Information gathering, technology, and enterprise systems.
In their quest for Verb 1. quest for - go in search of or hunt for; "pursue a hobby"
quest after, go after, pursue
look for, search, seek - try to locate or discover, or try to establish the existence of; "The police are searching for clues"; "They are searching for the more timely and relevant information companies are implementing enterprise systems, data warehouses, and other forms of technology. This technology affects how companies are organized and managed and how people obtain and use information. Tax departments are not immune from this process.
Obtaining information for tax compliance and planning has become an even more daunting daunt
tr.v. daunt·ed, daunt·ing, daunts
To abate the courage of; discourage. See Synonyms at dismay.
[Middle English daunten, from Old French danter, from Latin task in today's complex global environment. Information systems have always been designed, first and foremost, to provide information for management decision-making decision-making,
n the process of coming to a conclusion or making a judgment.
n a type of informal decision-making that combines clinical expertise, patient concerns, and evidence gathered from and financial reporting. In order to obtain the information needed for tax compliance and planning, tax departments have either maintained dual systems or made adjustments to financial accounting information. To learn more about how tax departments obtain, use, and retain information in today's age of technology and high expectations, the author conducted a survey of senior tax persons at the 2001 Fortune 1000 companies. This article anayzes the responses to this survey.
Information for the study was obtained through a questionnaire questionnaire,
n a series of questions used to gather information.
n a form usually filled out by patients that provides data concerning their dental and general health. mailed in May 2001 to the senior tax person at the 2001 Fortune 1000 companies for which a respondent In Equity practice, the party who answers a bill or other proceeding in equity. The party against whom an appeal or motion, an application for a court order, is instituted and who is required to answer in order to protect his or her interests. and a mailing address could be identified. As a result, questionnaires were mailed to senior tax persons at 751 companies. The first mailing was followed by a second request. There were 121 responses to the first request and 38 responses to the second. The overall response rate was 21.2 percent. This was a satisfactory response rate given the length of the survey instrument and the number of open-ended questions A closed-ended question is a form of question, which normally can be answered with a simple "yes/no" dichotomous question, a specific simple piece of information, or a selection from multiple choices (multiple-choice question), if one excludes such non-answer responses as dodging a .
Some respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. answered only part of the survey, but most responded to the majority of questions. Comments were solicited about a number issues and the responses are reflected in this article.
To develop a meaningful questionnaire, the author conducted personal interviews with 18 tax professionals at five corporations, an enterprise systems consultant at one international accounting firm, and a tax-systems professional at a different international accounting firm. In addition, the author conferred con·fer
v. con·ferred, con·fer·ring, con·fers
1. To bestow (an honor, for example): conferred a medal on the hero; conferred an honorary degree on her. with a tax-systems consultant at another international accounting firm via telephone and a tax-systems professional at a large corporation via e-mail. The author sent a draft of the questionnaire to these individuals and modified mod·i·fy
v. mod·i·fied, mod·i·fy·ing, mod·i·fies
1. To change in form or character; alter.
2. the questionnaire based on their recommendations. Developing the survey instrument itself was a significant learning experience for the author.
Profile of Respondents
Tax executives from a broad cross-section cross section also cross-sec·tion
a. A section formed by a plane cutting through an object, usually at right angles to an axis.
b. A piece so cut or a graphic representation of such a piece.
2. of companies responded to the survey. A profile of the respondents by size of company, as measured by revenue, assets, and number of professional tax staff, is summarized in Tables I, II, and III. Table IV shows the number of respondents by the broad industry group that accounts for the greatest percentage of a company's revenue.
Gathering Tax Information
Respondents were asked whether the parent company and its subsidiaries use the same basic chart of accounts. (In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke"
put differently , were the same account numbers used by parent and subsidiaries but unique digits assigned as·sign
tr.v. as·signed, as·sign·ing, as·signs
1. To set apart for a particular purpose; designate: assigned a day for the inspection.
2. for use by or identification of the subsidiaries' activities?) Doing so will facilitate the compilation Compiling a program. See compiler. of data for tax compliance as well as the implementation of an enterprise system (if a company moves in this direction) and technology for data management and retention.
Ninety-five of the 157 respondents that answered this question indicated that all their company's domestic subsidiaries use the same basic chart of accounts as the parent corporation. Another 46 indicated that some of their domestic subsidiaries use the same chart of accounts. Unsurprisingly, only 43 of the 118 firms responding to this question for foreign subsidiaries indicated that all foreign subsidiaries use the same chart of accounts as the parent company. Respondents at 47 firms indicated that some of their foreign subsidiaries use the same chart of accounts.
Systems of Providing Information
Participants were asked to pick which of several approaches most closely described a parent company's system of providing information for U.S. federal income tax compliance and reporting purposes. Participants were also asked to pick which of several approaches best described the parent company's approach to obtaining information for U.S. federal income tax compliance for most of its domestic and foreign (non U.S.) subsidiaries. Table V summarizes the responses. As shown, few companies have separate accounting systems for tax compliance and reporting. More than half of the firms make a significant number of adjustments to financial accounting information to convert it for tax compliance and reporting purposes. For these firms this is generally true regardless of whether the information is from the parent company, domestic subsidiary, or foreign subsidiary. About one-third of the respondents indicated that the company's and its subsidiaries' charts of accounts and accounting systems are designed to capture most of the information needed for U.S. federal income tax compliance and reporting purposes.
Participants were also asked about the parent company's system of providing information for U.S. state A U.S. state is any one of the fifty subnational entities of the United States, although four states use the official title "commonwealth". The separate state governments and the federal government share sovereignty, in that an American is a citizen both of the federal entity and income (franchise) tax compliance and reporting. The responses were similar to those for U.S. federal income tax. Of 157 respondents, 95 indicated that their company's chart of accounts and accounting system are designed to provide information primarily for financial and management reporting purposes. As a result, a significant number of adjustments are made to convert financial accounting information for state tax compliance and reporting. A significant number (48) said that their company's chart of accounts and accounting system are designed to capture most of the information needed for state tax compliance and reporting purposes.
Foreign subsidiary company systems for providing information for foreign country income tax (local country) compliance and reporting purposes, for the most part, mirror the approach used for U.S. federal income tax. Sixty-six Adj. 1. sixty-six - being six more than sixty
cardinal - being or denoting a numerical quantity but not order; "cardinal numbers" of the 118 respondents who answered this question reported that foreign subsidiary companies make significant adjustments to convert financial accounting information for tax reporting. Forty indicated that the company's chart of accounts and accounting system are designed to capture most of the information needed for local country tax compliance and reporting. Twelve reported that foreign subsidiary companies have separate financial and tax accounting reporting systems.
Most subsidiaries, whether domestic or foreign, do not have their own tax departments. Only fifteen companies reported that some of their domestic subsidiaries have tax departments. Four companies reported that all, and 38 reported that some, of their foreign subsidiaries have tax departments. Domestic subsidiaries that have tax departments typically work on payroll payroll
a list of employees, their salary rates, tax deductions, amounts paid, payroll tax, long service leave entitlements. , property, and sales and use tax Sales and use tax refers to:
See: Value-added tax
See value-added tax (VAT). compliance.
Much of the information needed for U.S. federal income tax compliance and reporting is either accessible at the parent company's headquarters independent from the subsidiary's accounting department or is provided via tax reporting packages. Thirty-four companies reported that all domestic subsidiary information is accessible at headquarters without the use of tax reporting packages. Forty reported that all domestic subsidiary information is provided in electronic tax packages, and eight reported that all domestic subsidiary information is provided in manually prepared tax packages. The remainder of the 154 respondents indicated that tax information is developed by combining records accessible at company headquarters with information obtained from manual or electronic tax reporting packages.
Only seven respondents indicated that all foreign subsidiary information is accessible at headquarters without the use of a supplemental tax-reporting package. Twenty-three reported that all foreign subsidiary information is obtained in electronic tax packages while 21 indicated that information is provided in manually prepared tax packages. The balance of the 117 respondents reported that the information is provided through a combination of records accessible at company headquarters and manual or electronic tax reporting packages.
Only three companies reported that their public accounting firm provides tax-reporting information for all or some of their domestic subsidiaries. In contrast, 44 respondents indicated that public accounting firms provide tax-reporting information for some of their foreign subsidiaries and one respondent said that its public accounting firm provides such information for all its foreign subsidiaries.
At most respondent companies, headquarters tax staff do not visit the subsidiaries in order to compile To translate a program written in a high-level programming language into machine language. See compiler. tax-reporting information. Twelve companies reported that headquarters tax staff either always or often visit domestic subsidiaries. Only seven indicated that headquarters tax staff either always or often visit foreign subsidiaries. Responses from 27 companies indicated that headquarters tax staff sometimes visit domestic subsidiaries whereas 14 respondents said the tax staff sometimes visit foreign subsidiaries. Headquarters tax staff rarely or never visit domestic or foreign subsidiaries at 109 and 101 companies, respectively, in order to compile tax-reporting information.
Return Preparation by Subsidiaries
Table VI shows the number of companies for which tax returns are generally prepared at the subsidiary level, whether by its tax department (for the few that have them) or its accounting department. Although most returns are prepared at the parent company level, a number of subsidiaries prepare excise A tax imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. A tax on the manufacture, sale, or use of goods or on the carrying on of an occupation or activity, or a tax on the transfer of property. , payroll, property, and sales and use tax returns. As might be expected, more returns are prepared by foreign subsidiary tax or accounting departments than are prepared by domestic subsidiaries.
Information Technology Personnel
One of the keys to gathering information for tax compliance and planning purposes is having access to information technology (IT) personnel. These individuals assist tax department personnel in accessing data in the accounting system, converting it for return preparation and compliance, and retaining it for audit documentation and support.
novel of young love. [Am. Lit.: Booth Tarkington Seventeen in Magill I, 882]
See : Adolescence of the 137 companies that responded to the question reported that the parent company has one or more IT persons employed directly in the tax department. Six companies employ more than one such person in the tax department. At ten of these 17 companies, the tax departments also have access to one or more IT persons employed in the IT department who are either a dedicated resource for the tax department or are part of a pool of professionals shared with other departments. (See additional discussion below.) Respondents provided few comments about the career paths of the information technology personnel employed within the tax department. One company created a tax technology manager position for a person who spent five years in tax and then two years working on the company's enterprise system implementation. Another indicated that the person could be promoted to manager in the income, property, or sales and use tax areas. Several commented that there was no set career path. Finally, several indicated that the person's career path is in information technology and the person would eventually return to that department.
Tax departments at 38 companies share one or more IT persons (i.e., technology personnel employed in the IT department) but have the benefit of dealing regularly with the same persons rather than obtaining assistance from a pool. Two companies have one or more IT persons who are dedicated to serving the tax department. At 66 companies, all company IT projects are prioritized. Support for the tax department's projects depends upon the project's rank on the list of finance-related (or other departmental) projects that the IT department as a whole must address. Tax departments at 13 companies are supported by a combination of the above approaches. Thirty-three respondents provided no information about the source of their IT support.
Respondents were asked what the tax department would do or request if it had more IT support. Many of the responses were generic Generic
Describes the characteristics and/or experience of the total universe of a coupon of MBS sector type; that is, in contrast to a specific pool or collateral group, as in a specific CMO issue. : become more efficient, automate To turn a set of manual steps into an operation that goes by itself. See automation. compliance, or increase time devoted to planning. More specific responses include:
1. Expedite ex·pe·dite
tr.v. ex·pe·dit·ed, ex·pe·dit·ing, ex·pe·dites
1. To speed up the progress of; accelerate.
2. extracting legal entity information from the company's enterprise system.
2. Implement web enabled tax-reporting packages or eliminate the need for tax packages.
3. Develop tax databases for analytical analytical, analytic
pertaining to or emanating from analysis.
control of confounding by analysis of the results of a trial or test. purposes by drawing data directly from the general ledger General Ledger
A company's accounting records. This formal ledger contains all the financial accounts and statements of a business.
The ledger uses two columns: one records debits, the other has offsetting credits. .
4. Automate the preparation of federal schedule M adjustments and state apportionment The process by which legislative seats are distributed among units entitled to representation; determination of the number of representatives that a state, county, or other subdivision may send to a legislative body. The U.S. calculations.
5. Download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. data from the accounting system directly to tax compliance software.
6. Reduce estimated tax Federal and state tax laws require a quarterly payment of estimated taxes due from corporations, trusts, estates, non-wage employees, and wage employees with income not subject to withholding. payments and interest costs.
7. Improve document management and retention through data warehousing See data warehouse.
data warehousing - data warehouse .
8. Streamline streamline, path of a fluid flowing steadily and without appreciable turbulence. A body is said to be streamlined if its shape offers the least possible resistance to a current of air, water, or other fluid. sales and use and property tax compliance by integrating imaging technology between tax and accounts payable.
Respondents were asked several open-ended questions about data retention. They were also asked specifically about efforts to create a tax data warehouse. Only six of the 128 companies that responded to this question have electronic data warehouses for tax-sensitive data. These six either draw information from the company's corporate data warehouse or data warehousing is a feature of the company's enterprise system. Thirty-one indicated that creation of an electronic data warehouse for tax-sensitive information is on the radar screen but the project is in the early stages of review, planning, or development. Fifty-eight Adj. 1. fifty-eight - being eight more than fifty
cardinal - being or denoting a numerical quantity but not order; "cardinal numbers" responded that either nothing has been done to create a tax data warehouse or the effort to date is minimal. The remaining respondents commented that (1) the data needed for tax purposes is stored on backup tapes See tape backup. or CDs, (2) they rely on the tax return preparation software to store tax data, or (3) that their company's backup system Noun 1. backup system - a computer system for making backups
ADP system, ADPS, automatic data processing system, computer system, computing system - a system of one or more computers and associated software with common storage for tax-sensitive data is hard copy.
Several respondents made observations that are food for thought. One noted that one of the Big-5 accounting firms, through its outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. initiative, is developing a tax data warehouse that will be the accounting firm's data rather than the taxpayer's. This raises an issue reminiscent of the controversy over IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. access to accountant's workpapers. Another observed ob·serve
v. ob·served, ob·serv·ing, ob·serves
1. To be or become aware of, especially through careful and directed attention; notice.
2. that electronic warehousing purportedly pur·port·ed
Assumed to be such; supposed: the purported author of the story.
pur·port makes data more readily accessible but problems may be encountered in accessing or manipulating the data as the software evolves or is replaced.
Respondents were asked to describe the tax department's role in the overall corporate data retention effort and to specify data retention issues that the tax department must address. Eighty-five of the 108 companies that commented indicated that the tax department provides advice regarding the type and format of records as well as the time period for retaining records. Thirteen of the 85 noted that tax does more than advise about company obligations to satisfy IRS and other tax authorities' requirements. Specifically, tax is part of a cross-functional team In business, a cross-functional team is a group of people with different functional expertise working toward a common goal. It may include people from finance, marketing, operations, and human resources departments. that establishes polices and procedures for corporate-wide record retention. In 14 of 85 companies, the tax department is the driving force behind corporate record retention efforts. The balance of the 108 respondents commented that the tax department "does its own thing" and has little to do with overall corporate record retention policy. One stated that the tax department "has to beg accounting" to keep rather than destroy tax-sensitive records.
The more commonly mentioned retention issues described by the respondents are summarized below.
1. Reconciling tax data retention needs with overall corporate retention policy is a demanding task because data retention is expensive. In addition, raising awareness Raising awareness is a common phrase advocacy groups use to justify a particular event, brochure or even the entire organization. Raising awareness refers to alerting the general public that a certain issue exists and should be approached the way the group desires. of the need for data retention is more difficult in decentralized de·cen·tral·ize
v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es
1. To distribute the administrative functions or powers of (a central authority) among several local authorities. organizations.
2. System conversions are problematic. New systems are not always designed with tax-retention requirements in mind and legacy systems may be inaccessible inaccessible Surgery adjective Unreachable; referring to a lesion that unmanageable by standard surgical techniques–eg, lesions deep in the brain or adjacent to vital structures–ie, not accessible. See Accessible. after new systems are installed. Hence, tax-sensitive data may not be stored or accessible in the format or level of detail needed by taxing authorities.
3. Accessing multiple and ever-evolving systems and software is another challenge, one often compounded by employee turnover and the decline of institutional memory.
4. Establishing record retention policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental that satisfy the multiple requirements of U.S. and foreign taxing authorities for non-U non-U
adj. Chiefly British
Not characteristic of the upper class, especially in language usage.
[non- + U2. .S. subsidiaries is challenging. Ensuring adherence adherence /ad·her·ence/ (ad-her´ens) the act or condition of sticking to something.
immune adherence to those policies and procedures requires ongoing monitoring.
5. Companies are frequently bought or sold. Target company information systems, retention policies, and procedures usually differ from the acquiring company's systems, policies, and procedures. Integrating the target company's information system and records is critical, as is establishing and maintaining consistent retention policies and procedures for tax-sensitive information. What's more, personnel at the target companies frequently leave before acquiring company employees become familiar with the target's systems. Finally, following an acquisition, target company records are sometimes destroyed (or lost) before the tax department is consulted.
6. Coordinating co·or·di·nate
1. One that is equal in importance, rank, or degree.
2. coordinates A set of articles, as of clothing or luggage, designed to match or complement one other, as in style or color.
3. policies and procedures with other departments such as accounting, insurance, and legal, and balancing conflicting goals can be tricky Adrian Thaws (born January 27, 1968), better known as Tricky, is an English rapper and musician important in the trip hop and British music scene (despite loathing the "trip hop" tag). He is noted for a whispering lyrical style that is half-rapped, half-sung. .
7. Ensuring that tax-sensitive data is retained beyond the normal corporate retention period when an extension of the statute of limitations A type of federal or state law that restricts the time within which legal proceedings may be brought.
Statutes of limitations, which date back to early Roman Law, are a fundamental part of European and U.S. law. is executed executed 1) adj. to have been completed. (Example: "it is an executed contract") 2) v. to have completed or fully performed. (Example: "he executed all the promises made in the contract") 3) v. requires vigilance VIGILANCE. Proper attention in proper time.
2. The law requires a man who has a claim to enforce it in proper time, while the adverse party has it in his power to defend himself; and if by his neglect to do so, he cannot afterwards establish such claim, the .
An enterprise system (ES) was defined in the survey instrument as a commercial software package that provides seamless integration An addition of a new application, routine or device that works smoothly with the existing system. It implies that the new feature or program can be installed and used without problems. Contrast with "transparent," which implies that there is no discernible change after installation. of all information flowing through a company. The ES feeds data but does not manipulate manipulate
To cause a security to sell at an artificial price. Although investment bankers are permitted to manipulate temporarily the stock they underwrite, most other forms of manipulation are illegal. it for tax reporting purposes. Implementation of an ES provides opportunities and challenges for the tax department because it affects how the tax department obtains and uses information.
According to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. several of those interviewed in the development of the questionnaire, implementation of an ES begins with an analysis of a company's business processes and information needs. In some cases this involves business process reengineering See reengineering. . The needs analysis is followed by the design and configuration or construction of the system. The system is tested and then placed in operation. After the system is implemented, there is a post-implementation phase for review and modification A change or alteration in existing materials.
Modification generally has the same meaning in the law as it does in common parlance. The term has special significance in the law of contracts and the law of sales. .
Companies With An Enterprise System
Ninety-three of the 159 companies that responded to the survey have installed an ES for at least part of the company. Fifty of the 93 companies have installed the system company-wide. In addition, 45 of the 93 companies are currently upgrading their ES and 15 are in the process of installing their first ES.
Tables VII and VIII provide a breakdown breakdown /break·down/ (brak´doun)
1. the act or process of ceasing to function.
2. an often sudden collapse in health.
3. loss of self-control. of the 93 companies by company size as measured by revenue and assets. Table IX shows the number of companies that have installed an ES by size of company as measured by the number of tax professionals working at corporate headquarters. Size of company, regardless of the measure, does not appear to be a determining factor for installing an ES--at least for Fortune 1000 companies, which are all large.
Table X provides a breakdown of the 93 companies by broad industry group. As might be expected, most of the respondent companies in the group that manufactures or provides computers, communication equipment or services, or software have installed an ES for at least part of their company. Compared to other industry classifications, few companies in the retailing, wholesale distribution, and services groups have installed enterprise systems.
Respondents were asked how their companies were organized to gather information for financial reporting purposes. Table XI shows the number of companies that have installed an ES sorted according to the manner in which the consolidated con·sol·i·date
v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates
1. To unite into one system or whole; combine: company is organized to gather and report financial information. Relatively few companies organized by operating division have installed an ES as contrasted with companies organized by legal entity, geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map.
pertaining to geography. region, or other structure (e.g., product line or a combination of the foregoing structures). Because of the low number of responses (91), however, it is probably more accurate to conclude that organization structure is not the determining factor for implementing an ES.
Implementation of an Enterprise System
Respondents at 86 companies identified their ES vendors. Although the best practice theoretically (and generally in practice) is to have one ES company-wide, 17 of 86 respondent companies use multiple vendors' products. According to those interviewed when developing the survey instrument, standardization standardization
In industry, the development and application of standards that make it possible to manufacture a large volume of interchangeable parts. Standardization may focus on engineering standards, such as properties of materials, fits and tolerances, and drafting of the system across the organization is the goal. Multiple vendors' products may, however, be found within a single company for various reasons, including acquisitions, divisional autonomy autonomy (ôtŏn`əmē) [Gr.,=self-rule], in a political sense, limited self-government, short of independence, of a political state or, more frequently, of a subdivision. , dissatisfaction with a vendor, or a desire to use the "best of breed." The most popular vendors (as measured by the number of respondents using their product) are Oracle (29), SAP sap, fluid in plants consisting of water and dissolved substances. Cell sap refers to this fluid present in the large vacuole, or cell cavity, that occupies most of the central portion of mature plant cells. (27), PeopleSoft (PeopleSoft, Inc., Pleasanton, CA, www.peoplesoft.com) A software company that specialized in enterprise-wide applications for client/server environments. Initially specializing in human resources, its package offerings covered the gamut including financial, distribution, manufacturing (17), and J.D. Edwards (J.D. Edwards & Company, Denver, CO, www.jdedwards.com) A developer of multinational, integrated enterprise software for distribution, finance, human resources, manufacturing and supply chain management. (16). Nine other vendors were identified.
Eighty companies reported that they implemented (or are in the process of implementing) an ES in phases. The phase-in phase-in
A gradual introduction: a phase-in of new personal policies. can take place by division, legal entity, product line, software module, or other method. Table XII shows the number of companies for each type of phase-in process compared with how the company is organized for information gathering and financial reporting purposes. Organization structure for financial reporting purposes does not necessarily dictate TO DICTATE. To pronounce word for word what is destined to be at the same time written by another. Merlin Rep. mot Suggestion, p. 5 00; Toull. Dr. Civ. Fr. liv. 3, t. 2, c. 5, n. 410. how an ES is phased in. Indeed, it appears common for companies to phase in the ES in a manner that differs from how the company is organized. As might be expected, a number of companies (17 of 80) phased in the implementation by software module even though the company is organized by operating division, legal entity, region, or other structure. (1) Of the 26 respondents organized by legal entity, nine phased in the ES by operating division.
Only six of 106 responding companies have or are restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). legal entities in order to accommodate the implementation of the ES. In contrast, 47 companies have or are restructuring business processes to accommodate the implementation. Only 11 companies treated the implementation as an opportunity to restructure operations or work flow in order to save taxes (by, for example, relocating assets, operations, or people to low-tax countries).
Eighty-four of 100 responding companies used or are using consultants to assist the implementation of the ES. Twenty-eight companies used or are using information technology consulting Information technology consulting (IT consulting or business and technology services) is a field that focuses on advising businesses on how best to use information technology to meet their business objectives. firms with no accounting firm affiliation affiliation (fil´ēā´sh , 27 used or are using accounting firms, and two used or are using general management consulting firms List of Management Consulting Firms
1. McKinsey & Company
2. Marakon Associates
3. Boston Consulting Group (BCG)
4. A.T. Kearney
5. Booz Allen Hamilton (BAH)
6. Monitor Group
7. Bain & Company
8. Roland Berger . Sixteen companies have used both information technology firms and accounting firms, while the remaining 11 have used or are using combinations of consulting firms Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee
business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a .
Ninety-six companies answered questions about the involvement of tax in the implementation of the ES. Twenty-four indicated that tax was not part of the process. Several of the 24 were quite distressed at being omitted from the implementation. Where tax was involved in the implementation process, 53 of the 72 companies had one or more "point persons" from the tax department formally assigned to the project. At 65 of the 72 companies, the tax department was asked what information it needed from the ES. At 40 of the 72 companies, the tax department was also asked what it wanted--as contrasted with simply being asked what it needed--from the ES. In other words, at 40 of the companies the tax department was afforded an opportunity to create a "wish list" of functionality for the ES.
Fifty-six companies indicated that the tax department received value because tax personnel participated in the process. Fifty-nine Adj. 1. fifty-nine - being nine more than fifty
cardinal - being or denoting a numerical quantity but not order; "cardinal numbers" said that the tax department added value Added value in financial analysis of shares is to be distinguished from value added. Used as a measure of shareholder value, calculated using the formula:
1. Data requirements for tax compliance and reporting and the design of the chart of accounts to provide this information.
2. Functionality of the system to handle sales and use tax calculations and reporting.
3. Mapping of business units to accommodate legal entity structure for tax compliance and reporting.
4. Access to and retention of data from legacy systems for audit purposes.
5. Selection of tax software for compatibility with enterprise software.
Respondents were asked to indicate the stages of the installation process in which tax people participated. Of the 72 companies at which tax was involved in some part of the process, ten respondents said tax was involved in all six stages and another 11 said tax was involved in five of six stages. Tax was involved in the analysis stage at 42 companies, in the design study at 39 companies, in the configuration stage at 48 companies, in the testing process at 35 companies, in the implementation or operational stage at 50 companies, and in the post-implementation review at 41 companies.
Information Obtained From the Enterprise System
Respondents were asked several questions about information obtained from their company's ES. Tax people access needed information directly from the company's ES at 75 of 97 responding companies. Seven companies indicated that tax personnel have limited access to the ES.
Only 56 of 90 respondents believe that tax department personnel are adequately trained to access and use their company's ES. Several commented that training was not provided to the tax staff. Some noted that training was provided in connection with the initial implementation but that training for new hires is difficult to obtain. In contrast, others said that training is continuous on-line and that support is available from the ES vendor.
Only 15 of 91 respondents indicated that all information obtained from their company's ES is reliable. Another 63 indicated that most of the information is reliable while 12 indicated that only some of it is reliable. One said that none of the information that the tax department obtains from the ES is reliable.
The extent to which information is available from an ES in the format needed for tax purposes varies by the type of tax. The responses indicate that more information is accessible in the appropriate format for federal income, state income, and sales and use tax purposes than for foreign (local country) income tax and other jurisdictions' income taxes. A significant percentage of the respondents, however, did not believe sufficient information is available for tax purposes regardless of the type of tax. Table XIII summarizes the responses to this question.
The potential of an ES is more fully realized if information needed for tax purposes is fed electronically from the company's ES to its tax return preparation software. At a majority of companies, all or most information is fed electronically for federal income taxes. Surprisingly, nearly 47 percent of the respondents indicated that only some, little, or none of the information needed for federal income tax return preparation is fed electronically. For other types of taxes, far fewer respondents said that all or most information is fed electronically. Finally, more than half of the respondents indicated that the some, little, or none of the information needed for preparing other types of tax returns is fed electronically from the ES to return preparation software. The responses are shown in Table XIV.
In brief responses to an open-ended question, 57 respondents described what they believed necessary to ease the tax return preparation process where an ES is implemented. As one might expect, there were nearly as many responses as respondents. Some of the common themes are, as follows:
1. The enterprise system should be fully integrated with the return preparation system. Such a system would allow the tax department to load files directly from the enterprise system to tax software in the format needed for tax return preparation. At many companies, a number of adjustments and reconciliations are currently performed manually that should be done electronically. More seamless See seamless integration. automation is needed.
2. The company needs either legal entity reporting throughout the organization or the ability to convert seamlessly to legal entity accounting. Accounting and information technology personnel need a better understanding of, and appreciation for, legal entity information.
3. The company should have a standardized standardized
pertaining to data that have been submitted to standardization procedures.
standardized morbidity rate
see morbidity rate.
standardized mortality rate
see mortality rate. or uniform chart of accounts throughout the organization, including a detailed chart of accounts that directly relates to tax and permits the entry, tracking, and reporting of tax-sensitive activity in the general ledger accounts. Adopting a standardized chart of accounts will facilitate the preparation of the tax provision, return, and schedule M adjustments.
Respondents were asked whether information from the ES is available in a format that will satisfy audit record-retention needs. More than half of the respondents indicated that either all or most of the information is available in the proper format for federal and state income and property tax audit purposes. A significant number of respondents, however, indicated that only some, little or none is available regardless of the type of tax. The responses are summarized in Table XV.
Need for More Discussion
The purpose of this study was to explore how tax departments obtain, use, and retain information for tax compliance and reporting purposes. The study focused on technology and the issues faced by the tax department in dealing with technology. The study provides insights about what companies are doing and highlights many of the major concerns of those in the corporate tax community about information management.
There is a need for more research and certainly discussion among those in the corporate tax community about what can be done to more fully realize the potential of technology to add value and reduce costs in the tax area. The discussion should focus on the effects of corporate culture, management philosophy, and organization structure on the nature and extent of the involvement of tax in the design and implementation of a company's information system.
Table I Company (Including Subsidiaries) Revenues for Most Recent Fiscal Year Dollar Amount of Revenue Respondents Percentage Under $5 billion 104 65.4 $5 to $10 billion 22 13.8 $10 to $15 billion 12 7.5 $15 to $20 billion 3 1.9 $20 to $30 billion 9 5.7 Over $30 billion 9 5.7 159 100.0 Table II Company (Including Subsidiaries) Assets at End of Most Recent Fiscal Year Dollar Amount of Assets Respondents Percentage Under $5 billion 94 59.9 $5 to $10 billion 26 16.6 $10 to $20 billion 16 10.2 $20 to $30 billion 9 5.7 $30 billion to $50 billion 5 3.2 Over $50 billion 7 4.4 157 100.0 Table III Tax Professionals Working at Corporate Headquarters Number of Tax Professionals Respondents Percentage 1 to 5 51 32.1 6 to 10 48 30.2 11 to 15 20 12.6 16 to 25 19 11.9 Over 25 21 13.2 159 100.0 Table IV Industry Group That Accounts for Greatest Percentage of Company Sales Industry Group Respondents Percentage Computers, Communication Equipment or Services, & Software 12 7.5 Energy, Mining, & Utilities 15 9.4 Financial Institutions, Products, & Services 20 12.6 Mfg. Consumer Goods 22 13.9 Mfg. Non-Consumer Goods 36 22.7 Services 12 7.5 Retailing & Wholesaling 25 15.7 Transportation 8 5.0 Other 9 5.7 159 100.0 Table V Parent Company's System of Providing Information for U.S. Federal Income Tax Compliance for Parent Company and Domestic & Foreign Subsidiaries Parent Company's System Parent Domestic Foreign Number Number Number Company's Chart of Accounts and Accounting System Are Designed to Capture Most Information for Tax 59 54 35 Company's Chart of Accounts and Accounting System Are Designed to Provide Information for Financial and Management Reporting -- Significant Adjustments Are Necessary 88 91 67 Company has Separate Financial Accounting and Tax Accounting Systems 5 6 15 Other 4 3 2 156 154 119 Table VI Number of Companies for Which Returns Are Generally Prepared at a Subsidiary by Either Its Tax or Accounting Department Domestic Foreign Subsidiaries Subsidiaries Return All Some None All Some None U.S. Federal Income Tax (whether filed separately or forwarded for inclusion in consolidated return) 5 8 141 11 17 95 State Income (franchise) Tax Return (whether filed separately or forwarded for inclusion in a consolidated or combined return) 5 11 138 12 10 95 Provincial, Canton, or Other Jurisdiction Income (franchise) (whether filed separately or forwarded for inclusion in consolidated return) 5 8 136 32 36 55 Payroll Returns 35 33 85 69 23 26 Sales/Use Tax Returns 37 45 72 63 16 28 Property Tax Returns 34 39 82 61 23 33 Excise Tax Returns 31 37 84 61 24 29 Table VII Companies that Have Implemented an Enterprise System by Revenues for Most Recent Fiscal Year Dollar Amount of Revenue Respondents Percentage Entire Part Under $5 billion 104 52.9 27 28 $5 to $10 billion 22 86.4 11 8 $10 to $15 billion 12 50.0 4 2 $15 to $20 billion 3 66.7 2 0 $20 to $30 billion 9 66.7 5 1 Over $30 billion 9 55.6 1 4 159 58.5 50 43 Table VIII Companies that Have Implemented an Enterprise System by Assets for Most Recent Fiscal Year Dollar Amount of Assets Respondents Percentage Entire Part Under $5 billion 94 54.3 25 26 $5 to $10 billion 26 73.1 10 9 $10 to $20 billion 16 56.2 4 5 $20 to $30 billion 9 44.4 4 0 $30 to $50 billion 5 80.0 2 2 Over $50 billion 7 57.1 3 1 157 58.0 48 43 Table IX Companies that Have Implemented an Enterprise System by Number of Tax Professionals Number of Tax Professionals Respondents Percentage Entire Part 1 to 5 51 49.0 16 9 6 to 10 48 52.1 11 4 11 to 15 20 70.0 6 8 16 to 25 19 78.9 7 8 Over 25 21 66.7 10 4 159 58.5 50 43 Table X Companies that Have Implemented an Enterprise System by Industry Group Industry Group Respondents Entire Part Computers, Communication Equipment or Services, & Software 12 7 4 Energy, Mining, & Utilities 15 7 5 Financial Institutions, Products, & Services 20 7 3 Mfg. Consumer Goods 22 6 5 Mfg. Non-Consumer Goods 36 8 17 Services 12 3 1 Retailing & Wholesaling 25 6 6 Transportation 8 5 0 Other 9 1 2 159 50 43 Table XI Companies that Have Implemented an Enterprise System by Type of Organization Type of Organization Respondents Entire Part Legal Entity 47 22 13 Operating Division 76 11 22 Geographic Region 13 6 2 Other 21 10 55 157 49 42 Table XII Companies that Have or Are Implementing An Enterprise System in Phases by Type of Organization for Financial Reporting Operating Legal Product Phase Division Entity Region Line Other Operating Division 21 9 1 0 3 Module 7 5 3 O 2 Legal Entity 3 7 2 1 2 Product Line 2 1 0 1 1 Other 1 4 1 0 3 34 26 7 2 11 Table XIII Extent to Which Information Is Available From the Enterprise System in the Format Needed for Tax Purposes Percentage of Respondents Answering Type of Tax Respondents All Most Some Little None U.S. Federal Income Tax 82 2.4 57.4 26.8 6.1 7.3 Foreign (non-U.S.) Income Tax 60 1.6 40.0 31.7 16.7 10.0 State Income (franchise) Tax 79 1.3 48.1 35.4 8.9 6.3 Provincial, Canton, or Other Jurisdiction Income Tax 72 0.0 36.1 25.0 12.5 26.4 Sales/Use Tax 79 10.1 41.8 24.1 10.1 13.9 Property Tax 73 5.5 41.1 30.1 11.0 12.3 Table XIV Extent to Which Information Is Fed Electronically from the Enterprise System to Software for Tax Return Preparation Percentage of Respondents Answering Type of Tax Respondents All Most Some Little None U.S. Federal Income Tax 84 14.3 39.2 29.8 6.0 0.7 Foreign (non-U.S.) Income Tax 60 1.6 13.3 30.0 26.7 28.4 State Income (franchise) Tax 85 4.7 37.6 36.5 7.1 14.1 Provincial, Canton, or Other Jurisdiction Income Tax 58 5.2 10.3 20.7 24.1 39.7 Sales/Use Tax 75 10.7 36.0 14.7 16.0 22.6 Property Tax 72 4.2 30.6 19.4 16.7 29.1 Table XV Extent to Which Information Is Available in Proper Format to Meet Audit Retention Needs Percentage of Respondents Answering Type of Tax Respondents All Most Some Little None U.S. Federal Income Tax 73 23.3 42.5 26.0 4.1 4.1 Foreign (non-U.S.) Income Tax 55 12.7 40.0 29.1 9.1 9.1 State Income (franchise) Tax 81 14.8 46.9 30.9 3.7 3.7 Provincial, Canton, or Other Jurisdiction Income Tax 51 15.7 33.3 31.4 7.8 11.8 Sales/Use Tax 73 16.4 42.5 27.4 5.5 8.2 Property Tax 69 14.5 37.7 29.0 5.8 13.0
(1) For most ES products, the system can be installed in separate modules for the general ledger, accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , accounts payables Payables
Related: Accounts payable , procurement The fancy word for "purchasing." The procurement department within an organization manages all the major purchases. , etc.
BARRY Barry, Welsh Barri, town (1991 pop. 45,053) and port, Vale of Glamorgan, S Wales, on the Bristol Channel. Once a major coal-exporting port, its more diversified export products include cement, flour, and steel products. P. ARLINGHAUS is the Deloitte & Touche Professor of Accountancy at Miami University Miami University, main campus at Oxford, Ohio; coeducational; state supported; chartered 1809, opened 1824. The library has extensive collections in literature and American history, including the William Holmes McGuffey Library and Museum and the Edgar W. in Oxford, Ohio Oxford is a college town located in the southwestern portion of the U.S. state of Ohio in northwestern Butler County in Oxford Township, originally called the College Township. The population was 21,943 at the 2000 census (approximately 16,000 students are included in this figure). . Professor Arlinghaus has published numerous articles on corporate tax management in The Tax Executive. The author gratefully acknowledges the financial support that he received from the Richard T. Farmer School of Business The Farmer School of Business at Miami University is the 12th best public undergraduate business school according to Business Week. The departments include Accountancy, Economics, Finance, Management, Marketing and Decision Science/Management Information Systems. at Miami University that made this study possible. The support included time for working on the project, student worker and secretarial assistance, and funding for production and mailing of the survey instrument.