Tax Reform – Don’t Forget About Internal Controls
Now that the Tax Cuts and Jobs Act is in full swing and with companies scrambling to address the changes in their financial statements, it’s important not to forget about the impacts on your tax process and internal controls. Auditors will be looking closely at how these last-minute changes are being dealt with, particularly as they relate to the quality of data, documentation, new information relied upon, and review procedures.
As you as begin to prepare your income tax provisions under ASC 740, you should consider whether your controls need to be re-designed or adjusted in order to provide appropriate review over the different tax provision components. Think about new control activities or processes that your team is performing in order to prepare the tax provision that help in demonstrating operating effectiveness. If you have any concerns, discuss them with your auditors to ensure that there aren’t any surprises as you head into the year end (or quarterly) audit. Additional process considerations:
- Do you have the appropriate resources or do you require external resources?
- Are your resources comfortable enough (technical) around the changes in the tax law?
- Is the data utilized reliable and reasonable for your computations and are you getting the information needed?
- Will you be reporting provisional amounts during the measurement period under SEC Staff Accounting Bulletin 118 and are your disclosures clear?
- Communicate any resource, data, or process gaps to management so that they can help expedite any issues as they arise.
- Discuss any additional audit requirements and expectations resulting from tax reform with your auditors prior to the start of the audit including requirements for provisional calculations.
Once you’ve reviewed your controls and procedures, note the following which may be subject to additional scrutiny and documentation during this audit cycle:
- Tax rate changes impacting deferred tax assets and liabilities
- State conformity rules and impact
- Net operating losses
- Repatriation/Transition Tax computations including prove-out of Earnings & Profits
- Valuation allowance impacts
- Reporting of any amounts provisional or adjustments to provisional amounts during the measurement period
- Disclosures as they relate to any of the above or other tax reform impacts
Internal controls are designed and put into place precisely to address these types of unusual circumstances and this is the time to demonstrate that your internal controls are working effectively.
How Can True Partners Help?
True Partners Consulting’s corporate and international tax teams offer a combination of highly experienced tax advisors and an approach that puts our clients at a competitive advantage. We are prepared to work closely with clients to assist with providing technical expertise or additional resources to help you during this challenging tax cycle.