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Risk Management, A Key Tool To Power Up Tax Functions
Risk and Management
2016-11-17
Emerging trends are altering the approach of tax functions process in both short and long-term organizational management activity. The tax function of the future comparing to today’s will appear amazingly different, considering the progression of technology, information, and critical capabilities. Tax and finance departments confront challenges demanding a vital re-evaluation of procedures and practices.
Improved support of business stakeholders such as the managers, investors, regulators, competitors is required in both cases. Tax management needs a clear understanding of accounts information reporting, analytical vision, and support, and continuing risk management controls and procedures. Tax strategy needs to be a joined effort through finance and tax, playing a key contributor role.
Operational tax risk is described as the risk emerging within the organization, touching all businesses that possess or trade in assets such as stocks or bonds and appear in relation to similar transfer taxes, on dividends, tax reporting etc. Currently, tax departments are evaluated and measured on tax compliance, tax optimization and how well they manage risk. The assessments of these measures play a great role to companies, as they distinguish the potential reputational and broader risks that tax can administer to a corporation. Essentially, tax risk management is about recognizing where the risks occur and making decision calls as to how they are to be dealt with. Risk management is the most significant measure of tax function performance, based on PwC’s Tax Function of the Future survey of over 100 tax departments.
The crucial features to the Tax Function of the Future will be:
- Decent and stable internal controls
- Improved automation
- Enhanced integrated data and processes
- Additional analytics capabilities
How are tax departments progressing on strategy, risk management, and measurement?
In an active moving industry and regulatory environment, there are still mechanisms to be changed and carried out; in cases when or if tax departments are to encounter the double challenges of real-time assistance to businesses, and in order to efficiently manage risk. Tax executives have three choices when encountering changes: fight, ignore or embrace them.
Tax risks are categorized in two areas: the specific risk and generic risk area. The areas associated with specific risk are the following:
- Transactional risk
- Operational risk
- Compliance risk
- Financial accounting risk.
In addition, the generic risk area involves:
- Portfolio risk
- Management risk, and
- Reputational risk
A great number of tax executives spend more time fighting and ignoring those risks rather than trying to understand that in order to endure them, they should embrace change. It is essential that stakeholders understand what a company’s tax strategy is and how it is managed by executive management and the board of members. Also, it is important to highlight the fact that tax authorities are demanding more and more transparency and accountability in compliance processes. Thusly, implementing a well-governed and persuasive operating program will provide tax authorities assurance in the company’s control of its tax matters.
The interface between tax and risk is fundamental to optimizing processes. It is an assortment of interconnected workflows and workflows normally vary from planned processes to operational and technical advice. Moreover, tax risk management is a key performance measure of a business’ risk management policy as well as being part of a tax strategy. Thus, the expertise prerequisite in tax professionals is, therefore, changing due to the result of the latest new tax environment. The requirement on appealing individuals with risk management and technical skills in today’s market is increasing as well.
Significantly, we have comprehended and accepted the increasingly global view that risk management must be a part of good tax functions. At this point, we recognize the importance of professional risk managers for a useful and proven scheme to effectively managing risks. PECB offers a three-day intensive course to participants who tend to develop the competence to master a model for implementing risk management processes throughout their organization using the ISO 31000 standard as a reference framework. Based on practical exercises, participants acquire the necessary knowledge and skills to perform an optimal risk assessment and manage risks in time by being familiar with their life cycle.
ISO 31000 General Risk Based Professional Training courses offered by PECB are:
- ISO 31000 Introduction (1 Day)
- ISO 31000 Foundation (2 Days)
- ISO 31000 Risk Manager (3 Days)
- ISO 31000 Lead Risk Manager (5 Days)
For more information, please visit PECB ISO 31000 Training Courses.
About the author
Alba Keqa is a Portfolio Marketing Manager for Risk & Management at PECB. She is in charge of conducting market research while developing and providing information related to Risk and Management standards. If you have any questions, please do not hesitate to contact: marketing.rm@pecb.com.
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