TP Audit Readiness

The art of risk assessment

In accordance with established accounting principles, companies must evaluate the potential financial impact of Transfer Pricing risks within their Financial Statements. 

Reflecting the inherent uncertainty of Transfer Pricing (which is “not an exact science” according to the OECD TP Guidelines), companies must be ready to support and document their TP position appropriately. Even if they consider the TP risk to be insignificant, they must be able to articulate why they believe so.

In view of the rising tax controversy and the roll-out of Pillar Two rules across the globe, many financial auditors have strengthened their audit procedures to include a more comprehensive Transfer Pricing assessment. In complex cases and/or in the absence of a well-documented Transfer Pricing position, companies may face delays in finalizing the audit and/or additional disclosures or provisions added to their Financial Statements.

Avoiding such outcomes isn't complex. It begins with understanding what your auditors seek and having your position explained and documented prior to the audit, in a manner easily comprehensible to auditors and their TP experts. 

1. Do you understand your TP risks, and do you have a TP risk framework?

2. For material risks, have you assessed their potential impact on your Financial Statements - both at the local entity (statutory) level and at the group consolidation level?

3. Have you documented your risk assessment?

How can PwC assist you in getting audit-ready?

We are one of the leading audit firms in the world. Our Transfer Pricing experts, with their extensive audit experience, are adept at assessing and quantifying Transfer Pricing risks for Financial Reporting purposes. Here’s how we can help:

1. Review your Transfer Pricing position
   Our process begins with a thorough examination of relevant data to determine the extent of Transfer Pricing risk and its valuation. This assessment is carried out in strict adherence to IFRIC 23 and/or another relevant accounting standard, ensuring compliance and precision.

2. Issue an expert opinion on the level of risk and its financial impact
   Upon a detailed analysis of your Transfer Pricing position, we can prepare a formal opinion letter. This document contains our professional judgment regarding the level of risk and its potential financial implications, offering clarity and expert insight.

3. Participate in a meeting with auditors alongside your Finance and Tax teams
   We will participate in the meetings with the auditors to further convey the rationale behind the position taken. Our involvement is particularly beneficial in complex or marginal cases where the distinction between a "possible" and "probable" risk level, or the quantification of the risk, may be nuanced and critical to the auditor's evaluation.