision based on an estimate? Was a different election made? Were tax attributes not considered in provision? Were the wrong amounts for tax attributes used in provision? Error can lead to restatement/ significant deficiency or material weakness 36

37 Error or change in estimate? Requires a through and thoughtful analysis coming out of tax return to provision reconciliation process 37

38 Uncertain tax positions the paradox 38

39 39

40 Your Presenters Were... Presenter Title Contact Information James P. Silvestri Consulting Services CPA, MBA Phone: Alan Frank Peter Bible EisnerAmper LLP, Director, Consulting Services EisnerAmper LLP, Partner, Audit Phone: Phone:

41 This publication is intended to provide general information to our clients and friends, It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter. Any tax advice contained in this memorandum (including any attachments) is not intended for and cannot be used, for the purpose of (i) avoiding penalties imposed by the Internal Revenue Code or (ii) promoting, marketing, or recommending any transaction or matter addressed herein.