new regulations prompt extensive tax department changes to meet increased company demands
new york (press release) — there is a clear link between sarbanes-oxley section 404 compliance work and dramatically higher profiles for senior tax executives, particularly with audit committees and boards of directors, according to a survey of senior tax executives by kpmg.
some 57 percent of respondents to the kpmg survey said they believed both their role and stature had grown with peer groups over the past year, while 58 percent and 42 percent of respondents reported greater visibility and prominence before audit committees and boards of directors, respectively. that heightened attention has also resulted in support from top management for additional tax department resources, as nearly all (92 percent) respondents indicated plans to add staff over the next 12 months.
“it’s clear that the additional responsibilities related to sarbanes-oxley section 404 compliance work have pushed tax executives and their departments to a higher level of prominence in corporate america, especially at the corporate governance level,” said brad brown, kpmg’s national tax leader for sarbanes-oxley section 404.
the new responsibilities have brought increased work for tax directors, as well. in fact, 92 percent of respondents said their department’s workloads had grown significantly due to 404 compliance work; 90 percent also cited increased documentation requirements for tax accounting.
“this shift demonstrates the key role that tax plays in corporate financial statements, particularly at a time when the highest standards of financial management are paramount,” he added.
among other major kpmg survey findings:
— the consensus among tax directors is that a host of new regulations have
prompted extensive changes within tax departments in terms of personnel,
organizational structure and process.
— nearly one-third (30 percent) of tax executives said they have added
full-time senior tax personnel during the past 12 months, with one-third
increasing their staff by more than 25 percent.
— and almost half (45 percent) of those surveyed said they are planning to
modify their tax department structure over the next 12 months.
“more than half of the tax deficiencies reported during the first round of sarbanes-oxley 404 compliance related to tax staffing shortages and competency issues,” brown said. “companies are clearly reassessing their tax operating models and allocating more resources to tax departments to address work created by sarbanes-oxley compliance and increased tax accounting requirements from regulators and others, such as the financial accounting standards board.”
the survey also revealed that more than 60 percent of tax departments are increasing training programs for their staffs, after identifying employee skill deficiencies when dealing with new requirements and responsibilities under sarbanes-oxley.
additionally, the kpmg survey results indicate that tax departments are utilizing outsourcing or co-sourcing arrangements to meet greater workloads and demands. co-sourcing allows a company to control the areas of the tax department that are outsourced to a third-party service provider and the term of the arrangement. more than half of the companies surveyed — 57 percent — report outsourcing some of their tax-related functions. the most common is non-u.s. income tax compliance (36 percent), followed by u.s. income tax compliance (23 percent).
“many tax directors and cfos are now working together to find the right level of co-sourcing,” said tom garigliano, partner in charge of global tax outsourcing at kpmg. “for some companies, that may mean co-sourcing tactical tax areas; for others, it means working with external specialty tax professionals, particularly in matters impacting their income tax accounting. their goal is to balance in-house knowledge and focus on their own core competencies, while gaining outside resources in specific areas.”
tax departments are also addressing process and technology deficiencies, the kpmg survey revealed. some 58 percent of respondents said they plan process improvements over the next 12 months, ranging from streamlining sarbanes-oxley compliance and remediation to automating the tax accounting process. at the same time, 45 percent of those surveyed plan to undertake tax technology improvements over the next year.
despite the impact that sarbanes-oxley section 404 compliance has had on corporate tax departments, only 24 percent of those surveyed have a formal tax risk management policy.
kpmg’s tax department survey was based on 98 telephone interviews with corporate senior tax executives, between june 22 and july 8, 2005.