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BEPS debriefed: Reshaping financial reporting today, redefining tomorrow

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All market leaders and financial teams are subject to various regulatory standards. Despite this, regulation was cited as a top industry challenge by CFOs across all sectors. Most businesses have not been affected by BEPS Pillar One, yet the subsets of BEPS, namely Pillar Two and 2.0, are a different story. While strategic tax planning is already a complicated undertaking, it’s about to get even more complex for multinational companies facing upcoming changes to tax law under new Base Erosion and Profit Shifting guidelines, or BEPS for short.

BEPS 2.0 Pillar Two took effect in early 2024, imposing new data reporting requirements and additional global tax compliance rules for every multinational business with a turnover greater than 750 million euros. This legislation increases the pressure surrounding already over-stretched tax teams that will now have to collect more data from multiple sources and across departments. Companies that are currently doing business in multiple countries should already be preparing for the new complexities BEPS 2.0 Pillar Two will pose to the tax and reporting process. 

Decoding BEPS, the evolution of global tax compliance 

BEPS is a set of rules and standards established by the Organization for Economic Cooperation and Development and subsequently adopted by numerous countries around the world. The primary purpose of BEPS is to establish a minimum baseline for corporate taxation such that multinational businesses are no longer incentivized to shift profits from higher-tax countries to low-tax nations.

BEPS consists of two broadly defined provisions, which the designers refer to as “pillars.” Pillar One pertains to the allocation of business profits to various countries based on actual business activities in each of those nations. In essence, this rewrites the rules pertaining to nexus, opting instead to allocate profits based on the jurisdictions where a company’s goods or services are used or consumed. Initially, Pillar One will apply to companies with worldwide revenues of €20 billion or more. Over the next seven years, that threshold will be reduced such that businesses with €10 billion or more in revenue will also be included.

BEPS Pillar Two will affect a significant number of companies. Pillar Two is aimed at establishing an effective global minimum tax rate of 15%. Under BEPS Pillar Two, companies will first calculate taxes for each country in which they operate. If their effective tax rate for any of those jurisdictions falls below 15%, then they will be liable for paying that 15% minimum in those respective countries.

Fundamentally, BEPS is a set of nonbinding rules. Its creator, the OECD, has no statutory authority to set tax rates or regulations for the 139 member countries. However, BEPS is available as a common standard that nations may choose to adopt through legislation. The general framework of the rules has been agreed upon, but the formal adoption of the rules is still being negotiated and clarified. 

Although there may be some minor adjustments, business leaders still need to be cognizant of the effects BEPS 2.0 Pillar Two will have on organizations. 

Outlining its challenges — assessing the impact of BEPS

BEPS 2.0 Pillar Two is anticipated to make tax planning more complicated than ever before, with tighter deadlines and more stringent audits applying increased pressure on already strained tax professionals. As a result, many of these employees will likely struggle to work strategically if ill-prepared.

Research indicates that while 90% of respondents say BEPS 2.0 Pillar Two will have a moderate or significant impact on their business, just 30% have completed an impact analysis. As the new regulations start being implemented progressively around the globe, organizations must start preparing their teams. 

Tax leaders must move quickly to assess the potential impacts, advise senior executives and other stakeholders on the upcoming changes, and determine what needs to be done to comply with the new rules and manage their implications. 

Beyond being adequately prepared, BEPS 2.0 Pillar Two will introduce new complexities into the tax forecasting and reporting processes, potentially with powerful implications for corporate structuring and transfer pricing decisions. Specifically, challenges around consolidating, cleansing and analyzing tax data from across the organization will be magnified. 

For example, organizations relying on spreadsheets to support their tax forecasting and reporting processes may find the shifting landscape under these new regulations will create new challenges that may be difficult to manage, including the introduction of inconsistent data integrity that could lead to errors in tax reporting and forecasting. This can result in enormous financial and legal costs for organizations. 

It’s generally agreed that the plan will result in higher corporate taxes for most global companies, but the reality is that BEPS constitutes a radical shift in the way taxes are levied on multinational companies. For organizations to be successful with upcoming changes to BEPS, they need to understand how these soon-to-be-imposed data and reporting regulations will transform the industry.

What BEPS means for the future of financial reporting 

BEPS already requires companies to itemize their revenues by country, and as taxation bodies develop more sophisticated models that compare BEPS data with corporate tax return data, there may be an increase in investigations. This reinforces the growing need to ensure tax and accounting teams have a foundational understanding of the implications coming from BEPS changes.

To that point, BEPS represents a change in global taxation, but it isn’t the only change. Other elements of change include IFRS 16/17 and parallel modifications to lease accounting under U.S. GAAP, political uncertainty, a push toward higher tax rates and increased enforcement, and rising inflation in 2024. In response, organizations must remain vigilant in reviewing the latest legislation and analyzing recent changes within the business. As new rules are put into practice for BEPS, there is little doubt that fine-tuning the system will require some changes. This should include bringing operations together under one roof. To do this, automation will be crucial, especially to ease tax compliance, reduce data silos, and deliver better analytical insights. 

With that said, organizations should look for purpose-built tax planning and tax reporting solutions that can automate these processes by collecting and collating information from source accounting systems, modeling scenarios, and predicting the likely tax implications, as well as serving as a foundation for documentation and compliance transfer pricing decisions. Many companies may struggle to perform tax forecasting and reporting with manual processes, spreadsheets and a disjointed collection of tools. Fortunately, tax reporting technology can bring it all together under one central location to, effectively streamline and simplify processes while also managing operational transfer pricing, and improving accuracy. 

Finance and accounting leaders are often unable to see their group company’s effective tax rate until it’s too late for them to do anything about managing it. Under BEPS, that lack of visibility will become even more of a liability. Companies that want to clearly understand their options should put systems in place — as soon as possible — to reap the full benefits of smart corporate tax planning strategies. Collaboration and automation through the right tools will be critical to staying agile and successfully navigating the looming presence of BEPS 2.0 adoption. 

Ultimately, the next few years will be a pivotal time for finance and accounting departments at multinational companies. For tax professionals in particular, this is an opportunity to demonstrate the strategic value of tax accounting to others in the organization.

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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