Richard Cornelisse

Indirect Tax Control Framework and data analysis – How to improve the collaboration?

In Audit Defense, Business Strategy, Indirect Tax Strategic Plan, Processes and Controls, Technology, Uncategorized on 29/04/2013 at 1:39 pm

Ferry_LinkedIn KEY-GROUPIn my previous blog I wrote about data analysis not being applied optimally in verifying the effectiveness of the Tax Control Framework (TCF). I offered some suggestions for improvement.

My aim is to further elaborate on that in this blog. To do so, I’ll make use of the concept “Elements of Suitable Information” as used by COSO.

COSOTo determine the effectiveness of control measures, the information required for drawing conclusions regarding the (in)effectiveness of a control needs to be defined in advance. For this to be defined it is necessary to know how a control measure fails or could fail and which information is required for this.

This supports my statement that one cannot use a standard set of data analyses to draw a conclusion.

For information – for instance obtained via data analysis – to be used for drawing a conclusion, this information must be relevant, reliable and timely available in terms of COSO. Only when these 3 conditions are met, it is possible to reach a conclusion regarding the effectiveness of a control.

In my previous blog I wrote about 12 tests that were executed as part of the data analysis, but that had little added value. In terms of the conditions just described, although the information was timely available and reliable, it was not relevant for the objectives defined by the organization.

In order to apply data analysis effectively, a ‘fail condition’ needs to be defined in advance for each control measure in the TCF. By ‘fail condition’ I mean the information on the basis of which one concludes that a control is ineffective.

An example from the field concerns the control measure that the VAT treatment proceeds automatically in the system on the basis of tax codes. In case the VAT percentage actually booked doesn’t match the tax code used, the fail condition arises. This means that either a manual override has been performed or the design of the tax codes in the system is flawed.

This definition of the fail condition determines the objective of the data analysis and which data need to be retrieved from the system. Results of this analysis can then be used to draw a conclusion.

An adequate TCF for VAT hence states the fail conditions explicitly, which then forms the foundation for effective and successful data analyses.

Are you ready for a successful application of data analysis?


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