THE CHALLENGE
Under cost-plus accounting, the company had established a practice of charging its Japan office for certain work that had taken place in the US. Because costs used to determine revenue figures were not reported appropriately, this resulted in an understatement of costs, driving down reported earnings and reducing the tax liability. This violated Japanese law, and urgently needed to be addressed to avoid a costly audit. Other challenges related to this critical issue included:
- Ensuring legal compliance in Japan through establishment of new procedures.
- Thorough documentation of those new accounting procedures.
- Mitigation of any reputational risk.
- Retroactive review and re-filing of past tax returns.
OUR APPROACH
The Ascendant team was charged with assisting the client in reviewing its status quo and enacting measures to address its key challenges. With the former Accounting Manager out of the picture, and no one available at the client who had sufficient knowledge of its accounting practices in Japan, the team, working under a very tight deadline, had to collaborate with other client groups, as well as its external legal and tax advisors, to understand the issues and craft a solution.
- Deliverable: Procedural Localization and Compliance
Through interviews with client employees in Japan, and close collaboration with its headquarters, Ascendant identified the areas in which the client’s global accounting practices diverged from the requirements of Japanese law, and, together with its legal and tax advisors, developed procedures specific to its Japan office which would bring them into compliance. - Value:
Ascendant's ability to work with stakeholders across a variety of fields (accounting, tax, banking, and legal), and its familiarity with Japanese accounting practices, enabled us to develop and document new procedures that would meet the requirements of Japanese law, while still adhering to the global standards of the client.
- Deliverable: Implementation and Documentation
The new procedures developed for Japan were quickly implemented, and the Ascendant team then worked to ensure that complete documentation of the new policies was developed and a system put in place for maintaining that documentation. - Value:
Successful collaboration with internal and external teams continued to play an important role, enabling the client to shorten the time needed to bring its practices into compliance, and significantly minimizing any risk to its reputation as a global brand.
- Deliverable: Re-filing of Tax Reports
Once the new procedures had been implemented, the client needed to review and conduct a retroactive re-filing of its taxes in Japan for the previous four years. Ascendant supervised this review, and played a critical role in collecting data and coordinating the filing efforts.Today, the client has the systems in place to ensure that all future filings are compliant with Japanese law. - Value:
The Ascendant team delivered the country-specific expertise needed to advise the company on its corporate tax returns, and the knowledge required to quickly create and submit revised filings, effectively eliminating a significant business risk.
