Balans nr 3 2007
Skatt: Tax professionals play a critical role
It has been recognised for some time now that tax reporting is an issue that is growing in importance. The fact that there is increased attention to tax reporting as a result of Sarbanes-Oxley Act, Bolagskoden and increased press interest is not news. But how is this increased attention and interest manifesting itself? What are the actual results emerging from this trend?
The answers are many, and should be encouraging for the market which expects to see good management of taxes. In audit firms, auditors and tax professionals are working together more closely in audits, with tax professionals not only applying their expertise to the current tax calculation and certain non routine transactions, but becoming fully involved in risk analysis and areas such as financial statement disclosures.
The increased involvement of tax professionals in audits is generally well received by clients. Experience shows that many tax functions are particularly pleased to be audited by tax professionals, as it is efficient and helps raise the pro-file of the tax function within the Organization by highlighting the complex technical issues and also the difficult practical issues facing tax functions.
There is also increasing recognition by companies that tax reporting is demanding more attention in-house. It is important to recognise that companies aren’t suddenly deciding that taxes have been dealt with badly in the past, rather that the environment around tax functions, and the demands being placed on tax functions are changing. Where tax functions may historically have been more involved in planning activities and ”in-house consultancy”, there is now an increased focus on tax reporting.
This trend is borne out by the findings of the EY Global Tax Risk Survey completed late in 2006. The survey found that time spent by tax functions, on financial reporting, has more than doubled since 2004, and in Sweden tax functions now spend more than 30 % of their time on tax reporting. Time spent on planning activities has been reduced from 28 % to 20 % during the same period. The two leading measurements of tax function performance are now: ensuring that the tax accounts and disclosures in financial statements are correct, and tax risk management in general. In Sweden 35 % of respondents replied that ensuring correctness of financial statements was the most important measure of their function, whilst the next most important measure, at 18 %, was jointly timeliness of compliance and effective tax rate planning.
It may be an indication of where Sweden currently finds itself in terms of tax function development when bench-marked internationally that more tax departments in Sweden (47 %) than globally (40 %) expect that their budget will increase in the coming year.
This change in focus is leading to two common issues being identified by tax directors and audit firms alike, that is finding people qualified or experienced in tax reporting, and also how best to train people in this area. In countries where the professional tax qualification is a law qualification, it can be challenging to fit tax technical knowledge into the auditing and accounting framework. This is a common issue raised both in-house and in practice, but it is also an issue that can be solved with good communication and teamwork. This is an important point to note, because it symbolises one of the key changes to be faced in how we deal with tax reporting. That is that both in-house and in practice, the necessary skills to prepare accurate tax reporting often exist, but are shared between tax and accounting professionals. To deal with tax reporting effectively, one of the first issues to be overcome is often how to get tax and accounting professionals to work effectively together.
Within large companies in Sweden there is as great a diversity in tax functions as there is type and size of Company. Sweden has, measured internationally, some extremely large companies, and yet also some listed companies which are relatively very small. Add to this picture a mixture of sizeable subsidiaries of foreign parent companies and making generalisations about tax reporting in Swedish tax functions becomes difficult and perhaps not very informative. However the following points can be made without too much controversy:
there is generally increasing recognition that tax reporting is an important part of financial reporting
whilst most companies agree that this is an important area, those same companies and their tax functions are at very different stages in their development of consistent, accurate tax reporting.
It is encouraging to note that both companies and audit firms are recognising that accurate tax reporting is not a by-product of the larger financial reporting process, and will not be achieved without due effort and attention. Tax professionals in-house and in practice have a critical role to play in assisting in this area. And just to keep matters interesting, 2007 sees the Implementation of FIN 48 for us GAAP companies, and changes are expected in the not too distant future to 1 AS 12 and IAS 37 for IFRS companies.
Daniel King is Senior manager in Ernst & Young’s Tax accounting and risk advisory services group.
Olika medlemmar i skattesektionen skriver i varje nummer av Balans under denna vinjett.