Hero tax software solution produce a full tax balance sheet
Tax & AccountingCorporateJuly 16, 2021

Does your tax software solution produce a full tax balance sheet?

When it comes to tax provision, the responsibility to ‘get it right’ sits squarely with the tax function.

Constantly changing tax rules and regulations, along with increased attention from the C-suite, Board of Directors, auditors and tax authorities, means tax teams are committing more and more tax reporting time to reviewing and reconciling calculations.

One of the best ways to safeguard the integrity of your calculations, along with effectiveness of the review process, is to prepare and maintain a tax balance sheet alongside the accounting balance sheet. Considered best-practice within the tax industry and required under IFRS, there are numerous benefits associated with maintaining a full tax balance sheet, including increased accuracy and auditability of deferred tax assets and liabilities.

A tax basis balance sheet also offers risk management benefits when reporting for income taxes and a streamlined method to calculate income tax balances for auditors. This approach to tax liabilities, in turn, gives companies more control over their tax accounting processes and can set the foundations for automating tax calculations.

Not all tax technologies support a tax balance sheet

Advancements in tax technology make the process of interrogating and reconciling large volumes of data much easier for today’s tax professional by providing access to features such as automated data capture, calculation, and real-time collaboration.

Despite these advancements, many tax functions struggle with tax technology solutions that are fragmented, unwieldy, and out of step with industry best practice and accounting standard requirements. This makes it hard for tax professionals to maintain their tax balance sheet, and to easily reconcile and accurately report their deferred tax position.

Spreadsheets, perhaps the most widely used and well understood ‘tax technology’ used to maintain tax balance sheets, tend to become cumbersome as businesses grow and reporting requirements become more complex. In recent years, the leaders of several organisations have suffered embarrassing headlines and shareholder questions after being forced to restate their position due to spreadsheet errors. Moreover, spreadsheets are now viewed unfavourably by tax authorities and auditors alike as they lack the consistency and governance demanded in the modern environment.

In fact, auditors are moving towards systems-based tax audits focused on governance and understanding how tax technology processes operate, including requesting visibility over the internal logic of solutions and how they are executed and monitored - from source data right through to transformed outputs. This includes interrogating where and how users can manually override and incorrectly calculate the tax accounting consequences of an adjustment.

When it comes to dedicated tax software, several technology providers continue to use the Profit and Loss (P&L) approach to calculate deferred tax, despite IFRS implementing a comprehensive balance sheet method. In addition, more tax authorities are requiring taxpayers to reconcile tax returns to financial statements, including the balance sheet. It is widely accepted within the industry that the P&L approach is outdated, often inaccurate, makes it difficult to reconcile and unwind deferred taxes, and adds another layer of complexity to tax management.

Best practice: Your ‘accounting’ versus ‘tax’ balance sheets side-by-side

Determining the tax bases of assets, liabilities and equity accounts natively generates ‘temporary differences’ between the accounting and tax balance sheet and the deferred tax position for recognition in financial statements.   These differences arise due to the inherent differences between accounting rules and tax regulations. A platform with the capability to produce a full tax balance sheet allows for more accurate and better auditability of current taxes, deferred taxes, and tax in equity.

CCH Integrator’s underlying tax accounting engine is purpose built to automatically calculate and reconcile deferred tax. Not only does the CCH Integrator tax accounting engine produce a tax balance sheet, the platform goes a step further by displaying the tax balance sheet side-by-side with the accounting balance sheet, allowing for easy comparison of accounting and tax bases. This provides users a clear and immediate view over their tax and accounting balances, temporary differences, and resulting temporary tax and journal adjustments.

CCH Integrator also provides the 350 corporations that use the platform, including 40% of the ASX 100, powerful out of the box visibility of the detailed calculations supporting the tax balances and reconciliations proving the tax positions. It also automatically calculates and consolidates the impact of other factors that influence the tax balance sheet and deferred tax position, such as currency conversion, changes in tax rates, managing unrecognised deferred tax assets, and the impact of prior year book-to-return adjustments.  

CCH Integrator’s tax accounting engine and reporting functionality provide many advantages, including:

  • streamlined internal review and outputs that provide transparency to auditors, financial advisors and tax authorities regarding the end-to-end data transformation process.
  • robust controls over data accuracy, leading to a reduced risk of restatement whilst also enabling more timely reporting.
  • centralised tax data management that allows you to tap into the deep business data captured in the tax provisioning and compliance processes to provide business intelligence and analytics.

How to identify the tax technology platform that’s right for your organisation

To help you with this decision, we’ve come up with five key questions to ask about tax technology before investing in a new solution. Once equipped with this knowledge, you and your team can get ready to take advantage of a solution that promises efficiency, increased auditability, and allows for greater collaboration and control.

In this guide, you will learn the importance of a tax software solution that:

  • Fully integrates the tax provision and tax return.
  • Produces a full tax balance sheet.
  • Automatically produces your tax provision.
  • Configures easily to meet your organisation’s changing needs.
  • Provides timely, effective customer support after implementation.
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