Navigating the year-end close remotely

Considerations for Tax

The 2020 year-end financial reporting season has arrived for calendar year-end companies. Execution of the close process will be different than in prior years as we move forward remotely. Tax functions need to work differently in order to execute effectively and generate ‘audit ready’ results in a virtual environment.

Below are some tips to build an effective game plan:

The fast-paced environment has made keeping up with tax accounting and legislative developments more difficult than ever before. Seek ways to stay connected to developments in real-time – such as webcasts, tax technical insights and reference guides.

Stay on top of tax accounting developments. PwC’s Tax Accounting Services (TAS) specialists highlighted the top 10 tax accounting matters, including recent developments, impacting 2020 tax provisions in detail on our recent Tax Readiness webcast. Additional resources:
- Understand the impact of Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes, and consider early adoption.
- Reference PwC’s Income taxes guide to help you interpret US GAAP requirements, including the impacts of US tax reform and ASU 2019-12.

Anticipating issues enables the Tax function to quickly and effectively address changes as they arise without taking too much time away from the core process execution and review.

Connect with broader business functions (‘early’ and ‘often’) regarding significant transactions, accounting method changes, and other business changes that may impact Tax. Planning and assessing accounting implications early can help you avoid surprises.
Document standard procedures and establish a contingency plan to address ‘key person’ risk and enable a smooth transition or resource supplementation if someone becomes unavailable.
Execute scenario planning and modeling of federal, state, and international tax impacts resulting from business changes and potential tax legislation changes (i.e., prompting late adjustments or provision-to-return true ups).
Review data collection models to identify the data essential to year-end close, how that data is transmitted and where it is stored. Early access to well formatted data improves its usefulness and reporting accuracy.
Review and document all data requirements and data sources to ensure they are complete and accurate. Capitalize on this process by identifying areas for optimization and opportunities for automation. Further, this documentation can serve as a reference guide for execution.

Leveraging a risk-based approach to standardize global processes, prioritize tasks and facilitate review can help drive efficiency and improve quality of results while managing overall financial statement risk.

Prioritize tasks and facilitate review using a risk-based approach while maintaining quality and managing risk.
Refresh your global tiering analysis for US and non-US legal entities. Assess the level of analysis needed for execution and level of review procedures required.
- Consider how business changes, such as supply chain, impact the tax results on a legal entity basis. Do these changes impact financial statement risk? Are there certain lower tier entities that require additional review this year due to business changes?
- Revisit your approach for calculating tax provision ‘estimates’ and the data required to execute. How might this be different than prior years? Is prior year return data a sufficient estimate? Is a full analysis required? Or, is a partial, hybrid approach an option?
Highlight risk areas and properly manage them – consider prior experiences, significant transactions and interpretation of tax legislation.
- Address late and topside adjustments. Document how you recorded the impact to avoid double booking the impact when adjustments are ‘pushed down’ in a later period.
- Leverage risk based analytics and scenario planning to identify unusual items and quantify potential tax law changes (in case you need to push through late or document as part of the return to provision process).

Provide a clear understanding of requirements and deadlines to Tax staff and broader stakeholder groups to help manage expectations.

Align expectations with key stakeholders, including finance and the C-suite, regarding communication protocols, timing, new or existing issues, tax and accounting impacts, etc.
Set realistic deadlines, building in ‘wiggle room’ for unexpected issues and allow for proper review.
Clearly define processes, roles and responsibilities for a more streamlined execution; embed within enterprise-wide collaboration tools for improved teaming and status tracking.

Developing a consistent approach for execution and review procedures (and related documentation) across all areas of Tax can alleviate pain points and lower risk of potential misstatement.

Review governance and internal controls structure. Internal control execution needs to operate effectively even when working virtually. Consider:
- Is your current control structure reflective of process or tax ecosystem changes?
- How will you evidence control execution in a virtual environment?
- Embed automation of controls within the Tax technology ecosystem, including collaboration tools.
Develop a plan for execution and review documentation.
- Ensure efficient storage of necessary documents and manage version control.
- Automate controls execution and/or documentation within collaboration or other tax technology tools.
- Apply a consistent approach to documenting review procedures across all areas of Tax.

Take time to review your tax technology ecosystem and embed needed updates. This will save significant time on the front end and better enable Tax to hit the ground running.

Run diagnostics within your tax technology ecosystem – rollforward systems to the current reporting period, validate system structure and embedded logic, and verify authorized user access, including level of access (e.g., administrator, editor, viewer).
- Tax provision software considerations: rollover datasets, confirm completeness of entity data, validate trial balance mapping, update sub-consolidation / consolidation roll-ups, review automation logic, etc.
- Small automation solution considerations: build new or scale existing automation solutions to alleviate pain points, ensure solutions reflect recent tax legislation and business changes, etc.

Adopt a ‘one company’ approach to your overall tax strategy and risk framework, recognizing that additional transparency requires clear and effective disclosures.

Adopt a ‘one company’ approach to your overall tax strategy and risk framework, recognizing that additional transparency requires clear and effective disclosures. Apply a consistent approach to addressing C-suite priorities, evaluating tax impacts of business and tax legislation changes, and documenting tax reporting positions on a global basis.
Review your Tax provision disclosures as you navigate the close process. Consider what aspects of your provision have changed as a result of business and economic disruption in 2020. How do the events of the current year compare to prior years (i.e., BEPS, CbCR, US tax reform, etc.)? How will you document the impact of these changes internally and externally?
Document tax reporting positions consistently across the globe including tax reserves and transaction impacts to support the financial statement audit and tax controversy. Help drive standardization by adopting a tool or template to help manage ASC 740-10 uncertain tax positions globally.

Impromptu touchpoints, such as ‘water cooler’ conversations, are not easy to come by in a remote environment. Making adjustments to your communication methods and frequency can position Tax to be more efficient and effective when executing remotely.

Leverage structured, focused communications executing processes to maintain quality and manage risks during a fast-paced close cycle. For example:
- Begin your day with a virtual status report
- Clarify objectives and participant roles; summarize actions and next steps to hold the team accountable
Communicate potential issues even if you don’t have all of the details – waiting to inform your team or broader stakeholders, including the C-suite, on pending issues until ‘fully baked’ could have more significant consequences later.
Keep it personal – it is easy to jump into ‘work mode,’ but building a trusting relationship with your team and any supporting personnel is critical to performance and overall success of the team.

As businesses look to run ‘leaner’, Tax functions should revisit their current state and build-in sustainable solutions for long-term success.

Reflect on ‘lessons learned’ throughout the year – make adjustments to alleviate pain points, focusing on ‘quick wins’. Identify ‘larger’ efforts, including potential need for broader transformation initiatives, to be addressed next year and beyond. Examples of some possible ‘quick wins’ include:
- Building automation solutions using existing enterprise technology to automate manual, repeatable tasks.
- Leveraging collaboration tools to guide execution of detailed process and workflow steps, enhance transparency between team members, track overall status, and document review.