For decades, the tax process has centered around compliance. And for good reason — it’s an important and highly scrutinized output of the tax function. But if compliance is the endgame, what about all the work that comes before the forms?

Like having to “show your work” in math class, workpapers are essential not only for compliance, but also to support the tax accounting and reporting process, providing critical proof needed during an audit. They are also where some of the most complicated, time-consuming, and painful tax work is done.

However, Excel workpapers are tedious, prone to human error, devoid of controls and repeatability, and often rely on macro- or complex formula-based automation — which makes them hard to maintain, subject to key person dependencies, and outdated in comparison to today’s technological innovations.

For too long, tax departments have longed to improve their workpapers process but they lack the time, resources or expertise to do so. In a 2023 survey conducted by Bloomberg Tax & Accounting and Arizent, 89% of corporate tax professionals said their current workpapers process is difficult, while 92% said it’s overly time-consuming.

A better way to work

It is clear that tax departments are in need of a modern approach to simplify the workpaper creation and maintenance process — a solution that is easy to use, yet robust enough to handle the complexities inherent in the overall tax lifecycle.

The benefits are there for the taking. Relying on a solution that’s purpose-built to improve specific steps within the overall workpapers process can not only reduce risk and build confidence, but save tax departments valuable time that can be better spent on strategic, value-creating activities for their organization.

These are six key steps in the tax workpapers process that tax departments can evaluate for opportunities to save time, reduce risks, and increase flexibility through automation. 

1. Roll forward your prior period workpapers. Automating the roll forward process minimizes manual intervention and the associated risk of errors. It also significantly reduces the manual updates needed to create a workpaper in the new period and the associated time and effort involved. A robust roll forward automation will find and update the formulas and links within the workpaper to the desired new period — providing the preparer a head start in constructing the new workpaper.

2, Gather and transform current period data from source systems. One of the most common challenges in the workpapers process is gathering and transforming source data for use in tax calculations. It’s no secret that the tax department doesn’t own the source systems where most of their data comes from. So it’s also no surprise that one of the greatest opportunities for automation is to connect directly to data sources and transform them into usable formats. Look for a solution that allows you to pull data from enterprise resource planning and general ledger systems directly to your workpapers.

You should also seek a solution to automate those tedious data cleanup steps repeated each year — or any time new data, such as a new trial balance, becomes available. This cuts down on a significant amount of manual, repetitive work you must do every year before even getting to the tax calculation step.

3. Prepare your workpaper calculations. Because preparing tax workpapers is not always a linear process — data inevitably goes through updates and revisions — the calculations and data transformation steps that come before should be tightly integrated. Technology built for tax processes can make pulling data into your workpapers much faster and smoother — not simply for “same as last year” information, but also anything that has changed.

In addition, a solution with tax calculation templates, kept up to date with the latest law changes, can help with new or complex calculations applicable to your company. Think calculations like the new corporate AMT or the always-challenging GILTI.

4. Justify tax positions. Traditionally, justifying tax positions requires research from preparers in solutions wholly separate from where the workpapers are prepared or updated. Rates and regulations change constantly, and businesses may enter new jurisdictions, forcing you to look up new rates, dates, calculation methods, and other pertinent tax information.

A solution providing integrated tax guidance helps to ensure you are using the latest rates and tax law updates to inform your calculations.

5. Review your workpaper. Change tracking and sign-offs are often important evidence that must be provided during a financial statement audit to prove the effective operation of internal controls. A solution that allows you to see who made changes and who signed off on a workpaper can be much more effective than the manual alternative. Further, it can significantly reduce the risk of unintended changes to the workpaper calculations. Look for a solution that offers controls that stand up to the rigors of a SOX audit.

6. Send final calcs to other relevant workpapers or systems. Although workpapers are the critical centerpiece to many tax processes, they are typically not the end of the process. Calculations done in workpapers often precede or are dependent on yet another calculation and, eventually, must be input to tax software solutions supporting compliance and provision. Tax tools that talk to each other and share data through key integrations create confidence that everything from data gathering to calculations to reporting will be consistent and efficient.

Look for a solution that works well not only with existing tools (like Excel, for parts of the process that will inevitably remain there), but also offers flexibility for importing final calculations into various tax preparation solutions and other business systems.

Going beyond a focus on compliance

To truly reap the benefits of modern technology, tax teams must look beyond compliance deliverable systems to solutions that focus on workpaper calculations. This shift in thinking will result in a more integrated, efficient, and intelligent tax workflow.