Journal of Accountancy
By Jon P. Skavlem, CPA, and Alyssa R. Schmitz, CPA
April 1, 2017
A policy and procedures review can help prevent big problems.
As any business that has gone through a sales and use tax examination knows, a field audit can be time-consuming and expensive and can wreak havoc on the business’s financial health. Large assessments for uncollected sales tax, under-accrued use tax, interest, and penalties can drain cash, force unanticipated borrowing, impair debt covenants, and, ultimately, may cause companies to close their doors.
As a result, management, attest professionals, and tax advisers are placing greater emphasis on identifying and controlling sales and use tax risk. For companies that report their financial results using GAAP, it can be argued that this risk management is not optional. FASB Accounting Standards Codification Topic 450, Contingencies, requires businesses to record contingent liabilities that are probable, i.e., likely to occur, and can be reasonably estimated. Publicly traded corporations also have the task of ensuring their sales and use tax systems meet the internal control requirements of Section 404 of the Sarbanes-Oxley Act of 2002, P.L. 107-204.