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Global cost and tax accruals management

Do you find it difficult to track and account for tax and social security costs for assignees on a global scale? Incremental tax and social security costs usually form the most significant cost associated with assignees and very often such costs are not actually incurred in the accounting year in which their associated payments (such as housing) arise.

It is not uncommon for significant unaccounted for tax and social security liabilities to arise several years after the event, which can lead to serious consequences for the business line affected. Our diagnostic review of your internal controls in this area would include:

  • How do you build into a tracking process that different countries have different rules for reporting, accounting for and the timing of payments of tax?
  • Do you understand your tax and social security costs, how those liabilities are accruing and the consequences of an inadequate tracking system?
  • Are you aware of the timeline of when estimated tax is paid and when the final liabilities crystallise?
  • How confident are you that you have in place suitable accurate and quickly accessible data in respect of your assignees costs?
  • What processes do you have in place for providing accurate, timely and comprehensive information to third party vendors who may be running your payroll or completing assignees’ tax returns?

Under published SEC frequently asked questions about the Sarbanes-Oxley Act, SEC restricted entities must be responsible for generating good faith and meaningful tax provisions, footnotes and necessary accounting entries.

Your auditors cannot provide you with management systems to help with this as it would impair their independence. This applies beyond corporate tax and applies to all areas where tax provisions are required, such as those for international assignments.

Although at the moment these rules apply to SEC restricted entities, you should also note the following:

  • The banned service rules apply retrospectively to the 3 years prior to the registration of an SEC registrant
  • The EU have recently issued a directive which looks set to bring in similar rules to the Sarbanes-Oxley Act for European registered companies.

We suggest you should be prepared for these changes by conducting an improvement review of your current tracking system.

How can Stephen Asher Consulting help?

As we are not an auditing firm, we can apply our extensive knowledge and experience to help you set up and establish a process for managing internal controls without being affected by any independence rules.

We have developed tools that will help companies set up and manage a tax accrual to track tax and social security costs and release excess accruals to the profit and loss account when appropriate. At the heart of our solution is a review of current data management and cost tracking processes for international assignment costs, which could lead to other improvements to internal processes.

If you would like to explore this matter further, please call or email Alison Asher.

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