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Why automating tax will make your tax experts more valuable
Digital transformation of tax can be challenging because it’s often hindered by continued reliance on spreadsheet programs and the disjointed, isolated tax data they typically contain.
Spreadsheets are often the go-to tool for tax compliance, planning and reporting, central to everything tax professionals do—and they have been for a long time. But it’s time to change.
But why are tax departments reluctant to abandon their spreadsheets and how can the data-enabled tax department be key to setting them free? We dig a bit deeper to find out.
Spreadsheets… better the devil you know? No.
Tax departments are judged by the accuracy, completeness, and timeliness of their output. Whether it’s tax projections, tax returns, or tax reporting for financial statement purposes, errors can lead to tax adjustments and penalties by tax authorities, material weaknesses and significant deficiencies in audits, financial report restatements, and under certain circumstances criminal indictments of CEOs and CFOs. The pressure on tax executives to avoid mistakes is intense, ongoing, and ever increasing.
It’s no wonder they are inclined to stick with what they know. Always on the stopwatch and constrained by tight budgets, they have to be confident that their data, calculations, and outputs are fit for scrutiny by very critical stakeholders. Who wouldn’t be hesitant to change the status quo under those circumstances?
Yet the errors that cause so much consternation often stem from the very approach that has been relied on for so long:
Where spreadsheets go wrong
Let’s consider an example. As the starting point for many tax calculations, the trial balance is usually downloaded from an ERP system or other financial software and then used in various ways by different tax teams. Each team downloads the trial balance into their own set of spreadsheets often containing dozens, if not hundreds, of sheets that reference different elements of the trial balance data.
After mapping the trial balance data into and among their worksheets, each team then “enriches” the data with specific tax calculations, logic, and rules—e.g., working out permanent items, timing differences, and other adjustments—in order to produce whatever output is required of them. That enrichment process may involve a few steps, or dozens.
All the while, each team constantly checks the source data, calculations, and enriched data for errors—a significant investment of time and resources that is embedded across each tax process. If an error is discovered or a change is introduced at any point in the process—from adjustments to the trial balance itself or to any of the calculations made during enrichment—every step of the enrichment process through to output must be rechecked for accuracy and completeness. This sometimes happens many times.
Importantly, all these activities take place in isolation because the enrichments and outputs of the various teams are distinct from one another. Yet at the end, the outputs typically need to be consolidated to tell a complete story about the tax provision, tax return, or other tax reporting requirement.
Often, that consolidation process is yet another manual, spreadsheet-based exercise that is prone to errors and requires additional time-consuming validation.
Data confidence means more time to think strategically
Question: Should tax professionals who have earned advanced college degrees, gained many years of business experience, and are often highly paid spend 25 percent or more of their time on data-wrangling, data enrichment, and data validation? Couldn’t they drive more value for the organisation if more of their time was focused on technical analysis of tax positions, effective tax rates, tax projections, and other vital planning, compliance and reporting activities?
The answer, of course, is yes. But it means being able to trust your data. So what does that look like?
The data-enabled approach
A data-enabled tax department centralises tax data in a way that reduces the amount of time that tax professionals spend on data extraction, validation, and formatting in various spreadsheets.
Instead, those activities—acquisition, validation, and tax-enrichment—are automated, potentially using tools that may already exist elsewhere in the enterprise, such as in finance. Using data wrangling tools, the tax department can apply its own rules, governance, and internal controls to those tools and activities.
From that point on processes are carried out automatically with periodic updates and enhancements as the business evolves.
Moreover, every time the data is modified or updated—whether in the beginning with the trial balance, across the various discrete tax-enrichment processes described previously, or through the consolidation process at the end—that modification or change can be executed automatically backward and forward through each process, as well as across processes.
The two key benefits to a data-enabled approach
What do these implications mean for tax professionals? Instead of being deeply mired in manual manipulation and validation of tax data with constant concern about its accuracy and completeness, you can instead turn your full attention and professional capabilities to generating insights from the tax-ready data that is now at your disposal.
Start a conversation about your data-enabled tax transformation with Deloitte’s Digital Tax team.
Rory is a Partner in the Digital Tax Team. He is responsible for the development of innovative digital tax solutions. Having previously owned his own tax technology business, Rory was a Partner in Deloitte Canada leading the Indirect Tax team. He brings an entrepreneurial approach to the tax business and has more than 30 years of experience in tax technology and client centric solutions.