Analyst Perspectives

Value-added tax is a consumption tax levied at every point in a supply chain—from production to final sale. It’s based on the difference between the cost of production and the selling price of a product or service, or the value added. Sales taxes are different in that they are generally collected only at the final point of sale to the ultimate consumer. Enterprises collect the value-added tax from customers when they sell goods or services and remit the collected VAT to the relevant national or...

Value-added tax is a type of levy that is applied at each step of a transaction chain, from basic inputs to the final good or service. The amount assessed is based on the value added by an organization (hence the name) when a transaction occurs. VAT is used throughout the world because, historically, it has been harder to evade compared to income taxes. VAT is a common method of national taxation: Approximately 85% of countries impose it worldwide. A notable exception is the United States,...

In 2013, the Organization for Economic Cooperation and Development (OECD) published a report titled “Action Plan on Base Erosion and Profit Shifting” (commonly referred to as “BEPS”), which describes the challenges national governments face in enforcing taxation in an increasingly global environment with a growing share of digital commerce. Country-by-country (CbC) Reporting has developed in response to the concerns raised in the report. To date, 65 countries (including all members of the...

The imperative to transform the finance department to function in a more strategic, forward-looking and action-oriented fashion has been a consistent theme of practitioners, consultants and business journalists for two decades. In all that time, however, most finance and accounting departments have not changed much. In our benchmark research on the Office of Finance, nine out of 10 participants said that it’s important or very important for finance departments to take a strategic role in...

The steady march of technology’s ability to handle ever more complicated tasks has been a constant since the beginning of the information age in the 1950s. Initially, computers in business were used to automate simple clerical functions, but as systems have become more capable, information technology has been able to substitute for increasingly higher levels of human skill and experience. A turning point of sorts was reached in the 1990s when ERP, business intelligence and business process...

Workday Financial Management (which belongs in the broader ERP software category) appears to be gaining traction in the market, having matured sufficiently to be attractive to a large audience of buyers. It was built from the ground up as a cloud application. While that gives it the advantage of a fresh approach to structuring its data and process models for the cloud, the product has had to catch up to its rivals in functionality. The company’s ERP offering has matured considerably over the...

Whatever Oracle’s cloud strategy had been the past, this year’s OpenWorld conference and trade show made it clear that the company is now all in. In his keynote address, co-CEO Mark Hurd presented predictions for the world of information technology in 2025, when the cloud will be central to companies’ IT environments. While his forecast that two (unnamed) companies will account for 80 percent of the cloud software market 10 years from now is highly improbable, it’s likely that there will be...

Many senior finance executives say they want their department to play a more strategic role in the management and operations of their company. They want Finance to shift its focus from processing transactions to higher-value functions in order to make more substantial contributions to the success of the organization. I use the term “continuous accounting” to represent an approach to managing the accounting cycle that can facilitate the shift by improving the performance of the accounting...

Revenue recognition standards for companies that use contracts are in the process of changing, as I covered in an earlier perspective. As part of managing their transition to these standards, CFOs and controllers should initiate a full-scale review of their order-to-cash cycle. This should include examination of their company’s sales contracts and their contracting process. They also should examine how well their contracting processes are integrated with invoicing and billing and any other...

For most of the past decade businesses that decided not to pay attention to proposed changes in revenue recognition rules have saved themselves time and frustration as the proponents’ timetables have slipped and roadmaps have changed. The new rules are the result of a convergence of US-GAAP (Generally Accepted Accounting Principles – the accounting standard used by U.S.-based companies) and IFRS (International Financial Reporting Standards – the system used in much of the rest of the world)....

One of the issues in handling the tax function in business, especially where it involves direct (income) taxes, is the technical expertise required. At the more senior levels, practitioners must be knowledgeable about accounting and tax law. In multinational corporations, understanding differences between accounting and legal structures in various localities and their effects on tax liabilities requires more knowledge. Yet when I began to study the structures of corporate tax departments, I was...

Last year Ventana Research released our Office of Finance benchmark research. One of the objectives of the project was to assess organizations’ progress in achieving “finance transformation.” This term denotes shifting the focus of CFOs and finance departments from transaction processing toward more strategic, higher-value functions. In the research nine out of 10 participants said that it’s important or very important for the department to take a more strategic role. This objective is both...

Our recently published Office of Finance benchmark research assesses a broad set of functions and capabilities of finance organizations. We asked research participants to identify the most important issues for a finance department to address in a dozen functional areas: accounting, budgeting, cost accounting, customer profitability management, external financial reporting, financial analysis, financial governance and internal audit, management accounting, product profitability management,...

Our recent Office of Finance benchmark research demonstrates the importance of using automation to execute finance department functions. Information technology systems do at least two things very well that make better use of people’s time, and both of them can substantially improve organizational performance. First, they eliminate the need for people to do repetitive tasks, which frees them to spend time on more valuable work that requires judgment and skill. IT systems also can be programmed...

Finance transformation” refers to a longstanding objective: shifting the focus of CFOs and finance departments from transaction processing to more strategic, higher-value functions. Our upcoming Office of Finance benchmark research confirms that most of organizations want their finance department to take a more strategic role in management of the company: nine in 10 participants said that it’s important or very important. (We are using “finance” in its broadest sense, including, for example,...

Finance and accounting departments are staffed with numbers-oriented, naturally analytical people. Strong analytic skills are essential if a finance department is to deliver deep insights into performance and visibility into emerging opportunities and challenges. The conclusions of analyses enable fast, fully informed business decisions by executives and managers. Conversely, flawed analyses undermine the performance of a company. So it was good news that in our Office of Finance benchmark...

I’ve written before about the increasing importance of having a solid technology base for a company’s tax function, and it’s important enough for me to revisit the topic. Tax departments are entrusted with a highly sensitive and essential task in their companies. Taxes usually are the second largest corporate expense, after salaries and wages. Failure to understand this liability is expensive – either because taxes are overpaid or because of fines and interest levied for underpayment. Moreover,...

Longview Solutions has a longstanding presence in the financial performance management (FPM) software market and was rated a Hot vendor in our most recent FPM Value Index. Several years ago it began offering a tax provision and planning application. I think it’s worthwhile to focus on the tax category because it’s less well known than others in finance and is an engine of growth for Longview. We expect larger corporations increasingly to adopt software to manage direct (income) taxes to improve...

Our research consistently finds that data issues are a root cause of many problems encountered by modern corporations. One of the main causes of bad data is a lack of data stewardship – too often, nobody is responsible for taking care of data. Fixing inaccurate data is tedious, but creating IT environments that build quality into data is far from glamorous, so these sorts of projects are rarely demanded and funded. The magnitude of the problem grows with the company: Big companies have more...

Business computing has undergone a quiet revolution over the past two decades. As a result of having added, one-by-one, applications that automate all sorts of business processes, organizations now collect data from a wider and deeper array of sources than ever before. Advances in the tools for analyzing and reporting the data from such systems have made it possible to assess financial performance, process quality, operational status, risk and even governance and compliance in every aspect of a...

A core objective of my research practice and agenda is to help the Office of Finance improve its performance by better utilizing information technology. As we kick off 2014, I see five initiatives that CFOs and controllers should adopt to improve their execution of core finance functions and free up time to concentrate on increasing their department’s strategic value. Finance organizations – especially those that need to improve performance – usually find it difficult to find the resources to...

Senior finance executives and finance organizations that want to improve their performance must recognize that technology is a key tool for doing high-quality work. To test this premise, imagine how smoothly your company would operate if all of its finance and administrative software and hardware were 25 years old. In almost all cases the company wouldn’t be able to compete at all or would be at a substantial disadvantage. Having the latest technology isn’t always necessary, but even though...

Oracle continues to enrich the capabilities of its Hyperion suite of applications that support the finance function, but I wonder if that will be enough to sustain its market share and new generation of expectations. At the recent Oracle OpenWorld these new features were on display, and spokespeople described how the company will be transitioning its software to cloud deployment. Our 2013 Financial Performance Management Value (FPM) Index rates Oracle Hyperion a Warm vendor in my analysis,...

Technology for the Office of Finance can have transformative power. Although progress has been slow at times, today’s finance organizations are fundamentally different from those of 50 years ago. For one thing, they require far fewer resources (chiefly people) to perform basic accounting, treasury and corporate finance tasks. In addition, public corporations report results sooner – sometimes weeks sooner – than they could in the mid-20th century. And finance departments are able to harness...

I’m wondering whether the rapid rise in earnings restatements by “accelerated filers” (companies that file their financial statements with the U.S. Securities and Exchange Commission that have a public float greater than $75 million) over the past three years is a significant trend or an interesting blip. According to a research firm, Audit Analytics, that number has grown from 153 restatements in 2009 to 245 in 2012, a 60 percent increase. What makes it a blip is that the total is still less...

Taxes – both indirect (sales or value added taxes, for example) and direct (income taxes) – are one the largest expense items on the corporate income statement. In recent years it has become common for large and even midsize companies to automate their indirect tax management process, but direct tax management has remained a bastion of manual processes built on a heap of desktop spreadsheets. In previous blog posts I discussed this issue and the role of the tax data warehouse as a necessary...

One of the new products that Infor announced at its recent Inforum user conference (which I covered here) is Local.ly, which is designed to facilitate localization of its applications (that is, adapting them for languages, units of measure, statutory requirements, customary processes and other specific features of the places where they will be used). Local.ly is scheduled to be released in the third quarter of this year. Infor points out that among other tasks the software can be used to...

I recently had a briefing from Vertex on its tax data warehouse (TDW), a key component of its tax technology platform Vertex Enterprise. The TDW concept has been around for decades, but the earliest versions were custom-built and hampered by the technology limitations of their day. This made them expensive to deploy and maintain and constrained their ability to adapt to changing corporate requirements. The basic idea behind a TDW is straightforward: a data store that makes all tax data readily...

Right after I posted my blog about the dearth of useful content for the line-of-business and finance audience at this year’s Oracle Open World, I attended a truly useful session. (Of course, it had been shunted to the next-to-last time slot on the final day of the event.) It was a case study presented by AT&T’s tax group, discussing its use of Oracle Hyperion Financial Management to manage the corporation’s tax data.

At first thought, it seems as if having a mountain of cash to manage is a problem most companies would like to have, but it’s a real problem nevertheless. To be sure, the large majority of companies are able to deal with their cash and short-term and longer-term monetary investments because the amounts are small enough to be manageable. Indeed, many companies, especially smaller ones, face the opposite problem and spend more time focused on their uncertain funding requirements. Still, over the...

The globalization of business is having a profound impact on corporate taxation worldwide, which shouldn’t surprise anyone who covers international tax laws. The impacts on corporations operating in multiple national jurisdictions (which today, especially in Europe, includes a large number of midsize companies) are both positive and negative. Positive in the sense that corporate tax rates, tax benefits, reporting and other aspects of tax regulation are subject to competitive moves by countries...

Many companies have automated their sales and use tax processes to cut the effort required to execute them and to reduce the number of errors and their cost in dealing with a fiendishly complex set of rules and rates. This is one step in bringing tax into the mainstream of finance, which we advocate. Most people are familiar with sales tax; a “use tax” is a form of excise tax assessed on otherwise tax-free goods purchased by a resident of the assessing state regardless of where it was...

Taxes are a big expense for most companies, profitable or not. Many larger and midsize companies must traverse a complex and constantly shifting landscape of tax rules, rates, and jurisdictions. I’ve previously written about the need for corporations to manage their taxes more intelligently, and that that may require someone in the tax department who understands both the department’s functional requirements and what information technology can do to improve those functions. Today I am going to...

To manage taxes more intelligently  tax departments need to focus more on execution than compliance. I’ll confess that this observation is based on informal rather than rigorous research, so I’ll leave it up to individuals that work in these departments and in the finance function generally to consider whether this applies to their company.

I recently commented on why I believe companies must manage taxes more intelligently. One dimension of this is optimizing tax risk exposure. Most corporate tax codes are notoriously complex and at times ambiguous, leaving room for companies to interpret their application. These interpretations fall on a scale of “conservative” to “aggressive,” in which companies weigh the risk of penalties and other negative outcomes against that of paying more taxes than necessary. It strikes me that few of...