Is There a Ticking Bomb in Your Tax Provision Process?
Multinationals that rely on Excel spreadsheets to drive their provision process face a high risk of recieving a material weakness, significant deficiency or possible restatements, as a result of increased scrutiny
| August 2012
For years, a Michigan-based multinational corporation (MNC) used Excel spreadsheets to calculate its tax provision. Recently, independent auditors caught a 5 percent understatement in the MNC's effective tax rate — fortunately prior to the release of the financial statements. Had the material error been uncovered any later, the result would have been an embarrassing restatement and lost shareholder confidence. The error originated from a failure to properly update Excel spreadsheets for legislative changes in the state of Michigan's tax regime.
That’s just one example cited by Chris Tump, CPA, a CCH Integrator™ Consultant and former Big 4 tax provision auditor. Such errors are not always caught in a timely fashion. In fact, a whitepaper reported that 9.3 percent of restatements are related to income tax accounting and that tax accounting remains a top area in SEC filing reviews. This is especially true since the adoption of rules governing accounting for income tax uncertainties.
“There are inherent risks with Excel-based provisions, and even the best ones are laden with multiple errors,” Tump says. “Cell formula errors can replicate throughout a worksheet, and often get rolled forward from year to year. The big errors are obvious," he says. “The ones that are scary are those that remain undetected due to materiality. However, those are the same ones that build over the years and eventually blow up.”
Moving to CCH Global Integrator is an important way that VPs of tax and tax directors at MNCs can limit the risk of a material weakness or significant deficiency, Tump says. “An automated solution puts an end to formula errors and rolling things forward the wrong way. It also streamlines everything because it automates a lot of manual calculations and workflow.”
Global Integrator is a cloud-based solution that automatically calculates deferred tax positions, current and deferred tax expense, and rolls forward your financial statement tax accounts. Further, it seamlessly reconciles total tax expense to the effective tax rate. “Transparency is an important feature you don’t get with an Excel approach,” Tump says. With Global Integrator you can drill down to the transaction level, and see the origin of the numbers.
“CCH Global Integrator is updated real-time so you don’t have a problem with version control,” Tump says. “You might have 20 versions of Excel saved to your hard drive, and if you update a superseded copy, you are probably missing vital changes. It’s easy to make this mistake, especially when you are talking about multiple locations or jurisdictions working on the same provision.”
Time savings is another critical factor. The time frame is invariably tight, and the deadline for auditor signoff on the income tax provision may be a matter of days. Global Integrator can serve as a single source for data collection, provision and compliance, cutting hours out of the process and boosting everyone’s confidence level.
Cincinnati-based F+W Media is a case in point. Using Excel, the tax provision process took 120-130 hours just to confirm the final numbers, according to F+W Media Tax Manager John Mullowney. Compliance added another 150 to 170 hours. Now, F+W Media handles both provisioning and compliance in just 40 to 50 hours. “Every hour I gain gives me an opportunity to add even greater value to the business,” Mullowney says.