Don’t Overlook Automation Within Tax Solutions

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IN THIS ARTICLE

Shift to specialized best-of-breed solutions to automate tax processes

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Key takeaways

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Tax automation case study

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[Automate and easily manage tax functions with best-of-breed solutions like Bloomberg Tax Provision and Bloomberg Tax Fixed Assets.]

The “Great Resignation” spurred by the Covid-19 pandemic has led tax functions to take steps to ensure that they can complete their tax work despite the uncertainty of resources leaving and new hires joining the team. Tax automation by tax-focused best-of-breed solutions like Bloomberg Tax Provision and Bloomberg Tax Fixed Assets can help tax functions to not only allow tax resources to focus on more value-add activities but help the tax function itself to be able to handle changes in resources. Tax automation software developed and supported by tax technology vendors allow tax functions to focus on true tax decision making and review without having to become IT experts.

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The ongoing “Great Resignation” spurred by the Covid-19 pandemic has led tax functions to take steps to ensure that they can efficiently complete their tax work despite the uncertainty of an unprecedented amount of job-switching. According to a survey conducted by Harris Poll for Bloomberg News, 64% of Americans would quit their current company if they got an offer from a different company.

Tax automation may be a surprising answer to this talent challenge, especially given fears that “bots” will take over jobs typically performed by humans. For tax departments, however, smart automation is not about creating a “black box” that does something mysterious to spit out an answer. In fact, it is just the opposite. Automation is about clearly laying out steps, systematizing them, creating consistency in how they are applied, ensuring that the steps are transparent and reviewable, and then having the system run them (that’s where the automation comes in).

Automation can provide the controls, steps, and standardization to allow tax functions to quickly bring in additional resources and ensure that tax processes continue smoothly during resource changes. Additionally, automating tax functions allows highly skilled tax professionals to shift their focus from error-prone asset management spreadsheets to more technical decision-making and review activities.

Shift to specialized best-of-breed solutions to automate tax processes

Tax automation has generally been portrayed as systematization of data and system integration done by a specific tax automation tool, robotic process automation, or ETL (extract, transform, load) tool. While tools such as these support automating steps, automation within formal tax solutions themselves should not be overlooked.

The proliferation of automation tools, both non-tax-specific and tax-focused solutions, is inspiring many tax functions to create an efficient best-of-breed tax technology ecosystem. This marks a shift from seeking a single tax technology platform to solve all their needs to a more specialized approach using multiple highly focused best-in-class tax solutions.

While the single platform approach sounds great in theory, being beholden to one vendor, and any inconsistencies on that platform, has meant that tax functions end up wasting time filling in the gaps with home-grown tools (in many cases using Excel), creating overly complicated in-house tax processes built using non-tax-specific automation tools.

One area that comes to mind is ASC 740 reporting, part of the tax provision process. Many tax functions complete ASC 740 work in Excel. Annual ASC 740 reporting is particularly challenging as there are typically last-minute changes either just before or immediately after the work is done, and the results need to be explained, with support, to financial auditors.

It is one of the few tax activities where high-level company executives, including the CFO and head of tax, are interested in the details – and can lose their jobs if the financial auditors find material weaknesses.

A tool like Bloomberg Tax Provision allows ASC 740 work to be automated and systematized in a controlled, transparent, and traceable manner. Every element – consolidation, organization, tax effecting, foreign tax rate conversions – is automated within the solution. This type of tax automation not only streamlines a high-pressure tax process but allows tax resources to focus on ensuring that the data is categorized, and key tax results and attributes are the focus of the work.

A second example of tax automation done by a best-in-breed solution is Bloomberg Tax Fixed Assets. Many organizations do their book fixed asset management in a tax ERP system and then export this information to complete the tax fixed asset calculation work in an asset management spreadsheet – or in a way that is heavily supported by Excel. Not only is this a highly manual process, but there are many opportunities for errors. Inputting tax fixed asset tracking logic into a tax ERP system makes the task more automated, but it also necessitates close maintenance of tax fixed asset logic. This requires a lot of ongoing support and knowledge, and potentially can result in a broken system if not done correctly.

Using a dedicated fixed asset management solution, like Bloomberg Tax Fixed Assets, which automates both the book and tax fixed asset calculation work, takes a lot of the risk out of the fixed asset management process. The tax fixed asset calculation logic is supported by Bloomberg Tax rather than requiring in-house support.

Key takeaways

Automation by tax-focused best-of-breed solutions like Bloomberg Tax Provision and Bloomberg Tax Fixed Assets can not only help tax functions to shift focus to more value-add activities but also help the tax function itself to be in better shape as resources leave or new ones are brought in. Tax automation software developed and supported by tax technology vendors like Bloomberg Tax have the advantage of being made specifically for tax practitioners. The associated continuous updates and support are essential to address the ever-changing world of tax.

Tax automation case study

Tax provision automation for a private middle market company.

Background

Microsoft Excel was used to prepare provisions for this middle market private IT infrastructure provider. As the company grew larger, and its operations more complex, Excel was showing its limitations. Tracking multiple entities using numerous sheets in a single Excel workbook was time consuming, and it was difficult to keep all formulas in sync. In October, the director who was responsible for overseeing and completing parts of the tax provision decided to leave for another company.

While debriefing on the tax provision process with the director before leaving, tax leadership realized that they needed to look into a more formalized and systematized tax provision solution. Thankfully, the director was willing to stay on for an extra month to help with identifying a solution and any knowledge transfer.

Primary tax provision solution criteria related to automation

• More automated calculations allow focus to be on reviewing

Steps are done in a controlled and automated fashion and are transparent and traceable enough for there to be an understanding of which and why calculations were done.

• Highly controlled

The system needs to be usable by multiple people simultaneously with access being controlled and each step recorded in an audit trail.

• Straightforward to learn, maintain, and support

Strong automation is usable, not difficult to decipher, update, maintain, and explain to others.

• Solution chosen: Bloomberg Tax Provision

Results

• Automation of ASC 740 calculation

The move to automated Bloomberg Tax Provision eliminated the magnification of minor errors as volume increased. Manual steps and processes, which are error-prone and need to heavily reviewed, are eliminated. With the automated ASC 740 calculations in Bloomberg Tax Provision, you enter data once and it flows through.

• Auditor-ready ASC 740 report creation

Linked Excel reports that are auditor ready. Other solutions just offer hard-coded reports, and it’s a lot of manual work adding up to do checks and balances. In Bloomberg Tax Provision, you double-click a report to see the original information. Also, because of the linking, if you want to look a little deeper into a number, you can follow links back to source data.

Main automation takeaway

By automating the ASC 740 process using Bloomberg Tax Provision, the company’s tax provision process was made faster, easier, more precise, and more flexible. Tax leadership felt lucky that they were able to get a Tax Provision solution in place and felt better positioned to deal with key person dependency that was previously in place with a manual Excel solution.