It may be as commonplace in Australian businesses as the office Christmas party, but Microsoft Excel should not be confused with an enterprise-level tax solution, according to Jessica Farthing, Director (Indirect Tax), Grant Thornton Australia.
There’s no denying the popularity of the familiar, if cumbersome, software tool here and overseas. A recent Deloitte survey revealed that 73% of UK companies used Excel widely on the preparation of taxation documents.
A government study that same year also reported that 72% large- and medium-sized companies used spreadsheets for budgeting and forecasting. And almost four in five companies used Excel to support a key financial decision.
According to Farthing, it’s a perplexing statistic considering the overt limitations of a product that was launched in 1985.
“Excel spreadsheets aren’t designed to be used by multiple people at once and you often find that people save their own versions down and revisions can get lost,” she says.
“This results in inefficiencies and delays in reporting, lack of audit trail or transparent process, and ultimately, increased cost of compliance.
“Any manual process has the potential for human error — and the more manual intervention there is — such as compiling Excel information — can lead to more significant errors.
“The bottom line impact can be regular errors in tax liability, increased voluntary disclosures and penalties or delays in input tax credit recovery. In some cases when an error has been found, there could be unexpected debt that needs to be paid, or you potentially miss out on tax credits.”
She said the key is to combine internal spreadsheet use with up-to-date software that will help reduce mistakes and speed up the process of entering data to enable more effective decision-making.
“Obviously, tax software technology can be a significant outlay,” Farthing says, “however, the more manual the process, the more time tax teams spend on compliance which is often coupled with an increase reliance and spend on advisors and consultants to manage ATO queries, audits and activities.
“Companies that have invested in technology would require minimal input from Excel, and can automate the capturing and processing of information from all sorts of data points to generate an accurate and responsive snapshot of their business and tax obligations. They also have the added benefit of additional transparency and controls by limiting human intervention.”
Excel has long been popular, and will probably continue to be used in some capacity, due to its easy-to-use functionality. It has an array of familiar utilities that work well in both individual and uniform needs, however, it was not designed to deal with the complexities of business and the Australian taxation system, that has emulated today.
Businesses need to think carefully about what software is appropriate for their business, customers, clients, ordering for goods and services, as well as tax compliance.
“It’s highly recommended for businesses to involve tax, finance, IT, and the C-Suite in the development of a business case for tax software as well as undertake a structured vendor selection process and score each vendor in areas important to the business,” Farthing says.
“Businesses need to identify the pressure points that currently exist with Excel — and that could simply be a matter of transparency, or there could also be calculation errors. If a software solution helps to ease those pressures then there is a good business case to invest.”
Farthing says many challenges are with software implementation and this can be eased by have a systematic plan with timelines firmly in place.
“Whether it is process design, implementation, acceptance testing, and post-implementation support, you need to ensure all roles and responsibilities with each stakeholder is clear,” Farthing says.
“In the long term you might want to pull Excel from the software for reporting, but you won’t have to compile various Excel sheets for tax planning purposes in the future. You’ll have one single source of truth that everyone can access.”
Of course, convincing diehard users of Excel to part with not only their day-to-day business companion is not only about updating your software, it is also about changing the mindset of employees within your organisation.
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