Clearly, it is well past time to innovate in the tax & accounting industry, but the question immediately arises: Who is responsible for developing innovative ideas and driving innovation within a tax & accounting firm?

People within many organizations often can feel like innovation is someone else’s job. They hesitate to share ideas, believing they aren’t creative enough or that there must be a good reason why those ideas haven’t been tried. Or they get so bogged down in the details of the work, they can’t see the problem or even view it from a different perspective. And unfortunately, most tax & accounting professionals don’t believe they have the time or skills to innovate.

First, the good news is that innovation is not as complicated as we make it. Innovation is simply a “new idea, method or device”; so, one way to innovate then, is to make something new out of items that already exist. Take, for example, the smartphone. All the pieces of the smartphone had been invented previously, but it took someone, or a group of people, to reimagine how the components could be put together to improve how we communicate, work, and live. This means that anyone can innovate by tapping into their knowledge, experience, perspective, and awareness of a problem or a need that people have.

Specifically, in the tax & accounting profession, firms have several problems and needs to be resolved, including:

• • • getting more work done in a more efficient manner;
    • staying current on regulatory changes;
    • providing services that are relevant and appealing to new generations of clients;
    • building a profession that attracts talent; and
    • establishing a sustainable work/life integration.

No one person within a firm can solve all these challenges, of course. Yet, through collaboration and piloting ideas, answers can, and are, being found.

The role of leaders

It is not the role of leaders to generate all the ideas. In fact, as leaders advance in their careers, they get further away from many of the day-to-day tasks, making it harder for them to innovate around daily process improvements. Nevertheless, leadership strongly impacts innovation within the firm. As leaders share more openly and gather feedback from their team on the vision and direction of the firm, the firm’s talent is more likely to develop ideas that are relevant and timely.

To build a culture of innovation, leaders must first adopt the mindset of innovation, which is often described as a growth mindset. When operating from a growth mindset, leaders recognize failures will happen and accept them as valuable learning moments. If the reaction is punitive, rather than accepting, the professionals and staff within the firm will be more reluctant to vulnerably share ideas or attempt to try something different in the future. Leaders need to recognize successful innovation will include initiatives that won’t succeed; therefore, they should encourage their teams to learn from the misses and refocus on the desired result.

Leaders also enable innovation by clearly defining resources — such as budget, personnel involved, time allotted, and the timeline — when project ideas are approved. When resources are clear, team members have the confidence to experiment, test, and pilot within the boundaries that leaders have set.

Any innovation includes some risk of additional costs. To sustain the trust extended to the team that’s innovating, leaders should establish expectations about how frequently they want status updates on the initiative. There should be agreement about what success looks like and how it will be measured. Achieving the project as it was initially envisioned at first should not be the measure of success, since any good innovation process will be iterative and incorporate feedback along the way. Instead, measure success by how well the initiative solves the problem or fills the identified need.

The role of talent

Talent within the firm has various perspectives on processes, clients’ needs, effectiveness of technology, training, and much more. They should break the routines of SALY (same as last year) and ask themselves how things can be improved going forward.

When talent brings ideas to leadership, they should communicate the benefits of the innovation, not just what it is. Too often we assume the listener understands the benefits of the idea, but that is not always the case. When proposing the idea, talent needs to describe how the firm, clients, and the team will be better off as a result of making the investment in the idea.

In a culture where innovation is especially encouraged, many people may have ideas, so not all of them can be implemented at once. If an idea is not initially accepted as something to investigate, this does not mean the idea is worthless. The person bringing the idea to the table should ask for additional feedback to gain insights into how to adjust it or how to re-propose the idea at a later time. The key is to not get discouraged, but rather to keep watching for opportunities to contribute innovate solutions.

The innovation process should be looked at as a symphony with everyone in the firm playing in concert. This process also takes everyone being receptive to change. To accomplish this, leaders and talent must share with their colleagues the benefits of making a change by communicating how employing the innovation affects their workflow and processes. The key is to not leave them wondering what will be required of them if this innovation comes to fruition, so it may be wise to over-communicate at first.

Innovators also should recognize that innovation is exciting for some and nerve-racking for others, and they may need to adjust their message to address the concerns of a particular audience. Yet when these steps are followed, this process toward innovation can put your firm on the path to finding new solutions to the old problems the entire tax & accounting industry is facing.

We had previously discussed how outside audit and accounting firms can help their corporate clients with ESG activities, now we examine how internal corporate auditing functions have a role to play as well.

Indeed, internal audit functions help both increase transparency because most companies self-define ESG program requirements on what information is disclosed publicly, and help directors perform their oversight duties through the audit committee interaction with the corporate board.

Role of internal audit

A company’s internal audit function can step in to help implement consistent sets of standards and establish an internal independent mechanism by leveraging ESG program governance as part of a company’s overall governance program. This is crucial because currently, the lack of transparency on what information is disclosed publicly increases the importance of this type of internal independent audit function.

The short term challenge for internal audit functions is getting up to speed on the company’s ESG efforts, but fortunately, ramping up knowledge is something with which these teams often have experienced. The first step is to understand the ESG landscape of the industry and sector of the organization. Benchmarking what the company’s competitors are doing, attending industry conferences, staying current on changes to government policy and legislation, and keeping tabs on the varying perspectives among internal and external stakeholders are all critical to effectively assessing and managing ESG risks while balancing those risks with other high-priority auditing requirements.

Similarly, it is equally important for internal audit teams to understand the current state of the company’s internal strategy, maturity, and risk appetite as it relates to ESG topics. Critically, internal auditors must: i) understand the organization’s appetite for ESG risks, ii) grasp how ESG is aligned with and integrated into the company core strategy; iii) identify which company teams own specific ESG processes; and iv) map out the current state of reporting to internal and external stakeholders.

The last two factors are of key importance, because the audit function needs its role to be explicitly valued by leaders of the company who direct, govern, and own a data or delivery function within the company’s ESG program.

Further, integrating ESG assurance into the annual audit plan, especially when the level of ESG knowledge within the team is low, is another key challenge to conquer. To overcome this, audit team leaders should analyze how ESG could be integrated within the existing risk assessment program, then focus on larger issues that will deliver quick wins to maximize the impact and value of assurance.

To assess the level of integration of sustainability within a company’s operations, the following questions — suggested by the Institute of Internal Auditors (IIA) — should be considered:

• • • How do internal audit teams work with external auditors on ESG assurance?
    • To what extent does internal audit provide assurance on structures, systems, and processes for decision-making and reporting?
    • What controls exist that outline how data is collected, analyzed, and reported?
    • What are the policies and processes that measure, monitor, and report on progress towards company commitments?
    • What role does internal audit play to influence a shift in mindset to integrate sustainability into governance and operations?

Internal audit’s role in the “G” of ESG

Perhaps the most important role for internal audit teams in ESG strategy is in governance and teams’ ability to perform its responsibilities around testing internal controls to better assure accuracy in ESG information and information integrity in ESG data disclosure and reporting.

Appropriate governance around ESG will involve the oversight group that creates and directs mechanisms to harmonize ESG into the strategic objectives of the organization. It also includes management’s outlining all of the financial and nonfinancial inputs and investments, as well as an assessment of materiality for adequate operational performance.

Finally, the independence of the audit function from the oversight and delivery functions is the most critical part of its role in governance and ESG assurance. For example, the IIA’s Three Lines Model demonstrates how internal audit teams fit into the varying responsibilities across the governing body. Importantly, the independence from the ESG governing body and the management allows for the audit function to: i) maintain a reliability of internal control over ESG data collection, analysis, and reporting; ii) determine how the various corporate functions involved with ESG data are interacting regularly; and iii) monitor the evolving regulatory framework in order to anticipate ESG disclosure regulations.

When a company’s level of maturity around ESG is in the beginning stages, one of the key challenges for internal audit is getting senior management on board, especially in understanding ESG risks and how internal audit can help alleviate those risks. A company’s internal audit function needs to be seen by partners as a trusted advisor with an obligation to highlight on-going, new, and emerging risks that are not being addressed. In this way, audit functions can have the most effective pathway to influence a positive outcome in a company’s ESG operations.

At its core, cryptocurrencies are square pegs being forced into the existing round holes of traditional finance and accounting. With IRS Notice 2014-21 guiding crypto tax standards thus far and with the Financial Accounting Standards Board and other organizations helping guide crypto accounting, the conversation around crypto thus far has centered around treating it like other traditional assets under standard accounting protocols. While this may work for a new kind of traditional asset, cryptocurrencies are inherently a new asset class with different operational structures.

The potential challenges arising are obvious. How do you fit an entirely novel asset class into tax & accounting rules built for traditional assets? Well, this necessitates some way to translate cryptocurrencies into traditional formats — to fit the square peg of crypto into the round holes that make up modern traditional finance. In other words, financial tools are needed to bridge the gap between crypto and traditional finance.

New tools needed

While there are already such software tools emerging that could greatly aid in the translation of digital assets into more traditional financial accounting frameworks, there are certain components that are critical for this to happen successfully. A few key ways this needs to be accomplished include:

Aggregation — First, the data needs to be gathered and collected. Cryptocurrencies present an immense amount of data, most of it unstandardized and unclassified. In order to even begin working on making everything fit together nicely, we need to mold it into a form we can use in the first place, even if that ends up being a square peg.

Aggregating data, and finding a software provider to do so, is a significant hurdle that many financial institutions and tax & accounting firms need to overcome in order to package crypto up into a nice little square box.

For more on the status of crypto regulation worldwide, check out the full digital version of the Cryptos on the Rise 2022 report from Thomson Reuters Institute and Thomson Reuters Regulatory Intelligence

Normalization —Unstandardized, unclassified, abnormal — these words could describe my sleep patterns around the tax deadline — but they also accurately describe much of the overall trove of crypto data. Normalizing crypto data means standardizing the naming conventions, properly categorizing transactions, as well as establishing standards around tax issues such as a cost-basis, fair value, and more.

There is a plethora of companies that jumped through numerous logistical and categorical hoops simply to help standardize small bits of cryptocurrency. And while this clearly demonstrates that this is a big challenge, both in the size of data and in the size of  transactions, it also shows the great need for robust standardization of cryptocurrency data.

Legibility — Finally, the last step in the process is legibility, or, making crypto data understandable and readable to general ledger tax & accounting systems. This means building the final bit of the bridge, allowing crypto data to flow from buy-side to sell-side to better enable the closing of books with ease.

Everything we’ve just discussed at a birds’ eye view encompasses billions to trillions of dollars of business investment to solve these challenges. The private sector is racing to create solutions for tax & accounting professionals to allow crypto, at the end of the day, to be handled like any other asset.

For crypto natives, this is great news. While many in the crypto sphere want to subvert traditional finance, it’s a lofty goal that likely will only occur through traditional pathways. Ensuring cryptos inevitable adoption means allowing tax professionals and accountants to be able to handle it just like they would other securities and assets, such as bonds and stocks.

So, all it takes to fit the square peg of crypto into the round hole of traditional finance is a little pushing, shoving, shaping, and molding with the aid of software solutions, and like magic crypto tax & accounting could become as easy as ever.

You can learn more about tax solutions surrounding cryptocurrencies here

Or as legendary management consultant Peter Drucker once said: “If you want something new, you have to stop doing something old.”

More than two-thirds (67%) of projects fail in organizations that don’t value project management, according to the Pulse of the Profession 2020 survey from the Project Management Institute. Instead of wasting time and money on incomplete projects, however, firms can leverage project management principles to more effectively implement innovative initiatives. Here are four critical areas of project management that tax & accounting professionals can leverage to drive change in their practice:

The Vision

Some people perceive project management as just another workflow that needs to be defined or another person pestering you about things you need to complete. In actuality, project management adds structure to what can often be a nebulous process. It makes room for creativity, monitors risk, and maintains boundaries around a project’s scope while keeping the team focused on the overall vision.

One best practice that project managers use is to develop a charter at the project’s onset. The charter keeps the team on track and identifies the agreed-upon resources. Its purpose is to document key aspects of the project without overcomplicating the information. These key aspects include:

• • • • vision for the project;
      • scope and key objectives;
      • deadlines and milestones;
      • resources (budget, team members, etc.); and
      • communication protocols.

This vision exercise should not describe the end product but instead, the desired result. An effective innovation process will take twists and turns as you develop the final solution. Several years ago, the co-founder of Netflix, Marc Randolph, told a room full of tax & accounting professionals at the Digital CPA Conference that iterating as you go is essential during innovation. At the time, Randolph was not trying to develop a DVD mail-order business; instead, he wanted to change how people accessed their home entertainment — the result, not the end product. Having a clear goal keeps the team focused on creating an impactful solution.

The Timeline

While tax & accounting professionals are accustomed to deadlines, it’s important to consider what how critical the due date is for an innovation project. Some have a small window of opportunity, and if that window is missed, your organization can go from being ahead of the curve and defining new expectations to playing catch-up and competing with others.

Project management documents the due date and pertinent milestones along the path to completion. The process considers which deadlines can flex, which need to stay firm, and how to manage available resources to keep the project on track. Consideration needs to be given to the availability of each member of the innovation team as well. If everyone involved has the same busy season, look for who can be included to keep various activities going while the core of the team is heads down in client work.

Keep in mind that project management is not a workflow, so steps can be done out of sequence depending on the availability of resources and what can be moved forward.

Testing

Not every idea works, so there needs to be a testing phase or even multiple phases. You should test how well the concept works and the reception the project receives from the target customer or stakeholder. “The project management principle of scoping the vision helps to provide an outline of the parameters of the end result,” says Jessica Hartsfield, a project management professional and founder of Maven Source International. “In essence, it tells you what the customer or group wants, so the internal team gets a sense of what to look for to ensure they are hitting the customer’s objectives. This scope should then turn into a listing of necessary testing results.”

By documenting the scope from the beginning, the team knows for what it should be testing. Is the solution developed achieving the vision defined in the charter? If not, then it’s good that the team has this feedback before investing in an official rollout. If further iteration is required, the team should not feel they failed. In truth, this is part of any innovation process.

Project management principles promote risk management, including giving users the ability to track risk factors and testing. Do not skip this step just to expedite the process.

Deployment

Project management allows users to oversee the entire process, from conception through deployment. Often, because the team nurturing and developing the solution is very close to the details, they may lose sight of what is needed for the rollout. Not everyone in the firm may even remember that this particular initiative has been in the works.

You can counter this perception by investing in how the idea will be introduced to the audience and key stakeholders. Explain what is in it for them with the launch. Once you have buy-in, communicate how the project will be rolled out and when key stakeholders will be able to reap the benefits. Make sure that you are answering questions such as: Will it be launched in stages? Is there training required? Will everyone have immediate access? Additionally, share what will change and what will remain the same once it is launched.

After the launch, collect feedback on the development process and the final project outcome. Project managers will need this information to debrief the team and note enhancements for implementing future innovative initiatives.

As tax & accounting professionals look ahead to the next busy season, begin ideating on how to improve the workflow, offer talent a better work/life balance, and provide higher value services to clients. Then look to the expertise of project managers and how their methods might ensure a greater chance of completion on budget and on time.

The new Technology and Innovation Resource Center, one of six on the Thomson Reuters Institute page, launches today with an insightful look at six strategies that organizations can employ to ensure their implementations of new technology goes smoothly. Another recent article describes the simple starting points law firms can take when creating a highly beneficial metrics program for their IT departments.

The Thomson Reuters Institute is the dedicated thought leadership arm of Thomson Reuters and features blog commentaries, industry-leading data sets, informed analyses, interviews with industry leaders, videos, podcasts, and world-class events that deliver keen insight into the dynamic business landscape around the legal, tax, and corporate markets.

In order to stay ahead, we recognized that today’s professional services firms need to innovate. Whether it’s law firms adopting the latest in legal technologies, tax and accounting firms automating their processes to find more efficiencies for clients, or corporations finding new paths for growth with data insights, the most successful organizations also tend to be the ones that think most critically about their technology and innovation journey. That’s where the Thomson Reuters Institute’s Technology and Innovation Resource Center can offer organizations an advantage.

Innovation isn’t a futuristic term — innovation is now.

“Today, the working world is moving quicker than ever. If you’re not already thinking about how to innovate your own practice, then you may already be behind,” says Zach Warren, manager for enterprise tech & innovation content at the Thomson Reuters Institute. “But that’s where we come in to help.”

The Technology and Innovation Resource Center will provide insights to business leaders and innovative thinkers across the whole of professional services, capturing the future of law, tax, risk & fraud, ESG, government and more. Readers will receive analysis and reports from the Institute’s panel of internal and external thought leaders, all aimed at making organizations more forward-thinking. The center’s content is arranged in three wide buckets — AI & future technologies; Digital transformation & operations; and Data governance. These areas tackle a wide variety of ways organizations can affect change. The Technology and Innovation Resource Center will work hand-in-hand with the Thomson Reuters Institute’s other resource centers in Legal, Tax & Accounting, ESG, and more to provide a full view of today’s best practices.

“The Thomson Reuters Institute is excited to bring tech and innovation analysis across a host of disciplines to our readers and listeners,” Warren adds. “And I can’t wait to unveil everything we have in store. Innovation isn’t a futuristic term — innovation is now, and we’re ready to help you along your own journey.”

Among the most pressing of these problems are:

• • • skill gaps in technology and leadership skills;
    • feelings of under appreciation and lack of career progression as drivers of decisions to leave current employers;
    • time constraints to invest in employee learning and development in the short term;
    • flight risk of the next generation of corporate tax leaders; and
    • a lack of succession planning.

These factors come on top of increased demands faced by corporate tax departments, which include managing increased regulatory requirements, supplying governments with tax data faster and more accurately than ever before, collecting and analyzing data across the enterprise, providing strategic intelligence, and finding new ways to extract value for the corporation.

The direct consequence of all of these additional demands is that the tax & accounting professionals doing the work in corporate tax departments are feeling squeezed — and this compounded by employees already being burnt out after the pandemic. Indeed, more than one-half of the responding tax professionals to this year’s survey said they did not have the resources they need to do their jobs. This could expedite trends already in progress, which include older employees retiring, mid-career professionals leaving their employers more frequently, and younger workers strongly indicating they want a better work/life balance.

All of this is a wake-up call for corporate tax departments and corporations across the board. They clearly need to find creative ways to retain existing staff longer and replenish their workforce with people who have the requisite skillsets to meet the variety of new challenges corporate tax departments are facing. Here again, technology is a major factor, but it will not be enough to solve all the industry’s talent problems and meet current and future needs.

Determinants constraining corporate tax talent

The “emergency button” is flashing red for many corporate tax departments, and leaders of these functions need to take action now to address additional constraints occurring in the near term. Among the most challenging problems they face are:

Flight risk — The threat of employee turnover looms throughout many corporate tax departments, while the power of the tight labor market remains in the hands of employees. This fact is even more acute for corporate tax functions. Flight risk sits at 28% on average across all corporate tax professionals, according to the report. Compounding this fact is that the flight risk of those next in line (between the ages of 41 to 50) to lead corporate tax functions is even higher, at 30%.

Without proactive efforts by corporate tax managers to address the top three drivers of employees’ decisions to leave employers —feelings of under-appreciation, lack of career progression, and dissatisfaction with corporate culture — the problem will only get worse in the future.

Skill gaps in technology and leadership — Some corporate tax departments are making investments in technology to increase efficiency. The challenge is, however, that current employees don’t feel they have the necessary skills to take advantage of such innovation. In fact, 43% of corporate tax professionals indicated that their current tax technology expertise is ill-equipped for success.

Time constraints to invest in learning and development — In addition, these same time and resource challenges for employees prevent them from having the necessary time available to invest in learning and development to close those skill gaps. Without exception and by a wide margin, “lack of time” was identified as the biggest obstacle to meaningful professional development, especially for under-resourced tax departments, where almost three-quarters (72%) of respondents said time constraints prevented them from improving their professional skills. Even more illuminating is that when companies had a better sourcing balance, more than half (55%) of respondents still said that finding the time for professional improvement was their primary challenge.

Investment in efforts to upskill requires a commitment of time and resources by management; and without that, the current state will only get worse unless corporate tax managers can proactively finding in ways to free up time beyond simply investing in technology for efficiency.

Lack of succession planning — Many tax departments are reluctant to develop a succession plan because would-be successors on staff don’t have the proper skillset. However, those who are next in line to lead corporate tax departments don’t have the time to develop the necessary skills — including leadership skills, technical expertise in global tax, and ability to communicate with senior executives — on their own. Interestingly, younger respondents — those under 40 years old — expressed interest in improving their leadership and people management skills.

Compounding the stark reality, however, is that the probable flight risk at companies without a succession plan is roughly 11-percentage points higher than at companies with a succession plan in place.

The constraints on corporate tax talent are currently large, but the challenges will only grow over time if efforts by management and at the corporate level are not made to fend off flight risk. The lack of time to meet current and future functional tasks, the lack of bandwidth to address skill gaps, and the already high flight risk poses a negative multiplier effect on talent within corporate tax departments. Without immediate attention, these leaders will soon fail at performing even their most foundational requirements.

While on the surface these macro-events in the cryptocurrency space may seem like the signal that cryptocurrencies are failing, crypto winters are fairly standard in digital currency markets. The last winter occurred in 2018 and lasted about 18 months.

What does come about during crypto winters in many cases is the actualization of losses and the re-alignment of trading and market sentiment. Traders who are actualizing losses can present significant tax work opportunities while the re-alignment of market sentiment opens the door to potential tax advisory.

When it comes to cryptocurrencies — which the IRS treats as property, rather than currency — standard capital gains and losses are incurred. As traders come off of the massive gains in 2020 and 2021 from the market boom, many haven’t reserved enough funds to properly pay taxes on this relatively new asset class. This means that for many traders, they’re faced with a now heavily depressed asset value in today’s crypto winter, significant capital gains from previous trades, and no easy or clear way out of paying the tax bill.

Of course, these aren’t problems unfamiliar to tax and accounting professionals — indeed, these problems that can be solved, or better yet, prevented, with a proper focus and understanding on managing tax exposure in cryptocurrency markets.

Understanding the crypto mojo

Backing up for a moment, however, it’s important to understand the stature that crypto has in modern financial markets. While crypto was once the ugly stepchild of finance and seen as a hobbyist’s pipe dream by many, it’s now firmly planted in institutional and enterprise adoption. While many coins in the space will likely fail, the core assets and underlying blockchain technological infrastructure are here to stay.

There’s a common phrase in crypto, “Bear markets are for building.” While this typically is used as an applique to companies in the crypto space, it applies to tax, legal, and accounting professionals too. As euphoria settles down in crypto, this period of cooling off is the best time to establish advisory practices around cryptocurrency in order to prepare for future market growth. Underscoring the mass adoption in the upper echelons of finance for the crypto-space and the forthcoming potential growth in client base, massive opportunities still exist for firms and professionals looking to set themselves up as experts in cryptocurrency tax and advisory.

While planning and setting oneself up for success is a decent part of this discussion, there’s another aspect as well. As the massive number of traders begin to experience this crypto winter, as mentioned before, they’re finding themselves in one of two scenarios:

1. 1. 1. Large capital gains on the book, with no simple means to pay them — With crypto-assets still up at the beginning of 2022, many traders sold at highs to lock in their gains. These same traders now expected to be able to sell the rest of their assets, which have now dropped significantly, to cover their tax bills.
      2. Large transaction volumes from active trading in the volatility — High transaction volumes present the need for an automated solution, rather than manual tabulation. Traders left with large losses have the need for assistance on how to apply those losses to minimize their tax burden; or, they are presented with significant actualized gains with the need for assistance on how to minimize and properly pay those taxes.

Every tax situation is different, of course, but these two overarching scenarios represent large market capitalization opportunities for tax and legal professionals looking to expand their practice. They also represent a significant amount of work come the next tax season, whether for the individual trader or for the tax professionals they seek out.

This crypto winter represents a significant opportunity for tax professionals to build up a practice in the crypto tax advisory or planning space. The next step after identifying the opportunity is equipping your practice with the tools necessary to handle these new assets. Luckily, professional-focused tools do exist to help position firms to increase engagements and add new crypto tax planning and advisory service opportunities with clients.

As the current crypto winter of 2022 persists for what is, at the time being, an indiscriminate length of time, there is no better chance than this to start preparing for the next crypto boom. Understanding, planning, and equipping your practice with all of the tools and knowledge necessary to handle the influx of crypto-clients should be on every tax practice’s road map.

You would think that these new revenue-generating sources would create opportunities for Client Accounting Services (CAS) professionals within tax & accounting firms to provide more value-added consulting services to these retail clients.

Unfortunately, this isn’t the case.

Only 34% of junior-level accounting professionals feel “highly confident” in their ability to provide strategic business advice, according to a recent Thomson Reuters survey. Indeed, one of the major contributing factors to this “confidence deficit” is that these professionals spend so much time completing routine bookkeeping tasks that they have little bandwidth left over to devote to more strategic pursuits, the report noted.

Yet, why are these activities consuming so much of these professionals’ time? Some new research by Bookkeep and Paradoxes may offer answers — and potential solutions. A 2022 study sought to gain a deeper understanding of how e-commerce platforms are dramatically increasing the volume of manual data-entry activities CAS teams perform for their clients, and how these activities are affecting accounting firms’ bottom line. The findings indicate that accounting professionals will continue to be challenged if they stick to status quo manual processing rather than implementing new technologies.

The consequences of widespread e-commerce adoption

E-commerce now accounts for, on average, 19% of total sales among retailers and restaurants.

The pandemic accelerated the adoption of e-commerce, as brick & mortar stores and eateries began partnering with sales platforms like Shopify and Amazon, home-delivery services like Grubhub, Doordash, and Uber Eats to offer home-bound customers a way of accessing retail and restaurant services. This development also allowed a wide-range of online payment vendors to stay afloat when in-store sales plummeted.

As the use of e-commerce systems has increased, tax & accounting firms have had to rapidly scale up the scope of their revenue-recognition capabilities. According to the new study, accounting firms serving retail businesses now provide bookkeeping services for, on average, 1,592 clients, while managing 14,323 e-commerce transactions and 700 to 800 journal entries each month.

While partners in accounting firms welcome this business, the work itself is often a logistical nightmare for the CAS teams that handle these bookkeeping activities. Why? Because many retailers use several different e-commerce service providers, forcing CAS teams to log on to several different systems in order to gather activity reports for each revenue source.

And because most e-commerce providers use their own proprietary and often error-prone data reporting conventions, many CAS teams have to spend an inordinate amount of time manually reconciling and entering this information into standard journal-entry formats before it can be entered into firms’ own accounting systems.

How much time do these activities take up? A lot. The research shows each CAS team member spends on average, 38 hours a month performing these tasks — roughly one-quarter of their monthly work time. Not surprisingly, the costs to accounting firms for this work is not insignificant, and they spend on average, $8,900 per month on these manual data-entry chores.

Further, the labor-intensive nature of these activities has led to attrition among many CAS team members, which has created a significant challenge for accounting firms that can’t easily find replacements.

For these and other reasons, many tax & accounting firms no longer do this work in-house. The study found that nearly one-half of accounting firms surveyed outsource these bookkeeping activities, costing them on average, $21,700 per month.

The solution? Automation

Tax & accounting firms shouldn’t count on e-commerce service providers to solve these problems for them. Providers are mostly focused on landing new customers, rather than making life easier for their customers’ accountants.

So, accounting firms have to find a solution for themselves, and one way many are doing so is by embracing data automation.

Seven out of 10 accounting firms already use cloud-based accounting and bookkeeping platforms; and while these platforms can make life a lot easier for CAS teams, their usefulness as general ledger and analysis tools is completely dependent on the accuracy and reliability of the data being fed into them.

That’s why, for now, the best solution for reducing this manual overload is for accounting firms to start using automated e-commerce data workflow solutions instead. These applications can automatically download daily, weekly, or monthly activity reports from a variety of e-commerce platforms, allowing for much easier completion of tasks such as reconciling sales, determining fees and service charges, and converting them into standard journal entries that can be imported into accounting and bookkeeping platforms.

Companies that use Bookkeep’s technology, for instance, can save their CAS professionals up to 20 hours per month, per client, resulting in substantial cost savings by eliminating lost staff time and outsourcing expenses.

Tax & accounting firms considering these solutions might want to start by conducting their own cost-benefit analysis. Have your CAS team keep track of all processes that require them to manually enter e-commerce data into your accounting system and the time they spend on these activities. This analysis should help you determine whether these manual bottlenecks are significant enough to justify investing in one or more automation tools.

Once you decide that automation is the way to go, choose a limited set of applications that will work with all of the e-commerce service providers your clients use. Make sure these tools can be fully integrated with the cloud-based accounting system you’re using now, and can be upgraded as e-commerce and accounting technologies evolve.

Perhaps at some point, we can hope that leaders in the e-commerce and accounting industries will come up with a set of universal standards for sales data reporting. They could model their efforts on the collaboration between the American Institute of Certified Public Accountants (AICPA) and key high-tech stakeholders in the 1990s that led to the development of XBRL, a standardized, open-source Internet language now used by financial institutions to produce and publish financial information.

In the meantime, tax & accounting firms might want to consider whether data automation applications will allow them to overcome the challenges that increasing levels of e-commerce activity presents, such as growing manual bookkeeping work and more potential errors. Indeed, they should look at increasing their automated process as ways of increasing tangible benefits, like lower employee attrition rates, reduced outsourcing costs, and greater bandwidth to take on more clients.

Most importantly, however, more automation offers more opportunities for CAS team members to grow professionally by giving them the time and confidence they need to serve as their clients’ strategic partners.

To tap into the collective ingenuity and creativity of its hundreds of attorneys, tax advisors, and staff in its offices across Europe, North America, and Asia, Julien Cayet, the firm’s director of technology and innovation, helped the firm launch an internal Innovation Challenge to stimulate innovation engagement firmwide.

The Innovation Challenge was intentionally set up to encourage cross-function and cross-border collaboration, requiring each team to have at least six people from at least two practice groups and two jurisdictions.

“We wanted to encourage our colleagues to rise above their natural silos and bubbles,” says Cayet. “It made people open up and think creatively, not just about how to form their teams, but also how to sell their idea to colleagues, identify specific expertise within the firm, and find ways to work effectively together.

“It also made it fresh and exciting by working with colleagues that they don’t normally bump into. ‘We need someone in a specific practice in Belgium? Fine, we’ll call someone in Brussels.’ It created these wonderful mixed teams that also reflected the tremendous diversity of the firm.”

Hitting the road & getting the challenge off the ground

Cayet says the firm didn’t want the challenge to be seen as just another memo or directive from management. So he applied a bit of innovation himself to get people involved.

“How do we get them excited about this?” he asks. “I knew that we had to elevate our communication efforts to enthuse our colleagues to apply. With our colleagues having busy schedules and innovation not being top of mind yet, this wouldn’t be the first item that they would naturally gravitate towards.”

So, on top of drawing upon existing corporate communication channels, Cayet virtually criss-crossed the firm’s far-flung global offices with a roadshow in a bid to stir up excitement. He joined dozens of practice group and staff meetings. And buy-in from partners who introduced Cayet and the Innovation Challenge in each meeting helped establish that the firm was serious about wanting people to get involved.

Still, Cayet and firm management were unsure how many employees would actually convert their interest into participation. Cayet says he would have been pleased if a dozen entries had resulted. Yet, in the end, 42 entries were submitted, representing almost 200 attorneys, tax advisors, and staff members who were willing to devote the time and effort needed to form teams, brainstorm ideas, and develop proposals to present to the panel of judges.

One challenge, two products

After carefully evaluating the entries, the judges selected an idea for a client contract management tool that would extend the firm’s involvement in client contracts through their implementation and beyond. The tool captures and tracks the main data points of a transaction, such as a corporate or real estate deal, helping to ensure that deadlines are met, and commitments honored.

As a result, the client sees successful long-term results from the contract, and the firm stays engaged beyond simply negotiating and reviewing the contract. “It’s typically an area where a transactional practice may not be tapping into all aspects of the contract lifecycle,” Cayet notes. “This tool helps our colleagues to do exactly that. It provides better, value-added services to our clients for the long-run.”

A working prototype of the client contract management tool has been developed, and implementation is now underway, less than a year after the challenge.

In addition to the client contract management tool, the firm invited about 500 colleagues to select a second winning entry, which they termed the Public Award. They chose a data visualization tool that could provide a 360-degree graphical view of a client, giving all the teams working with a specific client the same view in regard to the client’s documents, compliance status, and more.

Besides giving the firm a second innovation product to develop and implement, the Public Award initiative also helped extend participation in the Innovation Challenge throughout the firm. “It provided an important sense of ownership and participation,” says Cayet. “That we value our people, their ideas, and their input. Everyone can contribute to making the firm better and more effective, and we each can play a role in supporting every one of our colleagues.”

Expanding the challenge

Following the success of the first Innovation Challenge last year, Cayet and firm management immediately began planning how to continue the initiative. Even after the selection of the two winning ideas, they realized that they were still impressed with many of the 40 other entries.

This year’s Innovation Challenge will be akin to a hackathon format, where the teams will build rapid prototype solutions to solve real business challenges, some of which are based on ideas from last year. Cayet hopes to channel the enthusiasm and competitive energy demonstrated in the first phase of the challenge to develop other products that the firm can quickly put to use across its offices, and to capitalize on the feeling of ownership of both the projects and the firm at-large that the team members have embraced.

In one format or another, the Innovation Challenge is likely to become an annual staple for the firm, Cayet adds.

More than just the ideas

The Innovation Challenge brought tremendous benefits to the firm and its culture even beyond the specific ideas that are identified, cultivated, and ultimately implemented. “I’ve always viewed a large part of my job as achieving cultural activation,” says Cayet. “It isn’t just about the innovations themselves, but really about making innovation part of our everyday discussions. Whether it’s a practice group meeting or a decision about the firm as a business, innovation should be something that’s naturally a part of any discussion.”

Cayet notes that while lawyers are often viewed as being innovation-shy or even sometimes technology-averse, he strongly feels that the challenge didn’t necessarily spur innovation, so much as it tapped into the potential that had been there all along. Many in the profession, he thinks, may be underestimating the drive for innovation that’s taking hold at many firms, particularly among the younger generation of lawyers.

“We’re not there yet, but hopefully the Innovation Challenge is an important first step in making innovation a natural part of our firm culture,” he adds.

Moving to automation didn’t just come about during the pandemic, however; according to the Brookings Institute, automation has assisted the way we work for more than the past 30 years, with businesses adding more automation after each recession in anticipation of staff attrition. It’s now hard to remember that the computer and internet has automated what tax professionals used to do with only a calculator.

Now, as businesses and their workers must again get used to the new way in which work is performed, businesses are faced with renewed focus on process and automation in order to build upon what has been started and respond to the Great Reshuffle. In addition, the increased need for the correct governance to comply with the continually changing national and international tax regulations. For example, the updates to the trade and transfer tax rules under the Organisation for Economic Co-operation and Development (OECD) and the Superfund Excise Tax alone are a strong motivation for increased technology and automation.

Corporate tax departments, like most enterprises, have “a pretty good idea” of their business processes and desired outcomes. However, having an idea isn’t enough. Business processes must be thoroughly thought out with the idea of how it should be customized to the department. A business process or workflow must include at a minimum the following steps:

• • • events and activities that occur within a workflow;
    • the owner or initiator of those events and activities;
    • decision points and the different paths workflows can take based on their outcomes;
    • devices involved in the process;
    • timelines of the overall process and each step in the process; and
    • success and failure rates of the process.

The tax department team can create the business process model before working with IT on the creation of the business process itself, allowing for clarity and the ability to fine-tune what technologies and systems should be employed for automation. Having the business process as the roadmap to automation doesn’t mean perfect is the immediate outcome. To be thoughtful and thorough requires fine-tuning to get to where the team needs to be, and so below are some considerations department leaders need to think about when automating their tax department successfully.

1. Start with the basics, the beginning of what the tax function’s operational role is within the organization — According to a KPMG’s Global Tax Benchmarking report, most tax departments are responsible for such task as: i) tax returns and compliance; ii) business unit support and consulting; iii) transaction taxes; iv) accounting for income taxes; and v) transfer pricing. In addition, the report highlights that “the most effective, highly valued tax departments are those that manage tax risk and compliance while identifying opportunities for adding value through core tax management skills.” This may seem obvious, but clarifying and reclarifying the role of the tax team in how it supports the overall organization is the foundation of what the department should do. Focusing on this will help determine what areas can and should be automated; and this is especially true as leaders consider what tasks needs to be automated so that resources can be freed up for other opportunities.

2. After identifying areas where automation is needed, clearly state the expected outcomes from the implementation of automation — Again, it is a seemingly simple step that is often overlooked, yet ignoring it could lead to failure to adapt to the new process or early abandonment of a new innovation because people believe it isn’t working. Many organizations begin their automation journey by setting a broad mission to drive productivity across the business, hoping it will lead to cost savings or some other miracle savings, such as in time or other resources. It is necessary, not critical, that those involved in the automation decisions state their expectation of what the automation will solve and then establish a timeline for that outcome.

3. Who will do what? Understanding the current skillset and bandwidth of your team — Another common mistake is believing everyone on the team needs to be trained on the new technology. Unless it truly impacts or changes the job of everyone on the team, don’t do it. It is wasteful to train someone on something they may never or rarely use. Return the team’s focus to aligning with the targeted outcome, and those that will work on the technology will be trained. And remember, it may not be a bad idea to ask workers if they are interested in this training or whether they would want to work on some other job function that may not require the training — this too may help minimize adoption failure.

4. Now you have not only pinpointed the technology and the accompanying talent, but created a roadmap — The automation roadmap is key to identifying specific parameters and benchmarks for the process. This roadmap should include tight timelines such as three to six months from its start over a period of time. Because technology changes so rapidly, using this approach helps measure whether the tools you have are still working. Of course, this doesn’t mean technologies may need to be replaced, it could be as simple as making sure your team is working on the last version of the software or technologies you own. The roadmap can also provide opportunities to review the skills and talents of those working on the technology and determine whether they are still the right fit or if additional training or even new hires may be needed.

Eventually, tax teams will work with tax technologists or the company’s IT team, but tax department leaders will need to drive the initiation or expansion of automation in the tax department. As a business leader and advisor to the business, tax team leaders need to ensure that the processes and automation undertaken can make the tax team better at managing risk and delivering value to the business.