5 Reasons to Outsource your Company’s Accounting for Income Taxes (ASC 740)

If you’re the CFO of a public company without an internal tax department, accounting for income taxes (ASC 740) is probably one of your more intense and burdensome tasks.

In recent years, the overall business environment has grown increasingly complex. CFOs have to manage their time, resources, and level of expertise to comply with generally accepted accounting principles (GAAP), constantly changing tax laws and regulatory agencies. Furthermore, many CFOs have a background and expertise in financial accounting and GAAP compliance, and may not necessarily have an expertise in income taxes. In such instances, CFOs may want to consider outsourcing their company’s accounting for income taxes.

Here are five reasons you might want to outsource your organization’s ASC 740 function:

1.       A lack of specialized tax knowledge increases the risk that tax issues will not be identified timely.

If the company doesn’t have the in-house expertise to prepare its income tax provision, you may want to engage a specialized tax professional for assistance with accounting for uncertainty in income taxes.

2.       You want to avoid significant adjustments, material weaknesses, but most of all, restating financial statements.

Auditors generally agree that in situations where a public company does not have an internal tax department, the calculation of the income tax provision requires additional scrutiny and can possibly result in significant adjustments, material weaknesses and, more adversely, require the company to restate its financial statements.

3.        Your outside tax preparer can’t assist with accounting for uncertainty in income taxes.

The company’s outside tax return preparer may assist in the calculation of the provision for income taxes, but not in accounting for uncertainty in income taxes.  Since accounting for uncertainty in income taxes requires the company to identify, quantify and document any uncertain tax positions included in prior years’ tax returns, public companies may want to obtain an independent review of these positions. Otherwise, the company’s tax preparer would be engaged to audit its own work – a clear conflict of interest.

4.       In recent years, many SEC comments have been on the subject of income taxes.

Recent SEC comments include questions regarding vague income tax disclosures and, most importantly, whether a company’s deferred tax assets can be realized.

5.       Outsourcing the accounting for income taxes function can make your internal accounting department more efficient.

Engaging the right firm, one with the appropriate level of expertise and the capacity to work side-by-side with the organization’s accounting team, can help your company efficiently utilize its resources and comply with GAAP and regulatory requirements.

As the CFO of a public company, you already have a lot to deal with, even without the burden of ASC 740. Don’t add one more thing to the pile without engaging the right resources. Contact us to learn how we can help.