A Recommended Approach for Optimizing Your ERP for Tax

Organizations frequently try to maximize the leverage of their ERP systems across as many processes as possible in order to enable high performance. While this approach is generally sound, tax accounting may prove to be something of an exception to this general rule. Accenture examines the issues and proposes the optimal approach.

Enterprise resource planning (ERP) systems have been widely deployed by large and medium-sized businesses. Given their significant cost, it is not surprising that companies are looking to get the most out of them. While using ERP for as many enterprise-wide processes as possible is a proven practice, using it for a highly specific function such as tax accounting may result in considerable complications.

In fact, Accenture believes that moving tax functions onto an ERP system may require significant investment in customization, as well as significant ongoing costs as tax regimes and regulations change.

Accenture’s experience suggests that three commonly-held tenets about ERP systems may not hold good when it comes the end-to-end tax accounting process:

• The objective—one standard technology—should be applied to all areas across the board. Leverage the existing ERP system’s infrastructure, licenses, and user fees to perform as many operations as possible. While the ERP system can be fairly easily set up to provide both management and statutory reporting for tax purposes, to execute the detailed tax accounting processes properly, including book-to-tax adjustments, tax reclassifications, apportionment, and allocations, would require significant customization of the ERP software.

• Utilize a common platform to achieve greater integration between functions and higher availability of technical skills for maintenance. The intricacies and changeability of local tax laws makes the tax function a very different animal from other common ERP functions, such as budgeting or payroll. Due to the number of customizations required, it could create the need for specific technical skills to focus on the tax functions built within the ERP system.
  
  
• Leverage industry-standard processes for executing functions so that end users have lower learning curve and new employees can adapt quicker. However, target corporate tax users are likely not high users of the ERP system, and so would require extensive training on it. In contrast, tax professionals are generally conversant with the tax-specific software, for which the vendors provide training.

One tenet that Accenture does believe that companies should follow is not to over-tax their ERP systems. An ERP system is intended to be a core transactional system to support finance functions such as record-to-report, order-to-cash, and procure-to-pay. While it has the capability to support transactional taxes including withholding, sales and use, and value-added tax, it is not and was never meant to handle the comprehensive requirements of the tax provision process.

Accenture believes that companies in pursuit of high performance in their tax functions should use tax-specific technology for core tax functions such as tax accounting. The proper role for ERP systems in respect of the tax function is to build into its data the specific attributes that tax will need to do its accounting and compliance functions later. In fact, high-performance in tax is principally characterized by the accessibility of tax-sensitive data in the company’s financial and operational systems.