Companies often duplicate data collection, processing and calculations across reporting requirements (e.g., tax provision, tax return and tax controversy) and for internal scenario modeling due to inconsistent data models between a variety of data sources. Time may be wasted and risk amplified when different workstreams access and manipulate data within organizational silos. Improving data coordination and removing redundancies can create valuable efficiencies. Many companies are already beginning to use a combination of tools to streamline their review processes and create more efficient controls, but continuous improvement is essential to stay ahead of new reporting demands.
“We are seeing companies standardize their data collection process and storage, and they are identifying changes to enterprise resource planning (ERP) systems to capture data at the Tax Accounting and Risk Advisory Services Leader. “These steps can help streamline efforts to manage reporting and compliance and may reduce longer-term risks.”
The power of technology and data
Recent advances in technology have revolutionized the way leading-practice tax functions acquire, use and manage data. The tax accountant of today should understand and embrace technologies to meet the challenges of the rapidly changing landscape. Survey respondents recognize the need for embracing technology, with over 70% citing increased automation as one of the top two priorities for their tax accounting organization over the next two years. By automating data collection and analysis and integrating predictive analytics and dashboards into their processes, tax functions can better identify anomalies and trends to help highlight risks and focus areas and can allocate time and resources more efficiently.
Data acquisition and management
The recent introduction of data integration tools, such as Alteryx and Microsoft Power Apps, has allowed tax functions to unlock a variety of productivity and efficiency improvements. Efficient tax functions are no longer manually transforming data to upload into a provision tool or opening tax spreadsheets one by one to extract data. Instead, they are configuring data integration tools to automate manual steps and complete routine tasks in seconds, often eliminating hours of low- or no-value work.
Application programming interfaces (APIs) are another development affecting how data is gathered and processed. APIs enable system-to-system transmission of data and the automation of otherwise manual process steps. Tax provision tool vendors have APIs that allow automated upload of trial balances and output of tax journal entries. Companies are developing BEPS 2.0 and sustainability reporting technologies that use APIs to move data from provision tools and ERP systems into a tax warehouse to enable new calculations and reporting.
“APIs provide a way for different systems to connect automatically, thereby eliminating user interface risks and improving efficiencies,” says Kathy Ford, EY Americas Tax Accounting Annuity Center Leader.
More recently tax processes are integrating AI to sift through transaction details, apply global tax rules and understand information in a variety of data models. Similarly, more tax functions are implementing collaboration platforms to centralize global data gathering and management and improve controls around tax reporting processes.
Data visualizations for effective tax rate (ETR) reporting
A large majority of respondents to the Survey indicated they must regularly report their current and forecasted ETR to their audit committees, boards and CFOs — with 86% having to report to the audit committee or board and more than 90% reporting to the CFO. As part of their attention to ETR tracking and reporting, leading companies are turning to data visualizations using tools such as Microsoft Power BI to enhance their stakeholder communications. While data visualizations have been used for many years to view historical data trends, visualizations can have an even greater impact when incorporated into forecasting, real-time review processes and the company’s tax planning. For the tax accounting team struggling to explain to management the drivers of changes in the ETR from period to period, data visualizations that use data from provision tools or quarterly models can help bridge the knowledge divide. Seeing the buildup of the ETR by component or jurisdiction or visually comparing two periods to determine what is causing a change in ETR can enable quicker analysis and deeper insights to inform stakeholder communications.
Use of automation for cash-tax considerations
In addition to reporting obligations and stakeholder communications, companies are navigating an uncertain economy and high-interest rate environment. Indeed, nearly three-quarters of the respondents to the Survey said there is an increasing emphasis on cash tax within their companies. As a result, many are paying greater attention to their cash tax positions and are focusing more on cash tax management. An EY-Parthenon analysis of 5,000 large global companies found that companies with better cash management were 19% more resilient than their peers, and leaders in cash management were 25% better at managing initial shocks, such as market volatility and business shortfalls, because they had additional liquidity as a buffer for affected operations.
