TaxOps.com
Tax News

5 reasons separating audit from tax services drives better tax outcomes

Many companies avoid perceived conflicts of interest in this post-Sarbanes Oxley era by giving their tax business to a firm other than their auditor. Regulators tend to like this separation of duties. Who wins, though, in this dual-firm scenario? Dynamic businesses with increasingly complex tax positions.

Nothing in the Sarbanes-Oxley Act or the SEC rules prohibits an audit firm from performing routine tax work for a client company as long as the arrangement receives prior approval from the audit committee. Using your auditor for tax services may not be in your best interest though. According to a 2016  study published in The Accounting Review, auditors that also provide routine tax services are not as aggressive in uncovering and advancing tax savings because they have more to lose based on the extent of the combined relationship.

These findings suggest greater opportunities for tax savings lie with businesses that engage a tax specialist to uncover fully supportable tax positions. This way compliant businesses can implement planning strategies with a tax specialist that is able to advocate on the business client's behalf. (Audit firms may not represent their audit clients in IRS and other tax audits or tax litigation.)

There are numerous reasons separating audit and tax among two accounting firms make sense: 

1) Avoid independence issues

2) Engage an advocate for best outcomes

3) Control the message at the business level

4) Create a competitive environment

5) Two heads are better than one

In assessing whether to separate audit and tax providers, a company's tax profile is a key factor. As a company grows and its tax profile becomes more complicated, companies should consider separating their tax and audit relationships to preserve auditor independence and drive better tax outcomes.

Read more

When two accounting firms are better than one

Although one size does not fit all, there are compelling reasons for separating audit and tax work among two different providers. Get the File »

Let's talk tax

Rachel Sawyer can be reached by phone at 720.227.0068 or email at rsawyer@taxops.com. Follow Rachel on LinkedIn.

For The Latest Tax News -- Subscribe Now 

CFOs losing sleep over financial reporting

Five ideas to simplify the individual tax code

8 significant tax regulations singled out for modification under Executive Order