Are you up to Speed on the Latest Tax Accounting Trends?

Posted by Kelley Lear on Nov 29, 2011 | 0 comments

Are you up to Speed on the Latest Tax Accounting Trends?

At the recent Vertex Exchange 2011 in Las Vegas, NV, I was able to sit in on a panel session,“Tax Accounting Expert Panel:Gain Access to Experts that Know the Industry Best”.  The panel discussion was facilitated by Stephanie Malin of Vertex and included panel experts Jode Shaw, Shaun Lockhart and Bob Norton.  I always love to participate in panel discussions as they provide a chance to listen to more than one thought leader as well as typically get a lot more audience interaction.  With audience interaction, you are able to learn a lot more about what your colleagues are truly facing out there and to go from more theoretical discussions to the practical (what is working out there and what isn’t).  

The discussion started out with a discussion on the latest legislative risks and trends this year, including:

1. Lease Accounting (leases in general)

2. Revenue Recognition

3. Financial Instruments

After this general intro we quickly got into more detail on Jode’s assertion that the update to ASU 450 will be similar to what happened with the old FAS 5 which blew up to FIN 48.  ASU 450 was brought forth as investors and other “consumers/users” of financial reporting have expressed concerns that disclosures about loss contingencies under the existing guidance on contingencies in Topic 450 do not provide adequate and timely information to assist them in assessing the likelihood, timing, and magnitude of future cash outflows associated with loss contingencies.  Although many theoretically agree with the need for increased transparency in this area of disclosure, they also have concerns about those disclosures being too speculative with respect to disclosure for certain classifications of loss contingencies. There was also belief that the speculative nature of certain information could possibly obscure rather than illuminate an entity’s obligations. Lastly, there was general belief that the higher potential risk and significantly increased cost far outweigh the proposed benefits to the financial consumer.

The panel discussion also included tax accounting professionals sharing insights into their current provision/tax accounting process.  Jode suggested that folks should be looking for ways to further streamline this process as it is no longer (and should no longer) be a “year-end process”.  It should be at least a quarterly process (and perhaps monthly if fully automated).  A third quarter provision should include very little true up and should be more like an actual “mock fourth quarter provision”.  If this is not the case, it should be of immediate concern to the tax team who should be looking into why you have a true-up, what caused it, and how can this be corrected in the future.  Jode further shared that a “three pronged success strategy” for your tax accounting cycles should include the following:

  1. Sound Technology (yes, she means moving away from Excel spreadsheets – everyone but three folks were still on MS Excel for their tax accounting work!!).
  2. Sound FASB skill/training (not always the case out there – in fact, this is one of the biggest areas for improvement).
  3. Tax Department Involvement (no ONE person should be doing this themselves)!

Lastly, if you haven’t had a chance to read the PCAOB website lately for its recent “Audit Trends and Challenges” – I thought I’d share some key points from there as well as things to look out for and best practices from the panel:

  1.  They are looking closely at foreign activity, outside basis differences (APB 23’s – everyone’s favorite!).
  2. The true and transparent understanding of foreign income from the bottom up.  Someone in your organization has to own it, live it, breathe it!
  3. Scrutiny on the roll from GAAP to IFRS.
  4. Supporting documentation (and lack thereof).
  5. Create as much cushion as you can or don’t want exposure for…
  6. Buddy up with other companies/colleagues who have already gone through UTP (so “second tier” companies buddy up with “tier one” companies).
  7. UTP should be a subset of FIN 48! 
  8. IDR’s will be asking for A LOT more documentation, memos, etc.  So prepare!
  9. Get ahead of audit by getting your auditor’s checklist ahead of the audit.  Get training from your auditors if they will provide. 

Maybe you can provide #10?  What are your thoughts on latest trends and best practices?  Would love to hear them!

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