For much of the past century, accountants have been considered a poster child of the middle class. A stable job (people will always need to pay taxes), good pay, work in any city, and a straightforward path to enter the field, all made tax related jobs the classic “9-5”. However, as with most fields of work, the past few years have created a new reality for tax related work. Ever changing tax laws and regulations, working from home, fast paced work environments, and automation solutions have all created new problems and opportunities for accountants and finance professionals.
More than 90% of respondents to a 2020 EY Tax and Finance Operate survey said they are taking action to transform their tax and finance function operating model. Keeping pace with change and making sure their operations are well managed were the main causes, and this was in order to create a resilient framework built to adapt and last.
Adapting to the Pace
The speed of which regulations change is unprecedented. For comparison, the EY Worldwide Corporate Tax Guide first came out in 1991. The comprehensive guide took 381 pages to explain all the necessary jurisdictions, but by 2019 it took a staggering 1,352 pages of updated corporate tax laws to cover the same jurisdictions!
The Covid-19 pandemic exacerbated this issue, as not only were companies forced to deal with changing corporate tax laws, but they had the additional burden of pandemic financial upheaval from the government and the private sector alike.
The list of stimulus options, tax changes, and future repercussions is so long and complicated that it will take tax professionals years to catch up with everything. Organizations have missed out on tax relief and stimulus options adding up to millions of dollars because they weren’t on top of the ball, while other companies have been fined and punished huge amounts for taking advantage of the system, either on purpose or by accident. Either way, the inability to adapt quickly and exert more resources into taxes has had a rippling effect on the finances of organizations.
Is digitization too fast for its own good?
Oftentimes, government systems are behind the private sector in the speed in which they adopt new technologies, and that is true with tax systems as well. While the private sector has been using automation for decades, governments throughout the world have been implementing them at a slower pace. This creates even more confusion for MNCs or those working with multiple countries’ tax systems, as each country is at a different digital stage (in addition to the differences that existed before).
The same EY survey found that 84% of organizations anticipate an increase in their workload from complying with emerging digital tax filing requirements. The larger the organization, the harder the hit, as companies worth $20 billion or more anticipate that they will spend an additional $5 million on adapting to these new requirements over the next 5 years.
Not only will most of these companies be paying more in taxes (as tax laws in most countries only go up), but they will also be paying more in order to understand the regulations and follow through with them.
Increased global compliance requirements combined with inefficient processes and over-reliance on spreadsheets will increase risk and drain already strained resources.
“I’ve been practicing tax for more than 30 years, and I’ve never experienced this sort of deluge in changing laws and regulations,” says Dave Helmer, EY Global Tax and Finance Operate Leader.
The evolving tax and finance executive
Reports show that 5 global megatrends are changing the way tax and finance operate within a business:
Economic global shifts- Not only is the economy becoming more globalized, creating more complex and lengthy tax structures, but businesses are investing and trading more and more with developing countries. This adds an additional layer of risk and complexity.
Demographic shifts- As the world becomes more globalized, staff are becoming more decentralized which includes outsourcing and a growing skills gap.
Speed and quality of operation- The speed and quality of analysis which organizations expect is unprecedented. This includes both from inside the organization and from traders and investors. The problem is that oftentimes executives are slower to upgrade their staff or resources while still expecting more and more quality and speed.
Accelerating Urbanization- Inside countries' own boundaries, from North America to developing countries, demographics are changing as well. For the first time in history there are more people living in cities than there are in rural areas, and the trend is growing fast. Urbanization laws change quickly and governments want more transparency from the private sector.
Technological breakthroughs- Lastly, if not most important, are technological changes. B2B tech solutions provide many opportunities for businesses to upgrade their capabilities, and as fast as finance changes, someone is usually there to provide a solution soon after. However this comes with its issues:
Unfortunately, the speed of digitization and changing tax regulations has a direct effect on the workforce itself. The old “climbing the corporate ladder” and specializing in one field for an entire career is becoming less and less relevant due to the constant change. While an accountant with 20 years of experience would be invaluable in the time of stable tax laws, manual reports, and a company focused on a handful of countries, today a huge part of the value depends on their adaptability.
83% of executives said the changing competencies of their tax and finance personnel will shift from technical and number skills to a data, process and technology focus over the next three years. The implications here are that those who can’t make the shift to the new areas of financial analysis will simply be left behind.
Creating a more efficient workplace
The obligation is on the employees and team leaders. Upskilling is an incredibly important thing to integrate, even when it takes up valuable time, and the long-time employees who are willing to learn these new skills, will add the value of tech and forward thinking to their repertoire of extensive financial knowledge.
While regulations are getting more complex and below the line costs are on the rise, most companies are actually looking to reduce expenses on tax and finance. Isn’t that a contradiction?
This can be done in 3 different ways despite the rising costs and complexity:
Outsourcing or co-sourcing- With companies looking to reduce costs and headaches, outsourcing is becoming more and more popular. Most businesses conclude that they have to save at least 5% on their tax and finance outputs in order for it to be worth it to make the switch. Working with a 3rd party provider frees up valuable time for the company’s employees and hands over the task to those who are spending 100% of their efforts on it.
Optimization and freeing up talent- Simply put, finance and tax executives aspire to do more. Both employers and employees are more satisfied and efficient when the team feels that they are contributing and providing value. Upskilling, team meetings, and allowing for more analyzing and less manual input will produce great results in the long run and provide the extra value that is being looked for.
Implementing automation- The best way to go about freeing up valuable time and providing more input is by implementing automation solutions. For tax related automation, the solutions are endless depending on the size and needs of the company. For broader finance related automation, DataRails is a favorite for SMBs. They will help create a budget and forecast, while consolidating all the spreadsheets into analysis reports without changing the format that companies are so used to.
Staying ahead of the game is critical, and expecting regulations and changes to the finance department will keep the organization on track. Forecasting will allow the business to reach its goal of cutting finance costs even when logic dictates that they should be going up.
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