Tax departments often find themselves navigating a complex maze of regulations, compliance requirements, and data reconciliation with persisting inefficiencies, consuming valuable time, and resources. In this blog, we delve into the critical pain points where tax departments lose time during year-end accounting. From manual data entry to reconciling discrepancies, we explore the challenges where tax professionals are constrained with repetitive and manual administrative tasks.
Here are a few areas where time is often lost in the year-end tax accounting process.
Manual Financial and Tax Data Collection
Data collection is the initial step in the tax lifecycle. Tax professionals must source and collate financial data for tax compliance purposes from various sources, including different departments, subsidiaries, and external parties.
This process, however, is time intensive. Manually gathering, aggregating, and consolidating data can take days or even weeks. Queries often go back and forth between data providers and tax compliance teams. This manual collection of tax data increases the risk of errors and threatens data integrity. Manual data collection from disparate systems means that dealing with queries and audits can be a highly onerous task with compliance teams having to laboriously revert to source data found in different systems.
Tax authorities are moving towards digital tax reporting, mandating a digital journey from data source to submission. Businesses must keep pace with regulatory changes and embrace automation to streamline data collection.
Absent or Poor Tax Reporting Process
A well-defined tax reporting process with clear guidelines and standardized procedures can streamline reporting.
When there’s no well-defined process for collecting financial and tax data, tax teams spend extra time chasing down information from various departments or subsidiaries. Without a structured reporting process, manual adjustments become frequent and tax professionals must manually correct errors, reconcile discrepancies, and adjust tax calculations.
Even with a process in place, inefficiencies (such as unclear guidelines or lack of automation) can cause delays. Inadequate controls or inconsistent procedures lead to additional manual work.
A well-structured tax reporting process with clear guidelines, and efficient coordination through a defined RACI matrix are essential to minimize time losses and enhance accuracy in tax accounting.
Manual and Individual Build of Low-Quality Tax Schedules
When tax schedules are built individually, inconsistencies and errors can occur. Different team members may interpret guidelines differently or make calculation mistakes. Manual calculations, copy-pasting, and data entry increase the risk of mistakes. When different team members create their versions of schedules, managing updates and ensuring consistency becomes complex. Correcting these discrepancies requires additional effort and review cycles.
Moreover, many tax schedules are built using spreadsheets (e.g., Excel). Manually updating formulas, adjusting ranges, and handling changes becomes a time-intensive task. Rushed or poorly designed schedules may lack clear labels, proper formatting, or consistent structure and each schedule must be reviewed for accuracy, compliance, and completeness. This further leads to extended timelines with the year-end accounting process.
Complex and User-Unfriendly Tax Packs
Tax packs (templates for tax calculations) can be complex and challenging to navigate. Often, they are intricate, with multiple sections and interrelated fields. Complex tax rules and changing regulations add to the challenge and understanding how specific transactions fit into the tax pack requires expertise. Organizations often need to tailor tax packs to their unique circumstances. These custom tax packs could lack clear labels, consistent formatting, or a logical flow.
Manual data entry into unfriendly tax packs is error prone. Tax professionals and new team members need to spend additional time deciphering instructions and inputting data. Navigating complex tax packs can delay data collection and increase review cycles.
Manual Tax Consolidation
Manually consolidating tax data by collecting financial statements, tax returns, intercompany transactions, and other relevant information from various entities is time-consuming and can be error prone. Corporate groups often operate across different jurisdictions, each with unique tax laws, regulations, and reporting requirements. Coordinating these diverse elements manually is challenging. Consolidation often requires eliminating intercompany transactions (such as sales between subsidiaries) to avoid double counting. Manually identifying and adjusting these entries is cumbersome.
Manual Build of Disclosure Notes
Accurate and comprehensive disclosure notes are essential for transparent financial reporting. The quality and accuracy of disclosure notes significantly impacts the usefulness of financial statements for stakeholders.
Manually preparing disclosure notes explaining tax positions, uncertainties, and other relevant information, especially for large organizations with complex operations, is a time consuming and complex process. Organizations create disclosure notes manually, tailoring them to their specific circumstances. Customizing notes also requires understanding the reporting entity’s unique circumstances. Human involvement in such customization increases the risk of mistakes, inconsistencies, or omissions.
Lack of Audit Trails and Trouble Understanding Tax Position
Without proper audit trails (a record of changes), it’s challenging to trace how tax numbers were derived. This lack of transparency can lead to additional review cycles. Audit trails provide transparency by recording details like date, time, and user information associated with each transaction. By quickly identifying abnormal changes or additions to information, audit trails also help mitigate negative influences such as cyber threats, security breaches, data corruption, or misuse of information.
Well-managed audit trails are key indicators of good internal controls within an organization. Maintaining robust audit trails and understanding tax positions are critical for financial transparency, compliance, and risk management in tax accounting.
Addressing these pain points through automation, with an integrated tax technology platform such as TaxProof, can help tax professionals reclaim valuable time and enhance the accuracy of tax reporting. By leveraging technology, tax departments can streamline data collection, reduce errors, and accelerate reconciliation processes. Automated tax packs, consolidated reporting, and audit trails empower professionals to make informed decisions swiftly. As we bid farewell to manual drudgery, tax experts can redirect their energy toward strategic planning, risk assessment, and value-added analysis. The future of tax accounting lies in embracing automation—a path toward greater accuracy, agility, and time savings.
