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5 Key Reasons to Automate the FIN 48 Management Process
The challenges facing corporate tax departments in this post–Sarbanes-Oxley regulatory environment are enormous. FASB’s FIN 48 poses one of the more difficult demands, as companies are required to evoke exactness by quantifying uncertainties in their income taxes. Companies must meet a rigorous set of internal and external standards relating to analysis and management of tax reserves, so as to ensure compliance and risk mitigation.
Given these challenges, the question for corporate tax departments should not be whether or not to automate, but how best to do so. Yet, for various reasons, there are still some tax professionals who continue to rely upon “traditional” spreadsheet methods, even in the face of repeated evidence that software technology can help them improve their processes and achieve world-class excellence in their tax functions.
As a result, cumbersome and inefficient tax processes, inaccurate or inaccessible tax information, and overworked and under-resourced tax professionals are still the norm for some businesses. That is unfortunate, since the failure to automate tax functions can result in tax reserve-related control problems, compliance risks, costly inefficiencies, and in many cases, low morale. Ironically, one major compliant heard in the 90’s was that when the accounting function was going through their system changes Tax wasn’t involved and suffered from their lack of participation. Currently Tax is heavily involved in the accounting function and now has the opportunity to drive change because of the stringent reporting requirements placed upon them. Over the longer term, the failure to fully, or most effectively, automate the FIN 48 management process can prevent companies from keeping up with the relentless pace of financial regulatory and legislative change.
Much like the partnering that companies embrace from their tax professionals, tax technologies can, and should be, an essential partner in helping tax professionals meet their toughest challenges. However, marketplace intelligence suggests that tax professionals sometimes find it difficult to assess FIN 48 technologies, in large part because executives might not fully appreciate the potential that can be achieved from a best-in-class product.
To get a sense of why FIN 48 management process automation delivers such valuable results, consider these five essential benefits.
Results should be tangible and quantifiable, as tax departments find themselves able to refocus their teams’ efforts on high-value activities, rather than time-intensive, repetitive or redundant low-payoff tasks. Thanks to operational efficiencies throughout the reserve management process, the clock should start ticking for tax professionals in a more constructive way, with more time available for decision making—and less time spent on cumbersome, inefficient, and time consuming processes.
This benefit cannot be emphasized enough, since sound tax reserve analysis depends on a system-wide commitment to reducing and even eliminating errors. The right FIN 48 technology should standardize a company’s processes and controls, resulting in higher data integrity, fewer spreadsheets, and reduced potential for mistakes throughout the reserve management process.
As tax professionals emphasize, FIN 48 requirements make it more important than ever to be able to “re-create history” for any and all positions. While previously it may have been acceptable to rely on consolidated or summarized numbers, in the current environment much greater detailed information is required—whether responding to internal, or external, requests for information. Comprehensive historical records are essential to document why decisions were made and who was involved throughout the process.
With tougher standards for reserve analysis and risk mitigation, tax professionals must be able to respond promptly, accurately, and comprehensively to requests from the CFO, the board’s audit committee, external auditors, the accounting department, and others. Technology-empowered FIN 48 processes can provide faster global access to data, which allows faster information review, decision making, and overall turnaround time.
As tax professionals increasingly recognize, FIN 48 standards can truly be met only when a corporation possesses a comprehensive view into its tax reserve risks, changing developments, and potential opportunities. Relying upon traditional reserve management processes is like trying to read with all the lights turned off. In contrast, state-of-the-art FIN 48 technology offers the benefits of full illumination, a magnifying glass, or a high-powered telescope, and what might best be described as 20/20 global vision.
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