An overwhelming majority of senior financial executives say their tax department’s top priority is not tax savings or their effective rate, but timely and accurate tax return and financial reporting, according to a national survey of CFOs and senior comptrollers conducted by Grant Thornton LLP.

“The survey confirms what we’ve known for a long time,” said Randy Robason, Grant Thornton’s national partner in charge of tax accounting and risk advisory services. “Businesses don’t want to pay any more than they have to, but their first priority is always getting it right.”

Both Congress and the IRS have recently taken far-reaching steps to beef up compliance tools for what they see as too much aggressive tax planning. The IRS is in the stages of designing Schedule UTP (for uncertain tax positions) that large corporations will use to disclose detailed information on any tax position that meets the IRS definitions of “uncertain.” And Congress has passed legislation that changes the rules and dramatically increases penalties for transactions that lack economic substance.

“The tax industry is in a state of change – it’s unlike anything I’ve seen in 34 years,” said Robason. “Starting with the SEC [Security and Exchange Commission] focus on risk, and supported by SOX [the Sarbanes-Oxley Act], accounting for income taxes has become a hot topic from the board level to the newest staff person making entries.”

Grant Thornton’s survey found that financial executives want their tax departments focused on compliance, not aggressive tax planning. Nearly two-thirds (62 percent) said their top priority is either timely and accurate financial reporting, or timely and accurate tax return preparation and compliance. Another 10 percent listed accurate tax risk assessment and appropriate management as the top priority. Just 12 percent said the overall effective tax rate was their first priority, and only 16 percent ranked actual tax savings or deferrals as their most important priority.

“If you back up and take all these in concert – the Congressional legislation, SEC scrutiny, Treasury focus – you have a clear, coordinated effort to shine light on the last ‘cookie jar’ for earnings manipulation,” said Robason. “The final piece of the puzzle is the Textron case, which the Supreme Court decided not to consider. There’s no judicial standard for privilege, and this has far-reaching implications.”

The upshot of the increasing amount of disclosure is that instead of changing what’s wrong with the Tax Code, it allows the IRS to cherry-pick the fact scenarios that they choose to take to trial, according to Robason.

“Accounting for income taxes is the No. 1 cause for restatements, material weaknesses and significant deficiencies,” he said. “And so we’ve got a number of competing issues around all of this disclosure. Because of this, there’s a tremendous concern about just getting the numbers right and on time and with full disclosure, while at the same time trying to protect the interests of the shareholders.”

Meanwhile, survey findings from Ernst & Young found that the chief concerns of CEOs, COOs, audit committees and boards of directors are regulatory developments, specifically uncertain tax positions (55 percent) and legislative developments (49 percent). More than half of those surveyed (55 percent) reported that their company has not implemented any new procedures to assess tax risk at the audit committee or board level, while 28 percent said they have not yet taken any action in response to the draft Schedule UTP in reporting uncertain tax positions. Another 29 percent are reviewing them, while 26 percent are assessing potential reporting obligations.

“As a result of this emphasis on disclosure, the U.S. is moving toward the Scandinavian system, where accountants aid the government in collecting the appropriate amount of tax rather than serve as advocates of their clients,” said Robason. “In essence they are becoming a de facto arm of the government.”

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