Posts Tagged ‘bob norton’

There is no doubt in my mind that the current state of corporate tax operations is UNACCEPTABLE and has been for some time.

In defining Tax 2.0, it would first be helpful to step back and define Tax 1.0 (and even Tax .5) to see where we have evolved from.  Tax 1.0 could be viewed as the post-Sox, post-FIN 48 corporate tax department or the current state. Tax .5 would naturally be pre-Sox, pre FIN-48.

Tax 1.0 was (actually, is) a world where 600 plus companies had material weaknesses around their income tax controls at the start of SOX 404 reviews. As a 25+ year tax guy, I can tell you that before SOX, the last time tax professionals dealt with internal controls was for the CPA exam! They simply were a complete non-issue in the everyday operations of corporate tax departments. And while tax accounting was a necessary part of the job, few if any of us got into this business to master accounting for income taxes.

With the flick of the SOX switch our world was overturned: from focusing on tax planning, to focusing on tax risk management, tax processes controls, tax accounting and more tax accounting.

The post-SOX Tax 1.0 world was all about material weaknesses and restatements as a result of improper accounting for income taxes. You can well imagine the outcome of such blasphemy: microscopic visibility into all things tax by the Controller, the CFO, the Audit Committee and external auditors. Tax 1.0 is a state where the tax closing process is completely independent of the accounting close process. It just doesn’t make sense. It’s is a world that demands transparency (the SEC, the IRS, the Big 4 and investors). It’s a state full of manual spreadsheet based processes, completely unacceptable data management practices, the emergence of departmental so-called “automated” provisioning tools and the insanity of FIN 48 accounting. And based on the latest stats, while SOX 404 material weaknesses have greatly decreased, tax continues to lead the list of reasons for such weaknesses for the third year in a row. To be blunt Tax 1.0 sounds pretty ugly.

Tax .5 on the other hand was a fine example of “ignorance is bliss”. It was before SOX and before FIN 48 when tax departments were expected to and were able to spend most of their time on tax planning to reduce the effective tax rate and minimize cash taxes. That game is over!

So now we must ask the question, how do we evolve to Tax 2.0?  How do we now pull the pendulum back to the center where adequate tax internal controls are in place and in a steady state? How do we ensure our staffs are trained-up so we can return to helping our companies maximize shareholder value through sound tax planning and prudent tax risk management?

All I can say is that we better do it soon before the next onslaught - IFRS!!