Question

SUmmarize the article provided within the link below.

summary must be three-fourths to one page long.

topic: What tax reform means for audit committees

Source: The Journal of Accountancy

https://www.journalofaccountancy.com/news/2018/feb/tax-reform-audit-committees.html

Answer 1

Summary: This article basically summarises the impact on role of audit committee in relation to a new development on the taxation front.

Tax Cuts & Jobs Act (P.L. 115-97) was enacted. The new enactment will result into overall changes on various counts such as strategy, risk management, cash flow positions, liquidity issues and potential business opportunities.

Primarily role of an audit committee is to keep a check on any transaction having significant impact on financial statements and other areas of risk concerning the company. The Company management, finance teams and internal audit teams are responsible for implementation of accounting standards apart from their routine activities. Enactment of a new law will add to their pressure.

Mr. Stephen Klemash, CPA (EY-America Leader) advises that audit committees should at least annually benchmark the number of employees allotted to carry out finance and internal audit work. Mr. Rich Jones (Partner, EY- New York) also believes that human resource availability for carrying out the implementation of the new tax reform will be vital.

The audit committee also has to evaluate the existing technological setup. ERP based solutions can be vital for the success of internal audit function.

The issue of Staff Accounting Bulletin No. 118 by SEC provided some relief to the accounting staff by allowing the option of providing provisional accounting estimates in the event of unable to arrive at accurate figures. It also states that no adjustments should be made to current or deferred taxes if companies are unable to ascertain information to make estimates related to the new tax law. It further allows the companies 1 year to ascertain such information. The Q&A by FASB staff clarified their stand of no objection for Private companies and Not-for-Profit organisations to take the advantage of SEC bulletin.

Mr. Klemash believes there will be cases where companies may or may not be able to complete the work as per new tax law and may take recourse to the SEC bulletin. He further believes disclosures by the finance teams will be on the priority list of Audit committees. He further explains due to such new laws, the audit teams will spend more time which will increase the cost of audit to the organisation. According to him, clear communication of the same justifying the need and effectiveness among the management, audit committee and external auditors can be fruitful and avoids any issues.

Like any other law this will also take its due course and can’t be implemented overnight. It is perceived to be the most significant change to the Internal Revenue Code for more than 3 decades.