By LYNETTE KHOO

WHILE companies are increasingly aware of the need to improve their tax function as part of their risk management, managing tax risk is still found wanting, especially among smaller companies, according to a global survey by Ernst & Young.

In the study, which interviewed 541 senior tax decision makers from 18 countries, more than 90 per cent of the respondents say that tax risk management will be an important area for them over the next two years. Still, those that implement good tax practices appear to be the minority.

Some 44 per cent of the respondents have documented processes for managing their tax risk and of these, a large proportion were primarily focused on managing financial reporting risk only.

About 35 per cent of the respondents have a documented procedure for managing tax risk that extends beyond statutory requirements, and some 37 per cent have a formal process in place to have internal audit to test tax processes and controls to meet specific regulatory requirements.

'The global financial crisis and ever-changing regulatory environment have put pressure on companies to increase their focus on tax risk management,' says Russell Aubrey, tax partner at Ernst & Young Solutions LLP.

'Progress has been made over the last two years, but there is still a long way to go for many companies,' he adds.

In the survey, about 33 per cent of the respondents say they provide some level of mandatory training on tax accounting and financial reporting and some 43 per cent are either considering or already have a broad risk assessment programme for tax.

Large multinational companies (MNCs), with revenues above US$25 billion, are leading the way in tax risk management. They are much more likely to have process improvement measures in place, with 65 per cent doing so versus 49 per cent overall in the survey.

A larger 65 per cent of the MNCs surveyed also have tax risk management documentation exceeding regulatory requirements, compared with 35 per cent overall.

They are also more likely to have, among other things, a broad risk assessment programme in place, and have a tax controller position within the tax function, the survey says.

This article was first published in The Business Times on December 17, 2008.