Carnival Implements Best Practices for FIN 48 Compliance
LEI: What were the primary reasons you originally decided to automate your FIN 48 compliance with a 3rd-party software package?
Border: We actually had a fairly complete system of reporting—albeit manual—for both asserted and unasserted claims globally. But with the advent of FIN48 we wanted to try to bring a degree of discipline, and hopefully simplicity, to the process, as well as satisfy our SOX 404 requirements. With these goals in mind, we decided to look to outside technology vendors to help us meet our objectives. We set out to find a centralized way to maintain our analysis of all the issues, as well as a formal review and approval process that could be documented for SOX purposes.
LEI: What was the advantage of having it centralized?
Border: For us, the key was enabling our geographically dispersed tax departments to control their own issues, while at the same time being able to centralize the ultimate approval of those issues. In an ideal world, we wanted to find a web-based system that would permit the various units to meet their internal reporting requirements, and would enable us to generate the necessary reporting on a consolidated basis. Basically, our goal was to foster empowerment without giving up the needed control.
LEI: While FIN48 imposed new guidelines, managing your reserve was clearly not new … what were you using prior to adopting the 3rd-party software system?
Border: Prior to having the system, we summarized the issues in a spreadsheet-based system, but really the cornerstones were the narrative reports that were prepared on a regular basis. These reports would include a description of the issue and some analysis of the likelihood of a claim being asserted. We had a good view with respect to asserted claims, but you wouldn’t necessary accumulate your total exposures on your unasserted claims and really have a good handle on them on a global basis.
LEI: Why did you decide to forego the use of this manual system?
Border: We were using several different products to evaluate exposures and provide the necessary reporting. We used Word for the narrative reports …a collection of spreadsheets for the financial analysis… and a separate interest calculator to do accrued interest calculations. None of it was integrated, so we knew it would be far simpler, easier, and more accurate — less chance for those copy-&-paste errors — if we had a single source solution for all of it.
LEI: Where you looking for efficiency gains as well?
Border: Yes. It’s not just the integration of the disparate systems, but also formalizing the review of positions, having the ability to maintain the different layers by year of your positions, and being able to track reversals due to the statute of limitations. And, on the analytical side there was a considerable savings also.
LEI: Regarding the selection process … how did you go about evaluating the various software packages that are available in the market?
Border: I brought together my key directors and we formulated a requirements list that we then validated with our affiliates. We started the process pretty early, so we decided to investigate applications that were already available as well as those that had been reasonably developed.
We were looking to find a solution that we could employ globally … so it had to be web-based and had to handle multiple currencies. In addition, it was critical that it support the variety of statutes and all of the other issues that a multinational enterprise is faced with on a continual basis. And as I mentioned earlier, we needed the system to empower each of the local affiliates by providing them savings in their own individual reporting, while at the same time be able to provide us in headquarters with what we needed from an overall consolidated standpoint.
There weren’t many systems that met our minimum requirements, but once we were able to able to narrow the selections and, if you will, talk with some degree of authority about what was available and how it would work, we then talked with each of our affiliates to ensure their needs would also be addressed.
LEI: How did you ultimately come to the decision to automate with Liquid Engines GPM?
Border: GPM was simply the system that best met our criteria and what would work best within our existing systems, would enable us to improve our process of reviewing and approving asserted and unasserted claims, would satisfy the other new FIN48 requirements, and help us achieve the efficiency gains we were after.
LEI: Excellent … please now share with us a bit about the process you went through to move from your spreadsheet-based environment to the software system?
Border: Certainly. To begin, we evaluated the information we had already been gathering. Since we had a detailed system for gathering information concerning unasserted claims, the identification of uncertain tax positions probably did not require the initial effort expended by most companies. We then collected all of the knowledge of the unasserted positions, evaluated it in more detail, and brought in the affiliates to get them to agree as to what should go in the system. We then divided up the positions, and where there were duplicate positions across the operating groups we verified the descriptions and the analysis and then pushed it out to the affiliates to do the detailed financial analysis that is required under FIN48.
The next step was to map out the workflow process … how the reviews and approvals would work in the context of the new automated system.
And finally, we trained the users and instructed the affiliates to input their positions and related data.
LEI: What, if any, challenges did you encounter as you transitioned to an automated process?
Border: All-in-all, the implementation went pretty smoothly … we made a few changes in the data formats along way …and are still learning more and evolving our reporting requirements …but the user acceptance and rate of adoption was very good. I think they really liked the ability to simplify the way in which some of the work gets done, and I also think it helped a lot that we involved the users from the beginning of the process.
LEI: What have been some of the benefits you have realized with your use of the GPM software?
Border: Well at this point in time, on a quarterly basis, we no longer have the affiliates manually reporting to us the total of their asserted and unasserted claims. If they have to do something outside of the system, that, to a large extent, is more exception based. The ability to have the interest accrual reconciliation within the system and the porforma disclosures done within the system is all an advantage.
All of the data is in a single place and it’s really a matter of running some reports …the only thing we need to be more aware of are issues concerning audits and potential changes that may happen to existing positions and new positions that are arising. That is, at least for us, a real benefit… and at the corporate level there is no longer the need to perform a consolidation of the work being done in our affiliates because it is all captured in the single system. It also makes it much easier for us to ensure that positions are being dealt with consistently between the various affiliates where similar positions exist.
And lastly, having the ability to tie the documentation with the position gives us a central repository of both the technical and financial analysis for each of the positions.
LEI: From the perspective of a top tax executive … does the centralized view provide you with better visibility into your overall tax profile?
Border: Yes, it does. The fact that we’re tracking information even for those items that we believe we are more likely than not to succeed on the merits, we have evaluated the tax impact and as a side benefit it brings some visibility to the dollar value of some uncertainties where we could — or should — expend effort to either analyze further or take steps to mitigate the impact. It is much easier to identify areas of risk and manage them accordingly.
Historically, in our prior reporting we were able, to some degree, to identify the dollar impact of certain issues. And from that we would look at what we could do to minimize the exposure of that particular position. But when you have a single view to the global exposure, that’s when you really can devote appropriate resources to minimizing any potential future cost.
LEI: What about for your corporate audit …do you believe the automation will have any impact on the process?
Border: Yes, two-fold. It will make it easier for us to provide the auditors with the reporting they need. And more importantly, there will probably be a reduction in our audit fees because of the improved corporate level controls … if the auditor can rely on the corporate level controls then there will be less work that has to be done in each of the affiliates. In addition, just as I benefit from the improved global visibility, the enhanced visibility also benefits our auditor and will increase their confidence level.
LEI: In closing … do you have any advice for other tax professionals who might be contemplating automating the FIN 48 process?
Border: Now is the time! There’s no need to wait, spreadsheet-based systems are a thing of the past and aren’t a good use of valuable tax talent. In our profession, we value tax people for their creativity and their knowledge of the tax laws that impact a company, not for their knowledge of Excel. I would much rather my skilled resources be focused on using their creative skills and knowledge vs. trying to be Excel jockeys.
If nothing else …just consider the time savings that is gained by moving to automation. All those hours can be refocused on more important work and decision making.
LEI: What about ensuring a successful rollout of the system …
Border: It’s very important to plan the process and the way in which the data is going to be used, and make sure that the information goes into the system in ways that will facilitate all of the reporting that may be needed both internally and externally.
It is also important to plan the approval process for the positions, because at the end of the quarter and at year end, if all of the positions are going to end up in one desk, someone is going to have a highly unpleasant 24 hours approving all of the positions. So there is some tactical thinking to be done in the overall review process.
And as I mentioned earlier, it is key to involve the users. While each organization is a little different as far as the degree of centralization and decentralization, I think that user acceptance will be much better if, in the design, you consider the reporting needs of the affiliates as well as the consolidated reporting. If you can get each of your operating units, or however it is that you are divided or structured, to clearly articulate their own internal management reporting requirements as well as their statutory reporting requirements, then you can ensure that the system will meet your needs and the individual needs … improving overall user acceptance and adoption …and ultimately will increase the return on your technology investment.
.
 top
|
