John Basseer is Tax Partner for Ernst & Young LLP in the San Jose, CA office. He has more than fifteen years of national public accounting firm experience with extensive technical expertise in tax including GAAP, SEC reporting and FAS 109 reporting. As Tax Partner for Ernst & Young LLP, John Basseer is Tax Accounting and Risk Advisory Services FAS 109 Leader for the Pacific Northwest region. John Basseer has been with Ernst & Young LLP since 1993 and prior to being Tax Partner, he was Senior Manager and Tax Accounting and Risk Advisory Services Leader for the Mid-Atlantic Area for the firm. Prior to

his role as Senior Manager, John was Service Coordinator and was responsible for coordinating tax related client services for over twenty-five companies, which included Fortune 500 multi-national companies. His technical expertise was exercised in multiple industries including technology, oil & gas, financial services, real estate and aerospace & defense. Prior to his role as Service Coordinator, he performed tax consulting in Washington D.C. where his responsibilities included development and course instructor for internal and external FAS 109 training courses ranging from basic through advanced levels.
John has been a contributing editor and author for numerous publications including the Bank Income Tax Manual, U.S. Accounting Aspects of Multinational Companies and Ernst & Young’s FAS 109 Financial Reporting Developments. He has spoken and presented at the Tax Executives Institute Annual Conferences for the past several years discussing tax topics, which include FAS 109 and SOX 404.
John Basseer earned his Bachelor of Science degree in Accounting from George Mason University in Fairfax, VA. He is a Certified Public Accountant in the states of Virginia, Maryland and California and is also a member of the American Institute of Certified Public Accountants.


KJ- I understand that you had excellent exposure to a National Tax Services Office early on in your career that was related to FAS 109. Tell me about your early career experiences in this area of tax.

JB- During this time in my career, I had the opportunity to help and support the FAS 109 group in the National Tax Services Office in Washington DC even though I was on the payroll in the practice office. At the time, there was no Big Four firm focused on this core competence area. The theory was where would a company obtain this information as there were no resources available. How were people going to have access to resources and training in FAS 109?
What the firm did was develop the internal and external training for basic, intermediate and advanced FAS 109 presentations and seminars. We then developed what we called “boot camp training” to jump start the technical training for hundreds of our own people in FAS 109. We built the knowledge base for our people because you could not go out and buy this experience at the time (and still is difficult to find)! We have since built the Tax Accounting Risk Advisory Services (TARAS) group at Ernst and Young.


KJ- What changes have you seen in tax over the years?

JB-. The first big change was SOX compliance in FAS109 reporting and people obviously did not understand how to implement SOX and the level of effort in general and around the tax function. The SOX implementation created more material weaknesses so there was a lot of remediation required. Tax is still the “number one” material weakness leading to a restatement among companies and the pace at which it is creating more weaknesses is bigger than the year before, so tax continues to be a leading cause of material weaknesses. Once we realized this, our firm developed the Tax Accounting Risk Advisory Services (TARAS) group in 2005 and the first major wave of our TARAS group was remediation services. There were clients who were not required to remediate because they did not have a problem (or were doing it “right"). We helped companies in their documentation, risk and control procedures and basically got them SOX ready.

Starting January 1, 2006 there was the next big wave with the adoption of FAS123R; this was part of the convergence project between GAAP and International Financial Reporting Standards(IFRS). IFRS requires that you expense stock options. In the United States, this was rarely the case and was completely new for everyone. Our TARAS practice advised on adoption methodologies and computed your APIC (Additional Paid in Capital) pools and then updated the various processes and controls around 123R because you have a new set of rules and tax accounting around. The 123R was a huge undertaking for many companies because of all of the stock option activity and lack of appropriate technology to capture and extract relevant data!

Starting January 1, 2007 the next big wave was FIN 48 which is essentially accounting for your uncertain tax positions. An uncertain tax position is a position in a tax return that could be challenged; it is basically what we use to call tax reserves or a tax “cushion”. Nobody calls it a tax cushion anymore as they now call it an uncertain tax position. There was and is a significant amount of documentation surrounding this adoption and it requires that you also look forward at all of your tax positions, tax exams, and statute expirations. You must also understand what kind of tax SOX process and controls are needed to adopt and maintain this new standard.Last December 2007 the US GAAP/IFRS Convergence Project continued with the accounting for Business Combinations. This convergence is about creating harmony in the purchase accounting rules with the issuance of FAS 141R which will impact most companies in 2009. Now there are a whole new set of rules with tax accounting and mergers and acquisitions accounting.There are future changes to be established in converging FAS109 and its equivalent, International Accounting Standards 12 (IAS12). When you think of the top multinational companies in the US right now, they are beginning to get focused on IFRS. IFRS adoption and readiness is the newest and the most cutting- edge issue companies are facing today. Basically the move to IFRS is telling you that in the global marketplace you are in today you need one consistent standard to benchmark company results. IFRS has the goal of creating consistency and harmony in reporting so investors and creditors and all users of financial's in the world can see a constant approach with respect to accounting, balance sheet, income statement, etc. Although IFRS will not go into effect for at least a couple of years, some guess possibly in 2010 or so, the Securities and Exchange Commission (SEC) has said that it is not a matter of if it will go into effect, but it is a matter of when it will go into effect. It is a certainty that it will happen!


KJ- What does this all mean for companies?

JB- It is a huge undertaking because you are looking at every single account on your balance sheet and income statement and you know that cash will be the same on both standards (GAAP and IFRS) because it’s what you have in your bank. However, accounts receivables, inventory, PPE, depreciation lives and inventory methods are completely different. For instance, revenue recognition and deferred revenue, pre-paid expenses, accrued expenses, lease accounting, anything you can imagine on your accounting sheet has some difference between GAAP and IFRS. Stock options are another big difference so this is going to be a huge endeavor! It is going to be very difficult to implement a whole new system with the adoption of IFRS and tax is not driving it, it is the books driving it! It involves changing all of the accounts from a GAAP basis to an IFRS basis. You can also appreciate that your tax provision is based upon book tax differences; the tax laws did not change the books but the books changed! You have this huge undertaking that’s going to happen over the next three to five years to get companies up to speed with the changes. Right now companies realize that they need someone who understands these new rules and regulations. We are in the process of consulting with our clients how to understand and assess these changes.


KJ- This sounds like a Herculean task for everyone involved. How is this being handled right now?

JB- What we have done is develop a diagnostic tool which involves going out to companies and evaluating their readiness for the IFRS changes, as well as evaluate how much of an undertaking this will be for the organization. We have the ability to go out to a company and report what effort will be required to adopt and start working up a plan for the implementation of IFRS, so when it is adopted they will be ready and in compliance. Currently, if you look at a company’s financial statement you will see that they report three years worth of data (the current year and the last two). However, whenever they go to the IFRS they will want to be ready to show three years reports, so companies addressing this issue now will be up to speed and not scrambling at the last minute.There are many countries that currently require IFRS so they may have parts of the conversion already implemented. As my Canadian partners have told me, Canada will require that you do two set of books, so you actually have to report Canadian GAAP and an IFRS set of financials. Although we do not know when the US will definitively require this, if you are a smart company why would you wait to figure it out! It will be much more advantageous to a company to figure out why and how to change your accounting procedures now to make the transition much smoother and much more cost effective for your company in the long run. What we are doing right now is having discussions with companies and making IFRS presentations, seminars and Audit Committee roundtables. We recognize that there are companies that like to be ahead of the market and ahead of the competition and we are in discussions with these companies on tax focused process improvements.


KJ- What does the term Tax Focused Process Improvement (TFPI) mean?

JB-What this basically does is reengineer tax departments. Let’s say for example you have a material weakness that you are trying to remediate and you want to correct the process; you also have to look forward to the IFRS changes so you will want help in improving your processes. The goal of our TARAS TFPI group is to get the reengineering of the process going so you can fix it and be in compliance with new rules and regulations and future ones. The goal is to get the tax department humming along and working well with a proper close cycle and the ability to roll up all of your foreign entities and streamline the information requests and number crunching. We designed the process to work well for a company today and then to work well when they are ready to go to onto IFRS. You do not take a baby who barely walks and put them in a marathon; you get the person or company ready and trained for the marathon! If you do not get the company properly ready you are waiting for difficulties to happen!We typically first conduct a Tax Risk Assessment to understand the relative risk areas, we then measure and evaluate the departments gaps and determine what next steps are needed to implement. It is not just about tax reserves, it is about an overall tax risk assessment which leads to a Tax Focused Process Improvement; once you are ready with this you can move forward successfully to IFRS.


KJ- How long does it take to do a tax risk assessment for a company?

JB-Depending on the company, the tax risk assessment could be accomplished within a matter of weeks. We look at everything going on and ask the company about their inherent risks and any perceived risks. We want to synchronize the systems with people and processes and find out the most practical and efficient way to do things and what are the leading practices, etc. The tax provision which goes into the financial statement is just an estimate; if you think about it the tax return is also a more refined estimate until it is audited and the authorities sign off on it! If you have estimated tax payments four times a year; and then you have an extension; and then you have a tax provision four times a year…you think…Why am I doing this nine times a year? We could develop a process that ideally is automated that touches the same data much fewer times. Part of this Tax Focused Process Improvement is leveraging technology so you do not have to do it nine times. To go back to IFRS, remember that the tax rules are not changing but the book rules are changing and the provision is the tax accrual which is based upon differences between book and tax. The books will clearly be changing which means if you just went through a big tax provision software change or implementation and you have that working well; you will need to go right back to it because all of your inputs have changed. Your output may also change slightly but it is a function of all the inputs which are not going to be based on US GAAP anymore. This is why it is important to recognize that all of the “journal entries” are going towards IFRS; it is a matter of when it happens, not if it happens!


KJ- What would you tell a company working with a new tax software system right now?

JB- I would tell them that the software will not be obsolete but the effort they took to implement will need to be revisited! You will need to assess your risks today and your future risks to be ahead of it all! However, you have to do what is right for today but you will need to revisit the implementation process in light of the books changing to IFRS.


KJ- As a Tax Partner with EY, San Jose, CA and the PNW area FAS109 Leader you have been involved in FAS 109 in one way or another since 1993. There are so many companies seeking this experience given a huge demand for tax reporting and a small pool of qualified tax professionals for these emerging roles. How can you encourage tax professionals to become more involved in this area of tax?

JB- I tell various TEI audiences and others that every single one of you in the tax department is involved in and critical to the provision process. Although you may not be involved directly in the provision, you all have to know the GAAP rules (today) because your starting point is the pretax income. You need to know the tax technical rules, international, federal, state and local; you have to know the status of the exams and the positions you are going to take and litigate; you need to understand mergers and acquisitions as well as any planning strategies. You need to understand how all of these areas come together. Look at any company you can think of and take the tax footnote which is a very high level summary, if you know the tax footnote and every detail behind it then you likely know more about the company than most at the company! It is the ultimate big picture perspective and it provides you with a high level of knowledge about the company. This is a very dynamic area of tax that puts all of your mental horsepower to use; this is also technical knowledge companies want and it makes you very marketable!


KJ- John, thank you for taking the time to answer our questions. Your perspective is valuable to the Tax Intelligence Report readers around the world and we genuinely appreciate the time you gave to share your experiences.


Kathleen Jennings (KJ)
Editor, The Tax Intelligence Report
Kathleen@etsearch.com

John Basseer (JB)
Ernst & Young
San Jose, CA
John.Basseer@ey.com