Explore how Bloomberg Tax Provision’s new rate rec automatically adapts to ASU 2023-09 to simplify reporting compliance.
When it comes to managing the income tax provision process, outdated software and manual work can cause issues and risks. So many corporate tax professionals are understandably looking for ways to improve this complex process while maintaining accuracy with the use of tax automation software.
Read on to learn how introducing technology to help automate your income tax provision process can help you reduce human error while also streamlining your entire workflow.
Why should I automate income tax provision work?
The most scrutinized tax process of the year is your income tax provision – and it’s becoming increasingly complex. Frequent changes in business facts, tax laws, accounting standards, and reporting requirements make it challenging for organizations to ensure accurate and complete calculations with all the details needed to comply with internal and external requirements.
These changes impact the provision process and require constant monitoring and updating of calculations and methodologies. Many companies are still using Excel-based spreadsheets to calculate their effective tax rate reconciliation and apply ASC 740 rules. Tax departments spend a lot of time locating errors to determine why numbers in their payable account don’t tie out against what they have calculated.
There are many benefits to leveraging tax provision software to automate and simplify the process, while providing more detailed and accurate calculations. It can help you reduce the risks of manual errors, improve compliance, allow for faster calculations, and improve the efficiency and accuracy of your tax process.
What is the best software for tax provision?
Most provision software solutions on the market address only a slice of the full workflow, resulting in a disjointed, piecemeal approach that can slow teams down and introduce the potential for error.
The best software solution for the end-to-end provision process is an integrated suite like Bloomberg Tax that gives you:
- The power of tax data transformation and automation with a controlled spreadsheets environment to manage tax calculations within Bloomberg Tax Workpapers
- Integrated tax intelligence from trusted sources in Bloomberg Tax Research, so calculations can be done at the state-by-state level, while always maintaining a high level of accuracy
- Seamless connection with Bloomberg Tax Provision so calculations flow through and any updates to the underlying data are automatically applied
By pairing Bloomberg Tax Provision with a tool like Bloomberg Tax Workpapers, the following workflows can be automated to streamline the most headache-inducing steps in the provision process, including:
- Book to tax adjustments
- Pretax income
- State apportionment
- Foreign tax packages
- Payables reconciliation and tracker
With thoughtful automation capabilities available throughout the suite of products, Bloomberg Tax helps streamline the provision process, resulting in a rate reconciliation that always ties.
[Download our Buyer’s Guide to Tax Provision Software for a step-by-step guide to evaluating and implementing tax provision software.]
To identify the right software solutions to optimize your tax provision workflow, it’s important to consider the end-to-end process and where automation can help.
Step 1. Gather and understand the facts
The first step in the tax provision workflow is to determine the data needs based on the operations in a particular jurisdiction and the U.S. federal, state, or foreign compliance requirements. Data typical come from various sources – for example, trial balance data typically come from ERP systems while forecast data come from the finance department.
Often, tax preparers find that the data is not in a format that can be used, so in this initial stage, data is cleaned, transformed, and organized for tax calculation purposes.
Savvy tax departments can use tax automation tools to do the heavy lifting of manipulating data.
With a solution like Bloomberg Tax Workpapers, you can input financial data directly from enterprise resource planning (ERP) software or other sources, and the data transformation feature will automatically clean and transform that data, saving time and headaches.
Some tax departments may also have the capability to schedule reports and datasets to be directly sent to a particular file or automate monthly emails requesting that specific reports or other data be uploaded.
This way, you can have all the new data pulled into Bloomberg Tax Workpapers on a date of your choosing, and you can use it as the basis for your calculations. This reduces the risk of human interaction during data manipulation and streamlines the data collection process.
Step 2. Complete tax calculations and workpapers
After the data can be utilized, preparers prepare the multiple workpaper calculations needed for provision purposes according to the applicable laws and regulations. These workpaper calculations are typically done in Excel, which need to be maintained manually with multiple versions for support and controls purposes.
Bloomberg Tax Workpapers solves many of the challenges associated with tax calculations. The latest rates and tax law updates from Bloomberg Tax Research are built into standardized calculation templates, eliminating the need for external research. Our solution puts critical tax information right where you need it to ensure accuracy and confidence, with embedded citations to primary source guidance and links to deeper analysis when needed for proper tax position documentation.
It further provides robust controls to simplify compliance and auditing processes. With features such as cell-level change tracking, users can manage edits with detailed records of who made changes, what was changed, and when. This reduces the risk of manual errors and unintended modifications.
Step 3. ASC 740 income tax provision
Once your individual workpaper calculations are done, you are ready to start your ASC 740 calculation. Many companies calculate their tax provisions in Excel: it’s familiar, and it’s easy to build out the basic calculations. But with the additional need to incorporate tax workpaper outputs into ASC 740 calculations, what often results is a large, unruly, and error-prone Excel workbook.
As a business grows and changes, it becomes increasingly difficult and time-consuming to maintain accurate and efficient ASC 740 calculations in Excel. Reliance on intricate Excel workbooks – which only one or two key individuals know how to use – results in significant manual effort to verify results, backtrack through calculations, consolidate data across entities and schedules, and prepare rate recs.
Bloomberg Tax Provision is the most accurate technical ASC 740 calculation engine on the market. It allows tax provision preparers to easily address the entire range of complex technical topics, including uncertain tax benefits, quarterly AETR calculations, and income tax payable.
Multiple means of automating the tax provision process are built into the software
to streamline and speed up your process. These include:
- One-button rollover, copy, or add a provision in seconds
- One-button addition of entities, jurisdictions, line items, years, etc., within the provision (which flow everywhere they should)
- Provision recalculation (in milliseconds) each time the cursor moves from one cell to another or from one screen to another
- Automated valuation allowance with the ability to include or exclude a valuation allowance from any return, entity, or line item
- Automated return-to-provision upload
- Dataset upload functionality lets you easily upload entire sets of data using intuitive data templates
- Integrated state tax rates using the most up-to-date tax intelligence from Bloomberg Tax Research
Take a quick tour of Bloomberg Tax Provision and see how you can automate complex calculations, leverage integrated tax laws, deliver audit-ready reports, and more. [1:17]
Step 4. Audit support
The review process is one of the most important and time-consuming tasks in the provision preparation process. Provision preparers generate many reports for review, audit purposes, and managerial reporting to help senior leaders understand the tax impacts during the provision reporting period.
Excel lacks the functionality to support audit trails showing the date and time of each change made. It also doesn’t allow for locking and signing off on a provision or individual cell values. This opens the company to the risk that changes to the provision could be missed, or that a prior provision file will be altered and not tie to what was originally calculated.
Unlike software that guides users through a standardized provision process, the manual and error-prone nature of Excel makes it difficult to bring individual provision calculations together and almost impossible to tie out a rate rec.
Bloomberg Tax Provision offers strong internal controls, giving you a complete audit trail that records each change to the provision throughout its life. A closed, double-entry system ensures calculations are never out of balance, and security controls separate users across different portions of the provision.
Additionally, Bloomberg Tax Provision allows you to export audit-ready reports to deliver to your auditors. Each subtotal cell can produce a detailed grid showing each amount making up the subtotal. Reports show the math – the only hard-coded amounts are the original inputs from users’ tax workpapers.
Step 5. Footnotes
Provision preparers must record journal entries and share provision results with the finance department to support the creation of the tax footnotes section in the 10K/Q.
Bloomberg Tax Provision allows you to easily export footnote detail, along with other audit and review-ready Excel reports. The solution also offers rate reconciliation reports, tax-effected reports, valuation allowance reports, state tax expense reports, state effective tax rate reports, and an auditor report. Lastly, Bloomberg Tax Workpapers can round out the provision process by aiding in the final journal entry creation.
[Designed for tax leaders, this practical playbook includes a step-by-step process for conducting a successful provision software evaluation.]
How automation eliminates risk and supports compliance
Some tax professionals choose to do their analyses and tax provision calculations using a patchwork of Excel spreadsheets and manual work. But as a business grows and changes, it may become increasingly difficult and time-consuming to maintain accurate and efficient ASC 740 calculations using these methods.
Relying on outdated software may require you to spend countless hours verifying results, backtracking through calculations, consolidating data across entities and schedules, and preparing rate recs.
Tax provision automation tools can mitigate key risks such as missed changes to the provision, errors from manual data entry, and institutional knowledge gaps in an Excel-based traditional provision workflow.
Tax automation software works to mitigate these risks by ensuring that calculations automatically flow through all components of the provision. And with cell-level review tracking, you know whenever a value changes and who reviewed it. It also centralizes and controls the tax provision process, even for multinational companies with globally distributed tax functions.
Integrating tax automation into provision workflows
By integrating tax automation into your provision workflow, you can minimize the risk for errors inherent in manual processes and enhance the overall effectiveness of the tax function, allowing your team to focus on more critical, value-added activities.
Bloomberg Tax Provision offers a modern, user-friendly solution that provides real-time data, a secure control environment, and features that simplify the entire tax provision process.
By pairing Bloomberg Tax Provision with a tool like Bloomberg Tax Workpapers, you can use automation capabilities to further streamline the most headache-inducing steps in the provision process.
Request a demo to see firsthand how Bloomberg Tax’s automation capabilities can transform your tax workflows.