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Bob Norton
Bob Norton
The Current State of the Tax Provision Process

A need for standardization and process efficiency.

August 26, 2010
by Bob Norton

In the May issue of AICPA Corporate Taxation Insider, Vertex and AICPA surveyed corporate tax and accounting professionals to gain insight into the global tax provision process. In just six short questions we obtained a snapshot of how corporations are currently handling provision, as well as the challenges they face.

The top three challenges were:

  • Data. One of the key findings of the survey is that while many companies admit their provision model doesn’t contain all the required data, most of them admit that the data exists somewhere in the company’s systems. The problem? Gathering that data from disparate sources in an efficient and timely manner.
  • Resources. Determining the tax provision is a labor-intensive process. Currently, depending on size, tax departments have multiple dedicated resources just to gather the data and maintain their spreadsheets. And with tax department responsibilities increasing and staffing trends remaining flat or decreasing, most corporations are looking at ways to reduce the manual steps required and dedicate their resources to more strategic, higher value tasks. The goal would be to spend less time on manual data collection and calculation, and more time on analysis and critical thinking.
  • Timing. More than half the companies surveyed report that they must prepare the consolidated tax provision in one week or less. This becomes a race against the clock for already resource-strapped tax departments to gather data from disparate sources, manage all the spreadsheets, execute all the calculations, and check the results (especially when those late, post-close entries occur -- which is almost always). Not surprisingly, this circles back to the first challenge of getting 100 percent of the data into the provision model in the first place.

It’s no surprise, then, that the majority of corporations have begun some kind of automation into the provision process. Of the companies who responded to the survey, 68 percent have taken steps to automate the provision process. The reason? Survey respondents reveal the biggest challenge isn’t staying on top of business changes and tax law changes, but the need to standardize and improve the efficiency of the provision process. The focus is on long-term solutions for improved productivity and process efficiency.

While the survey consisted of just six questions, the results paint a clear picture of the maturity of the tax provision process. Strained resources.  A labor-intensive process.  Disparate data sources. And the search for new automation tools to standardize the provision process and improve efficiency.

Below is the raw data from the May 2010 survey.

1. If you have taken steps to automate your tax provision process, what were the reasons?

 
% of Total
We had difficulty maintaining our spreadsheet formulas with continual business and tax law change.
9%
We wanted to standardize and improve the efficiency of the provision process.
50%
It was part of an overall tax transformation initiative.
6%

It was part of an overall finance transformation initiative.

3%

We do not report with automation.

32%
Total
100%

Why Automate Provision Pie Chart

2. Has your company undergone a finance transformation or similar project?

 
% of Total
Yes
21%
No
79%
Total
100%

Undergoing Finance Transformation

3. If you use Excel® to do your global tax provision, how many people are responsible for maintaining the spreadsheet calculations?

 
% of Total
1 to 2
68%
3 to 5
26%
6 to 10
3%

More than 10

3%
Total
100%

# of people to maintain spreadsheets

4. At year-end, how long do you have to prepare the consolidated tax provision?

 
% of Total
1 – 5 days
35%
1 week
18%
2 weeks
12%

1 month

21%

2 months

8%

Varies

3%

When earnings are announced

3%
Total
100%

Time to prepare consolidation provision

5. What portion of the data required to do a perfectly accurate tax provision, makes it into your provision model in time for the closing deadline?

 
% of Total
Less than 25%
3%
25% – 50%
9%
50% – 75%
44%

More than 75%

44%
Total
100%

% of required data included

6. What portion of that data is in existence in one of your company’s systems at the end of year-end close?

 
% of Total
Less than 25%
0%
25% – 50%
25%
50% – 75%
33%

More than 75%

42%
Total
100%

% of required data exists

7. Which best describes you?

 
% of Total
I work for a national CPA firm
3%
I work for a regional CPA firm
9%
I work in a Corporate Tax Department
61%
I work in a Corporate Finance Department

9%
I work in a Corporate Accounting Department
15%

I am a Sole Practitioner

3%
Total
100%

 

Respondant Job

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Bob Norton brings 25 years of corporate tax experience from both public accounting and global industry to his role as chief income tax officer. He is responsible for leading Vertex’s Income Tax Technology business aimed at improving the efficiency, accuracy and controls surrounding the corporate income tax process of today’s Fortune 2000 multinational corporations.