Table of White Paper - Tax Autmatin

Transcription

1 Page 1 WHITE PAPER TAX CPM: Integrating the Tax Prvisin int Crprate Enterprise Reprting Jurnal f Crprate Tax Autmatin Marc Seewald Tax Architect Lngview Slutins

2 Page 2 TAX CPM Remve the Sils! Cnslidated reprting f the crprate Tax prvisin has always been a separate prcess frm the reprting f the Bk results. Why is this? The data riginates frm the same financial transactins. If this is the case, is it unreasnable t expect cnslidated Bk and Tax reprting t be addressed in a single cnslidated technlgy slutin? Let s explre Histrically, the cnslidatin and reprting f Bk data was the first prcess t be autmated via crprate reprting sftware - allwing finance t reprt the cnslidated results f the enterprise. Next in the evlutin f enterprise sftware was Management data. This level f detail allwed finance t determine the peratinal perfrmance f the rganizatin (e.g. prduct line). The last decade f advances in crprate financial reprting technlgy revlved arund integrating these tw elements f financial data int a single integrated reprting prcess. Tday, there are numerus sftware vendrs ffering slutins that cmbine the Bk and Management reprting prcess int a single slutin. In 2001 Gartner Research intrduced the term Crprate Perfrmance Management (CPM) t describe this integrated prcess. Specifically, CPM is defined as "all f the prcesses, methdlgies, metrics and systems needed t measure and manage the perfrmance f an rganizatin." Hwever, bk and management data alne des nt represent a hlistic view f the enterprise. Instead f relegating tax data and prcesses t purely stand-alne technlgy slutins, the next step in the evlutin f CPM is the inclusin f taxsensitive data and prcesses in t the enterprise-wide financial reprting cycle. The integratin f Bk, Management, and Tax data and prcess int a single sftware slutin represents the next generatin f crprate reprting slutins. Nw its time t incrprate the glbal incme tax prcess under the CPM umbrella Tax CPM! Bk Reprting - SEC - GAAP Tax Prvisin - FAS IAS 12 - CICA 3465 Management Reprting - Business Unit - Department - Prduct Line CPM Tax Cmpliance ERP 1 ERP 2 ERP 3 F/A

3 Page 3 CPM tls have been designed frm the bttm up t address the cmplex nature f crprate cnslidatins. Hwever, until recently this technlgy was nt utilized t address tax cnslidatins. This was, mst likely, due t a cmbinatin f factrs. First, was a lack f tax dmain expertise amng CPM vendrs. But, mst significantly was the siled nature f crprate tax peratins. Histrically, the tax prcess cnsisted f a small grup f tax experts perating ut f the crner ffice with little t n gvernance r versight. Crprate accunting fficers did nt perceive the need t imprve the internal cntrls arund the reprting f the tax prvisin. This has bviusly all changed since the intrductin f Sarbanes-Oxley. As significant deficiencies and material weaknesses surrunding the accunting fr incme taxes pile-up, bards, audit cmmittees, CEO/CFOs, and nw CPM vendrs have begun t take ntice. In shrt, the gal f Crprate Perfrmance Management tls is t prvide ne versin f the financial truth. CPM tls accmplish this by leveraging pwerful and flexible features t develp a cnslidated view f the cmpany. These features, unique t CPM, are as fllws: Data management capabilities designed t handle the vlume f data required t prvide an accurate and in-depth tax prvisin in real-time. Rbust analytical tls Drill thrugh the ftnte t ledger balances nt just static reprts User-definable reprts that are able t be shared r psted n a tax web dashbard Excel add-in features fr dynamic tax wrkpaper creatin with a live link t the underlying data nt just dumping data t Excel Pwerful financial cnslidatin features Sub cnslidatins (e.g. UK Grup Relief, Dutch Fiscal Unity) FAS 52 freign currency translatin Intercmpany eliminatins Prprtinate translatin t address tax entity hybrids Allcatin lgic fr transfer pricing Enterprise-quality, web-based data cllectin. Rle-based, entity-level, and accunt-level user security Jurnal Entry functinality prviding full audit trail f GAAP adjustments These features have been used fr years t significantly streamline the accunting clse and crprate planning cycles as well as imprve verall analysis. Nw, these same features can be applied t tax. The pwer f CPM tgether with the integratin f bk and tax data in ne tl cmbine t deliver significant return n the investment in technlgy: The Accuracy f the tax prvisin prcess can be significantly imprved. The tax wrkpapers n lnger need t be limited t highly summarized numbers. Fr example, it is nt unusual fr cmpanies t estimate a state tax prvisin based n last years state effective tax rate. This is typically dne due t the sheer vlume f state data and the time required t prcess it. CPM tls excel at calculating this vlume f data thus prviding a mre precise current & deferred state tax prvisin by legal entity, by state.

4 Page 4 Additinally, the Speed f the tax prvisin prcess can be significantly imprved. Since the detailed legal entity bk trial balances are already in the ne integrated system, a significant amunt f tax data can be autmatically calculated in real time. Fr example, much f the data driving bk-tax differences is able t be autmated fr thse balances that are driven ff f the bk accunts. The CPM systems have standard functinality that can easily calculate balance-t-balance calculatins (e.g. reserves) and basic tax calculatins (e.g. 50% meals& entertainment limitatin). Even mre cmplex calculatins (e.g. the U.S. Freign Tax Credit) can be significantly autmated. Mst significantly, an integrated tax and bk reprting slutin Reduces Risk by imprving transparency. It reduces the likelihd f material weaknesses and significant deficiencies by prviding a cmplete audit trail frm the bk data t the tax data at all times. Data can be cllected, aggregated, and recnciled in detail and in functinal currency and lcal GAAP. This allws the cnslidated tax ftnte t be easily recnciled back t the lcal ledgers. N lnger will there be questins abut hw a number was calculated, when it was calculated, r wh had access t alter a number. In tday s regulatry envirnment this is invaluable. The pwer f CPM tgether with the integratin f bk and tax data in ne tl cmbine t deliver significant return n the investment in technlgy... THE STATE OF THE UNION In practice, many cmpanies have fallen shrt f delivering an integrated reprting slutin. A typical cmpany may have as many as three r fur un-linked technlgy slutins t address cnslidated financial reprting. Fr example: Cnslidated bk & management reprting Cnslidated planning & frecasting Tax accunting ften Excel. Tax cmpliance Typically, nne f these slutins are tightly integrated with ne anther. Wasted effrt and lst pprtunity fills the gap when prcesses and technlgy are nt aligned! Furthermre, Sarbanes-Oxley 404 cmpliance has firmly placed the gvernance magnifying glass n crprate tax accunting practices. Anything less than tight integratin t the bk data and prcess is nw unacceptable. S, specifically, what are the weaknesses with a tax prvisin slutin that is nt tightly integrated int the cnslidated bk reprting prcess? Let s review a few cmmn pitfalls: The starting pint As discussed abve, the natural starting pint fr the tax prvisin is the cnslidated legal entity detail. Stand-alne prvisin slutins can manually imprt a summarized set f this data frm a cnslidatin system. Hwever, this imprted data can becme stale (e.g. late adjustments) unless it is cnstantly refreshed during the accunting clse. Tight integratin t the data surce reduces the risk f nt having the latest data which was ne f the tp reasns fr tax-related material weaknesses in Furthermre, CPM sftware prvides a separate tax cnslidatin. Using separate tax rllups and allcatin tls users can unwind management

5 Page 5 allcatins, push dwn tp-side adjustments, r apply transfer pricing. This autmatin allws the prvisin prcess t start with true legal entity purity immediately upn bk clse. Vlume f data Typical stand-alne tax prvisin slutins are nt designed t handle the vlume f data necessary t prvide detailed and accurate tax reprting. Fr example, ideally a tax balance sheet shuld be maintained and updated n a quarterly basis. Hwever, detailed bk and tax assets & liabilities must be stred by entity. This vlume f data is un-manageable in tday s standalne slutins r excel-based slutins. CPM sftware is easily able t cllect, translate, eliminate, and cnslidate this level f data detail by legal entity. Cllectin f supplemental tax data - It is nt an uncmmn crprate requirement t have the peratinal cntrllers submit multiple supplemental data packages n a quarterly and/r annual basis. One set f packages is required by the tax department (e.g. dmestic and freign tax packages), while a different set f packages ges t the accunting department (e.g. cnslidatin schedules). A stand-alne tax prvisin slutin may autmate the cllectin f the tax data, but neglects the bk side f the data cllectin requirement. Instead f having tw separate, un-recnciled packages, CPM sftware is adept at the cllectin f bth sets f data using a cmmn web-based interface. The data packages can then directly feed bth the cnslidatin and tax clses at nce. The cmmn user interface reduces training requirements, encurages better cmpliance with data submissin, and ensures accuntability at the lwest level f data. Interim Reprting Interim reprting is ften guess wrk due t the level f data that must be traversed. CPM vendrs have been develping frecasting tls t handle significant vlumes f bk and management data fr years. Tls such as allcatins, frecast versins, and annualizatin methdlgies, available fr the bk data, are easily applied t the tax interim reprting prcess t manage scenaris and frecasts by legal entity. Typical stand-alne prvisin slutins dn t have this level f prduct functinality. THE ROLE OF SERVICE-ORIENTED ARCHITECTURE (SOA) While there are CPM vendrs already prviding best-in-class functinality t integrate acrss bk and tax data and prcess in ne system, it may be impractical t replace multiple legacy systems in ne undertaking. In this situatin it is wise t partner with a Tax CPM vendr that supprts the technical architecture that allws fr tight integratin between disparate sftware packages. This will permit the phased implementatin f a crprate perfrmance management slutin that is inclusive f the tax data lifecycle. In absence f the prper architecture the prblem is simply prpagated int anther generatin f unlinked systems.

6 Page 6 Specifically, the architecture that allws fr an integrated reprting slutin is a Service Oriented Architecture (SOA). Fr the nn-technical tax executive this is the sftware infrastructure that allws fr the cnvergence f best practice prcess with technlgy. SOA is a standardsbased architecture that allws sftware applicatins the ability t share data. Furthermre, it allws sftware packages t call upn the capabilities f ther applicatins withut regard t hw they were built. This allws cmpanies t design an end-t-end crprate reprting prcess that is specific t their needs and existing technlgy platfrms. CPM tls have been designed frm the bttm up t address the cmplex nature f crprate cnslidatins. Until recently, this technlgy was nt utilized t address tax cnslidatins This architecture has already been widely adpted by the ERP prviders such as Oracle and SAP. This same architecture is als being adpted by sme tax cmpliance prviders. Therefre, the adptin f a Tax CPM applicatin using a Service-riented Architecture allws fr the implementatin f an end-t-end financial reprting system that is fully tax-sensitive. NEXT STEPS.. S, yu recgnize the need fr a mre tightly integrated, tax-sensitive reprting prcess, but what s next? Technlgy discussins ften put typical tax executives ut f their cmfrt area. It is nt unusual fr the tax department t have minimal representatin in the strategic IT functin. This is due t histrical spreadsheet-heavy nature f tax analysis which is fast becming a thing f the past. Hwever, thse frward-thinking tax executives that recgnize the need fr an integrated crprate reprting system must make sure t get a seat at the table when the strategic technlgy decisins are being made. Three wrds f advice INVESTIGATE: There are numerus surces f infrmatin t learn abut technlgy slutins that deliver a tax-sensitive financial reprting prcess. Engage yur IT department r cntact a sftware analyst t secure a list f CPM vendrs addressing tax reprting. ENGAGE: Chief Infrmatin Officers universally recgnize the need fr ne versin f the financial truth, but nt all are aware f hw the tax prcess fits int this big picture. The practive tax executive shuld take the lead in engaging and educating thse respnsible fr delivering the crprate technlgy infrastructure. As a significant stakehlder in the crprate reprting lifecycle it is imperative that the tax functin maintains a healthy dialg with IT. PLAN: Finally, as with any undertaking, it is imprtant t develp a lng-term plan fr implementing a wrld-class, tax-sensitive reprting prcess. Mre likely than nt, in this pst-sarbanes-oxley wrld, there may already be plans underway t re-engineer crprate reprting. Make sure tax is a cnsideratin!!

7 Page 7 The pain experienced in accurately reprting the cnslidated tax ftnte is n lnger a necessary part f the jb. Technlgy is finally catching-up with the requirements t integrate the tax prcesses int the crprate reprting lifecycle. Take charge! Remve the sils! Avid significant deficiencies. Put yur scarce tax resurces t wrk perfrming the much-needed, value-added analysis and planning. And finally, let the technlgy d the heavy number crunching. ABOUT LONGVIEW SOLUTIONS Lngview Slutins makes Crprate Perfrmance Management sftware that leading cmpanies use t drive perfrmance with speed, visibility, and financial integrity. Since 1995, many f the wrld's mst respected cmpanies have been using ur technlgy platfrm t supprt the diverse needs f their cmplex finance rganizatins. The Lngview Perfrmance Management Platfrm is highly scalable, prviding a single repsitry f financial truth frm which Statutry Cnslidatin, Management Reprting, Planning, Mdeling, Analysis, Budgeting, Frecasting, Strategic Tax and related Learning, Cmpliance, and Knwledge Management prcesses can be perfrmed quickly and accurately, enterprise-wide. Lngview Slutins has a fcus n finance, and expertise that cvers all industry sectrs including energy, entertainment, financial services, health care, higher educatin, manufacturing, pharmaceutical and retail.