Tax departments need all the hustle they can muster these days to stay ahead of accelerating tax changes and growing complexities. So, it’s no surprise that board audit committees charged with overseeing tax are straining to keep pace. A PwC white paper notes that “increasing uncertainty, the technical nature and difficult judgments required make tax a challenging area for audit committee members. The frequent lack of deep tax backgrounds can make it even more difficult.”
The report, Overseeing Taxes in a New Era, is just one in PwC’s Audit Committee Excellence Series. It provides an inside view of the challenges audit committees confront, how they are tackling them and how their expectations of tax leaders are changing. It includes a basic snapshot of the tax landscape designed to bring audit committee members up to speed on topics such as legislative and regulatory issues, the move toward more aggressive enforcement from tax authorities and demands for greater transparency.
Clearly more detailed information is needed to help audit committees fully understand the tax function’s work, and PwC recommends that audit committees hold regular “deep dive” meetings with tax executives. These in-depth updates and education sessions should cover a range of topics such as:
- Significant tax risks, including strategic, operational and reputational exposures and how they fit into the company’s overall risk appetite;
- Critical financial statement judgments and estimates, including uncertain tax positions; and
- Continuous improvement initiatives, such as increased use of data analytics and available technology tools.
These types of meetings, even if they take place only once a year, can help audit committees build relationships and explore some important and potentially sensitive questions: “Is the head of tax being pressured to take a more aggressive position than preferred? Does he or she have the resources needed to effectively execute the group’s workload? Is he or she worried about a particular exposure or position?”
Tax professionals should be prepared for more of these types of interactions as tax complexity and tax-related risks intensify in a post U.S. tax reform landscape. In fact, in today’s dynamic federal, state and international tax landscape, once a year is no longer enough, as a more proactive approach to these discussions could help tax executives strategically advise their audit committees on how the specifics of U.S. tax reform could impact their company.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.