According to the e-survey of 546 respondents -- including board members, senior management, chief financial officers, tax executives and financial/accounting professionals -- 60 percent of respondents believe that the assessment and management of tax risk has become a greater priority for corporate leadership during the past 12 months.  The top reason cited was enhanced regulatory pressures for greater transparency in tax reporting, followed by the need to identify and monitor material weaknesses and increased examination activities by taxing authorities.
 
Yet, at the same time, the survey revealed that almost 60 percent of respondent companies do not have a formal, documented tax risk management strategy in place.

"It’s heartening to see that enterprise tax risk is rising on the radar screens of U.S. business management, but it’s clear from the survey results that more companies need to devote attention to implement policies to manage their tax risk,” said Hank Gutman, director of the Tax Governance Institute and a principal in KPMG’s Washington National Tax practice.

Where companies are without a formal policy, 31 percent do not believe a tax risk management strategy is a priority, and 29 percent think their tax risk profile is in order. Among companies that have a tax risk management strategy, 41 percent said their chief financial officer ultimately reviews and approves it, followed by 33 percent who cited the board or a committee of the board as responsible. 

The survey also revealed that the responsibility for reporting tax risk issues to the board was a contested topic. Not surprisingly, 75 percent of tax executives believe they should be responsible for communicating tax risks within their organization. However, only 15 percent of chief financial officers and 16 percent of audit committee/board members believe the tax director should have this role. By contrast, 79 percent of chief financial officers believe it is their responsibility and 70 percent of audit committee/board members also believe the chief financial officer has the organizational responsibility. 

"Despite the differing opinions as to who should report tax risk to leadership, it’s evident that tax professionals want a seat at the table,” Gutman said. "Regardless of who ultimately communicates these issues to senior management and the board, what is important is that all concerned parties recognize the significant impact that tax can have throughout a company’s financial statements and proceed accordingly.”

Among other survey highlights:

• Only 41 percent of respondents are "very satisfied” that their organizations’ tax positions are consistent with management’s tolerance for tax risk.
• Enhanced regulatory pressures for greater transparency in tax reporting were also cited as the greatest challenge respondents’ companies face in the next two years (29 percent). 
• Some 53 percent say financial reporting risks are the most significant aspect of tax risk facing organizations. 
• Risk of non-compliance with tax laws was the most common definition of tax risk (73 percent).
• Almost half (46 percent) of respondents said that senior management and the board are briefed quarterly on tax risk management issues. 

Commenting further, Gutman added: "The increasing focus on tax risk has been prompted by the recent implementation of FIN 48, as well as the significant number of material weaknesses reported under Sarbanes-Oxley’s section 404, which has highlighted inadequate internal controls over the reporting of income taxes—a responsibility that falls squarely within the purview of corporate management and the audit committee. Organizations need to recognize and appreciate the scope of tax risk and agree on an approach to its management and oversight. As companies become more aware of their overall enterprise risk management profile, tax issues will inevitably receive greater attention in the C-suite.”

The Tax Governance Institute Tax Risk Survey was conducted electronically from Sept. 5 to Sept. 19, 2007.