Senior tax executives are giving the Sarbanes-Oxley Act of 2002 credit for significantly boosting their profiles—and their resources—in the corporate world. That’s according to a new survey by Big 4 audit firm KPMG, which noted that—thanks to their Section 404 compliance work—senior corporate tax execs say they’re enjoying dramatically higher profiles, particularly with audit committees and boards of directors.
Some 57 percent of respondents 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.
Brown
"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," says Brad Brown, KPMG’s national tax leader for Sarbanes-Oxley Section 404.
Tax execs say the heightened attention has also resulted in support from top management for additional tax department resources. For example, for those departments planning to modify their structures in the next 12 months, nearly all (92 percent) indicated plans to add staff. The survey was based interviews of 98 corporate senior tax executives during June and July.
Not surprisingly, the Act has brought increased work for tax directors, as well. Nearly all of the survey respondents (92 percent) said their department’s workloads had grown significantly due to 404 compliance work; 90 percent also cited increased documentation requirements for tax accounting.
Brown says the 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."
Process Improvement Planned
The new regulations are prompting extensive changes within tax departments in terms of personnel, organizational structure and process, according to the tax executives polled. Nearly a third (30 percent) said they’ve added full-time senior tax personnel during the past 12 months, with one-third increasing their staff by more than 25 percent. Almost half of those surveyed (45 percent) are planning to modify their tax department structure over the next 12 months.
SOX AND TAX
According to KPMG's 2005 Tax Department Survey, tax directors reported a range of challenges and experiences related to SOX 404 compliance efforts, including:
Risk Areas—Of those that had 404-related deficiencies or weaknesses, the most common
areas of risk were:
Deferred taxes,
Tax rate calculations,
Systems deficiencies, and
Sales tax rates.
Tax & Technology— More than one quarter said their independent auditor raised concerns over tax
technology issues related to SOX 404 compliance, most often citing “homegrown”
spreadsheets as a source of risk.
Source:
KPMG's 2005 Tax Department Survey, Executive Summary. Published November 2005.
Noting that more than half of the tax deficiencies reported during the first round of 404 compliance related to tax staffing shortages and competency issues, Brown says that, "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."
Some 58 percent of the survey respondents plan process improvements over the next 12 months, ranging from streamlining Sarbanes-Oxley compliance and remediation to automating the tax accounting process. Forty-five percent plan to undertake tax technology improvements over the next year.
In response to the new requirements, the majority of tax departments are increasing training and using outsourcing or co-sourcing arrangements to meet their increased responsibilities. After identifying employee skill deficiencies when dealing with new requirements and responsibilities under SOX, more than 60 percent of tax departments are increasing training programs for their staffs. Meanwhile, 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), according to KPMG.
Garigliano
Tom Garigliano, partner-in-charge of global tax outsourcing at KPMG, says tax directors and CFOs are working together to find the right level of co-sourcing. "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,” says Garigliano. “Their goal is to balance in-house knowledge and focus on their own core competencies, while gaining outside resources in specific areas."
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