Why SALY is Not Your Friend and Documentation is King
I’ve been saying this all along, and if you’ve worked with me you know I’m a stickler on both!
SALY, or same as last year, is not your friend. I know it’s easier to just do what was previously done, but it never was a best practice and has become even worse practice post tax reform. SALY is, however, a good place to start because knowing the history of a situation allows more clarity to analyze what to do now, but not a place to end without asking if it still works well, or at all.
SALY wasn’t a good idea before tax reform because client situations change, limitations or percentages increase or change year over year sometimes, and let’s not forget human error in workpapers (I’m guilty too). My favorite example of human error in this context was when I took over preparing a client return at a firm, and realized one of the workpaper formulas had been incorrectly linked to a date cell instead of a percentage cell, rolled forward for many years!! Cue amended returns, and an unhappy client.
It happens, but in reality, it shouldn’t have because the numbers shaking out were not reasonable. My favorite question to myself when I review is, “does this make sense?”, or given the information that we know, would I expect this outcome? If you’re able to put in reasonableness checks and tie-outs within the workpaper, even better. Less pressure on your tired little tax season eyes and brain. Don't forget to do a quick self-review if you're the one preparing a workpaper or return, this will save you lots of grief especially on little mistakes you can find yourself and not have to get a review comment over. (DOH!), I truly hate that feeling.
Another reason I'm not SALY's biggest fan is because I like to evaluate if we can create efficiencies anywhere. Is there a lot of manual input in a workpaper? Insert formulas where possible. Are you duplicating information across workpapers? Link to the source file instead, make sure files are saved on a network drive and not your desktop :) (been there, no bueno). Tip: if you link files, break the links when you're all done and save a final links broken copy so your work doesn't inadvertently get changed. Keeping the linked version as a working copy is helpful next year so you don't have to keep recalling where things were linked, if there's not great documentation.
Post tax reform SALY still isn't your friend for the same reasons above, and in some cases you cannot rely on her simply because so much has changed. I don’t feel this is a bad thing though, it’s an opportunity. Tax reform has people buzzing; clients want to talk tax more than ever and are relying on tax advisors to help navigate this new territory, so it’s a great time to show your value and strengthen client relationships. Make time to sit down and listen to their concerns and goals.
I know in the haste of tax season the last thing you might want to do is rethink every old strategy, but I would encourage at lease a fresh set of eyes mentality during the rush - at least take inventory of new accounts and business activities. Then make a list of post tax season planning to-dos as you get ideas going through client returns and come back to it when those hours get more manageable. Summertime is a good time to recalculate basis if it's questionable, revise old cumbersome spreadsheets, and think long term tax and business strategy for a client.
An ideal time to shake down strategy and calculations is in the Fall, during tax planning season. This time is not only crucial for nailing down the numbers and opportunities, but also to develop meaningful client relationships….and ok, maybe a good way to get some extra revenue at the same time! If you missed something in this 2018 planning season, there’s still plenty of uncertainty and maybe more changes coming, so keep at it!
Really quick on documentation and how important I think it can be! I'm grateful to have started my tax career out preparing bank tax returns and workpapers. They are a very detail oriented, two-way or you're-getting-it-back-to-fix kind of referencing! Two-way means you reference the source file on the workpaper, and the workpaper on the source file, next to the relevant numbers on both. I never looked back after that regardless of the industry, it just makes sense and is easier for everyone to follow. In my experience, the lost efficiency in the initial year of referencing workpapers (noting the source file) is fully gained back and pays out in future years.
There's nothing worse than trying to figure out where the heck all these hard coded numbers came from on a workpaper, as a preparer looking back at last year, or a reviewer looking at this year. Talk about a time waster! And also a bad contingency plan if new people work on the project next year, or under audit you're asked to explain your calculation or stance, and you can't! No more tribal knowledge, get it on paper. Obviously be careful to not document too much, or anything you wouldn't want an outsider to see. Not at all condoning tax fraud, just be smart about what you write and how you word things - keep it concise, and the workpaper visually tidy.
That's just my two cents on those two things.