By John O’Rourke, VP of Product Marketing and Communications at OneStream Software
How to Reduce Risk, Improve Transparency and Increase Efficiency in Tax Provisioning
Tax departments have historically relied on spreadsheets for tax data collection, provisioning and reporting – with as much as 59% of companies still relying on them. For many organizations, the tax provisioning process can add as many as five days to the financial close – materially impacting the ability to meet external reporting requirements and decrease the time available for CFOs to focus on forecasting, analysis and investor relations activities. In this article, a OneStream executive can discuss leveraging automated software solutions to align tax provision with financial reporting and the factors a company needs to consider when selecting a solution.
From stimulus checks to an IRS return processing backlog contributing to the tax filing extension, there have been various industry challenges faced thus far in the 2021 tax season. While navigating the season and rebuilding from a tumultuous 2020, enterprise CFOs and Finance leaders should take a critical eye to the financial impact of strategic tax planning activities.
Despite extended tax deadlines, businesses and individuals should still work to submit returns as soon as possible in order to avoid penalties on overdue payments. However, this is often easier said than done as the use of antiquated technologies and documentation, like spreadsheets, can cause significant lag time. So how can businesses overcome this? Automated tax provisioning solutions implemented across the financial planning and reporting process allow companies to reduce time to financial close and help CFOs focus on the organization’s financial stability.
With as many as 59 percent of companies still relying on old school documentation, let’s take a closer look at how software automation can strengthen enterprise success this tax season, and the considerations companies should be making when selecting solutions.
Antiquated technologies are holding tax departments back
Historically, tax departments relied on spreadsheets to gather data, create hierarchies, manage adjustments, and collect approvals. But leveraging spreadsheets and other antiquated technologies can be time-consuming and error prone. At a general level, these types of systems cause organizational data silos, eliminating operational visibility across the company. For sophisticated global enterprises, the risks are even greater, as these antiquated options lack audit trails, can impact financial close and reporting cycles, are error-prone, and reduce CFO forecasting agility.
According to The Professional Journal of Tax Executives Institute and EY Financial Accounting and Advisory, almost sixty percent of reported tax-related material weaknesses were attributed to insufficient tax accounting expertise, insufficient review and lack of general procedures. Add the challenges of tax and finance departments being physically siloed during the pandemic, and the risks stemming from disparate, legacy applications become even higher. Although many companies are operating just fine with employees physically fragmented, fragmented data collection systems pose a significant challenge to maintaining a visible audit trail that leads to “one version of the truth.” While separated, it is thus that much more important that teams are in close, secure, and calculated collaboration.
Freeing up CFOs for more accurate, financial reporting
Especially in a year like 2021 where companies must account for challenges stemming from the pandemic, political and natural disaster disruptions, tax provisioning requires many data elements for process input. In order to comply with legal entities and accounting standards such as US GAAP, IFRS, UK GAAP, and local statutory requirements tax departments need timely and accurate information that allows them to correctly calculate – from trial balances income statements and tax provision. Accuracy can often be derived from automation. Automated solutions free up time spent manually collecting data, consolidating, and reporting which requires more time and resources and can result in human error. Having a single, unified, and automated platform in place will allow tax teams to eliminate redundant data and related reconciliations. This will mitigate risks and ultimately make processes more efficient, allowing tax teams to focus on tax complexities, rather than inefficient data ‘hunter/gatherer’ activities. In return, this will allow CFOs and Finance leaders to allocate more time to financial reporting and analysis, ensure that their organization is tracking towards data integrity and compliance.
2021: The year of tax automation
Companies leveraging an automated tax provisioning solution will find this year’s tax season considerably easier than those still using spreadsheets or outdated systems. If you’re one of those companies, this year’s tricky tax season should serve as a catalyst to update your tax provisioning process.
Companies seeking an automated tax provision solution should consider implementing a pre-built solution that eliminates spreadsheets and disconnected legacy solutions and rapidly delivers ROI. A prospective automated tax provisioning solution should offer your company several benefits including:
- Reduced Risk: Be sure the solution is able to automate and streamline tax data collection, break down data silos and ensure consistency in tax calculations. With the IRS behind schedule, this will help to avoid adding extra time to the already lengthy processing timeline.
- Increased Efficiency: Like any new business solution, a tax solution should guarantee efficiency. Automating data reporting and exporting processes can save time and minimize reconciliation.
- Transparency: A valuable tax provisioning solution should allow your company to quickly generate tax reports and provide visibility into the supporting details.
With the IRS filing date approaching, now is a good time to reflect on your company’s tax provision and reporting process. Is your team bogged down this season? Bringing automation into your organization can help to eliminate disparate legacy solutions, reduce time spent scrolling through endless spreadsheets, eliminate potential compliance risks and drive a stronger ROI.