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Tech CFOs Have Tax, Revenue Recognition Concerns

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Feb 29th 2016
Staff Writer and Editor AccountingWEB
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US technology company CFOs say the high US corporate tax rate hurts their competitiveness in the global marketplace, while on the financial reporting side, many haven’t decided how they will tackle the new accounting rules on revenue recognition.

These are just some of the issues addressed in the recently released 2016 BDO Technology Outlook Survey from accounting firm BDO USA LLP.

When asked what their biggest challenge will be this year, the 100 tech CFOs who participated in the survey were about equally divided between policy and tax changes (26 percent), healthcare reform (25 percent), domestic and global political issues (24 percent), and the lack of a qualified workforce (24 percent).

But let’s zero-in on tax issues. The biggest? The 35 percent US corporate tax rate, one of the highest in the industrialized world, is hindering tech firms’ global competitiveness, according to half of the finance chiefs surveyed. Only 16 percent of tech CFOs expect to increase tax-planning activities this year to reduce their organization’s global effective tax rate, while 80 percent will likely keep activities about the same as last year.

Tax law changes in several countries, including Ireland and the United Kingdom, that target tech companies, as well as the Base Erosion and Profit Shifting recommendations from the Organization for Economic Cooperation and Development and the US presidential election, may affect CFOs’ long-range tax planning, according to BDO USA.

Two other top tax concerns include aggressive state tax laws (19 percent) and taxation of overseas activities (17 percent).

“The presidential election this year will likely put corporate tax issues on center stage, with much hanging in the balance until voters make their decision in November,” David Yasukochi, partner and leader of the BDO Technology & Life Sciences Practice, said in a written statement. “Tech CFOs will also be watching for changes in tax policy at the state and local level, as the states continue to take a patchwork approach to taxing the cloud.”

Let’s switch from taxes to financial reporting, which is the top compliance concern for 57 percent of tech CFOs, followed by general fraud and corruption (19 percent) and export controls (11 percent).

Back in May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board jointly issued guidance that standardizes how companies should recognize revenue in financial statements under both US GAAP and International Financial Reporting Standards. The global standard will go into effect starting in 2018.

According to the BDO USA survey, 64 percent of tech CFOs said they are familiar with the revenue recognition standard, up from 43 percent last year. However, many finance chiefs are indecisive about how they will adopt the guidance, with 31 percent still trying to understand the changes. Nearly half (45 percent) haven’t decided whether they will choose the prospective or full retrospective option, although prospective is the more popular choice among those who have decided (21 percent).

Under the prospective approach, a company would apply the new revenue standard to transactions initiated after the implementation date instead of restating their prior periods’ financial results.

For now, 77 percent believe the standard won’t have any impact on their organization.

Related articles:

FASB, IASB Unveil Final Standard on Revenue Recognition
FASB Agrees to Defer Revenue Rule Effective Date by One Year

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