If your auditor doubles as your company’s mobility tax services provider, you may have found benefits from this seemingly convenient arrangement.
It’s not unusual to see companies using the same firm to provide multiple kinds of accounting and tax services, especially for emerging and fast-growing companies. However, it is important to be aware of the challenges that may arise in this situation and understand why it may be beneficial to use different firms for your auditing and mobility tax needs.
By understanding your specific needs and the service limitations that can exist for audit firms, your organization will be in a better position to assess and select a vendor that will provide the experience needed for your mobility program and employees.
Defining the need for audit and mobility tax services
What does an auditor do? Auditors review your company’s financial documents and accounts to ensure your financial records are reasonably accurate and in line with the law. This review can encompass your accounting procedures and your company’s information technology systems that house financial data.
What does a mobility tax services firm do? Mobility tax services firms can assist clients in many ways including:
- Filing individual tax returns for the company’s mobile employees
- Helping companies to comply with employer payroll reporting and withholding obligations on a global basis
- Structuring tax-efficient mobile and remote workforce policies
Although audit firms and mobility tax services firms both assess potential compliance risks and propose preventative measures related to your company and employees, there are several disadvantages that can arise when a company hires one firm to provide both services. Here are the top 5 reasons why your auditor should not be your mobility tax provider.
Reason 1: Auditors are barred from providing tax services to company executives
The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation established by Congress to oversee the audits of public companies to protect investors and public interest. PCAOB has established Rule 3523 which forbids audit firms from providing tax services to executives in all financial reporting roles due to concerns of independence.
The US Securities and Exchange Commission (SEC) has provided guidance that this rule pertains to all employees who influence the preparers or the contents of the audit client’s financial statements. The SEC has outlined the various positions that generally wield the type of influence over the financial statements that cause independence concerns, some of which include:
- Any member of the Board of Directors or similar governing body
- Chief Executive Officer
- Chief Financial Officer
- General Counsel
If any of your employees are considered to be in a “financial reporting oversight role” (FROR), such as the titles listed above, and are covered under your company’s mobility program to receive tax services, they will need to have their tax returns prepared by a tax provider that is not your auditor.
This results in having to hire, educate, and manage two mobility tax providers instead of one. Global tax laws are already complex. Having an additional provider not only forces your mobile employees to navigate through more hoops to maintain compliance, but it also results in more hassle and administrative work for you and your internal teams.
By working with a mobility tax provider that is not your auditor you can avoid these additional burdens. Instead, you will be confident that your auditor will provide the services needed on the audit side, and your mobility tax provider will provide the services needed on the mobility tax side with no interruptions or added disruption to you or your mobile employees.
Reason 2: Increased administrative tasks for program managers
In addition to the extra workload noted above that comes from having to hire two mobility tax providers, there is a laundry list of extra administrative tasks your organization must complete when your auditing and tax services come from one firm.
For example, any fees related to and for your organization’s mobility tax services need to be pre-approved by your company’s audit committee. This results in additional work for you and the company and can hinder the timeliness of services. To illustrate, if a large new project arises where you need mobility tax help immediately, there may be a delay to starting the mobility work while you wait for the audit committee to approve the services.
Reason 3: Increased administrative tasks for your mobile employees
If your mobility tax provider is your auditor, then all mobile employees must sign additional consent documents as part of the tax return process to confirm that they are not covered under the FROR rules. This not only likely lengthens the time for services to be completed, but it also places additional work on the mobile employee. By keeping your mobility tax services firm separate from your auditing service, there is no need to sign these forms, keeping the administrative tasks, frustration, and confusion for your mobile employees to a minimum.
Reason 4: Inability to assist with client funds and tax payments
There are times where the flexibility of having a firm that can make tax payments and handle the company’s cash on behalf of your mobile employees is necessary. This added flexibility can be very beneficial if there is an urgent need to make a tax payment in a country where your company or your relocation management provider aren’t able to make a payment in time. However, if your mobility tax firm is also your auditor, they are barred from touching client funds or directly assisting with tax payments.
Depending on your mobility tax provider, it can be helpful to engage them to receive the funds and do the paperwork on your behalf. GTN, as an example, is in a unique position to offer this service to clients as we do not offer audit services. Most accounting firms do offer audit services and are thus unable to handle clients’ funds due to Sarbanes-Oxley regulations.
Reason 5: Limited assistance with the tax accrual process
When a company sends an employee on a tax equalized assignment, the company, in essence, is agreeing to bear the worldwide incremental tax obligations for that employee associated with the assignment period. However, as countries often have different tax years and laws, the required worldwide tax payments often occur after the tax year's end; final tax payments can occur a year or more after the assignment is over.
Although the delay in paying these taxes is often unavoidable, many companies have implemented a tax accrual process for tax-equalized employees to match the timing of the expense with the assignment
period. Mobility tax firms, who do not perform audit services, help guide finance and accounting departments to determine a process for recording various types of tax payments that may occur during the course of a tax-equalized assignment.
In general, mobility tax firms that also provide audit services are not able to provide full assistance regarding the tax accrual process as it may fall under bookkeeping services. Specifically, the tax accrual process often leads to discussions about “debits,” “credits,” and questions about the company’s balance sheet. Independent mobility firms can offer practical advice and guidance which a company’s finance team can utilize when managing their tax accrual process. But, if the mobility firm is also your auditor, they are not able to discuss these items at all.
Further clarification on this matter can be found in an article published in the CPA Journal from October 2018, “Underlying the positions historically taken by the SEC and its staff is Rule 2-01(c)(4)(i)(B) of its Regulation S-X, which prohibits an auditor of a client that is subject to the SEC independence rules from preparing, or substantially assisting in the preparation of, the audit client’s financial statements. Historically, the SEC has elaborated only slightly on this prohibition, saying that “an accounting firm cannot be deemed independent with regard to auditing financial statements of a client if it has participated closely, either manually or through its computer services, in … preparation of the financial statements” [SEC Codification of Financial Reporting Policies section 602.02.c(i), emphasis added]."
Conclusion & Next Steps
If you’re weighing the risks of receiving your auditing and tax services from one provider, it's critical to review your situation carefully to assess the potential impact on auditor independence and ensure compliance with PCAOB and SEC rules. By choosing to keep these services separate, you can avoid the issues mentioned above, enabling you and your mobile employees to receive a premium level of mobility tax services that an auditor cannot provide on its own.
For guidance on how to seamlessly integrate an independent mobility tax services firm into your company’s operations and transition the mobility tax services from your current auditing firm, schedule a complimentary call with one of our mobility tax experts. We’ll examine the challenges you’re currently facing, discuss the future goals for your program, and offer a solution that fits your needs.