It’s December. If you’re behind with the year-end close process or are concerned about accounting for potential last-minute federal tax changes, these considerations — many of which can be addressed now — may help.
1. Fine-tune technologies and processes
- Roll over last period’s “dataset” in your tax provision system and relevant workpapers.
- Update system user access as necessary.
- Perform system entity maintenance (add new entities, remove liquidated entities, etc.) – mirror the finance ERP structure.
- Create a detailed year-end close workplan with clearly defined roles, responsibilities and timelines, including those of outside consultants. Embed the workplan into your workflow tool where applicable and ready or create checklists.
- Prepare and test tax analytics dashboards.
- If your year-end close will be virtual this year, pay attention to lessons learned from last year’s close process to ensure internal controls will operate properly in a remote environment.
2. Capture year-to-date discrete impacts
- Prepare the necessary tax entries for purchase accounting events.
- Complete return-to-provision analyses (domestic as well as foreign).
- Assess the tax effects of audits and amended returns.
- Calculate the income statement and balance sheet impacts of statutory tax law changes, keeping in mind that the impact of a change in tax laws and rates is recorded in continuing operations in the interim and annual period that the change in tax law is considered enacted for U.S. GAAP purposes.
- Update for known global tax rate changes and inform the accounting department of any new tax rates if they are responsible for recording tax effects of equity-related items such as pension entries.
3. Be ready for possible late December tax law enactment in the U.S.
- Monitor federal tax legislative proposals and run preliminary calculations for management. Contact your consultants early to help gain an understanding of the impact of any tax law changes on your company.
- Be ready to quantify any national, state, and local/regional tax rate change impacts to deferred tax assets and liabilities. The best practice would be to utilize tax provision software.
- Be prepared to run an updated 2022 budget or forecast for the C-suite during the 2021 close. Public companies may need to provide guidance on the effective tax rate for upcoming periods during the annual earnings release call.
- Consider the impacts of tax legislation to net operating losses and valuation allowances based on changes that could impact future taxable income (e.g., international tax provisions).
4. Ensure documentation around key judgments is robust and complete
- Document assumptions around purchase accounting issues and estimates.
- Support conclusions around valuation allowances – document positive and negative evidence, sources of taxable income and scheduling assumptions.
- Update assessments of current and prior year uncertain tax positions.
- Document the facts supporting an indefinite reinvestment assertion.
5. Schedule and conduct effective planning meetings
- External auditors: Can interim work be accelerated? Ask for the prepared-by-client request list and agree on timing well in advance.
- Tax team: Review workplan and have users test systems access early.
- Finance organization: When will pre-tax book income be finalized? What are the timing expectations around tax deliverables?