Increasing uncertainty, the technical nature and difficult judgments required make tax a challenging area for audit committee members. The frequent lack of deep tax backgrounds can make it even more difficult. But understanding the company’s position and risks in the evolving global tax landscape is critical to your oversight role.
Tax oversight can seem overwhelming, especially when combined with the audit committee’s broader oversight responsibilities. Some key takeaways for fulfilling that role effectively and efficiently include:
Key performance indicators (KPIs)
Discuss the KPIs set for the tax function with management and track how the function continuously improves its value to the company. How is the function focusing on analysis versus data gathering and using technology to drive efficiencies?
Resourcing and reporting structure
Get an overview of the function’s global organization and functional reporting lines. Address how these global resources sufficiently address tax planning, tax compliance and tax accounting for financial statement purposes.
Risk assessment and risk appetite
Understand how the tax function’s risk assessment—strategic, operational and reputational—is aligned with the rest of the organization’s philosophy and risk appetite.
Significant judgments and estimates critical to the accounting and disclosures in the financial statements
Have management provide an overview of the highly subjective areas. This typically includes the reserve for uncertain tax positions, valuation allowances and management’s assertion over its indefinite reinvestment of foreign earnings (often referred to as the “APB 23 assertion”).
Legislative, regulatory and standard-setting changes
Use the “deep dive” meetings as an education session to better understand the global tax environment and how changes could impact the company.
Interaction with other company functions
Understand how the tax function interacts with business units, finance, treasury, and compliance to address tax opportunities and risks. How do they ensure their efforts are aligned?
Tax leader relationship
Meet in a private session at least annually to maintain a relationship with the tax leader to enhance communication and gain additional insights.
Use of third-party partners and advisors
Understand how management evaluates the use of third parties as co-sourcing or outsourcing partners or advisors to increase effectiveness and efficiency. Consider direct discussions with third parties, including the external auditors, to get multiple points of view on the risks and opportunities.