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Tax workpaper software like SPbinder wasn’t always around. Before CPA firms transitioned to the “paperless office,” preparers used workpaper leadsheets to tie amounts on 1040 tax returns to their related source documents. It was a productive way for firms to increase the efficiency of the most expensive phase of the tax return preparation process: the review.
But even though leadsheets were convenient for reviewers, some firms were hesitant to use them because they required extra time on the preparer end. The advent of digital solutions did little to alleviate the manual aspects of the process. Preparers were still stuck laboriously compiling leadsheets in Excel. Reviewers saw little added value, since Document Management Systems lacked essential features, like the ability to cross-reference separate PDFs or different file types (e.g., Excel or Word). These limitations nullified the fundamental functionality that made paper-based leadsheets such an effective tool in the first place.
SPbinder is the first and only tax workpaper software that fully transitions leadsheets into the digital age. That’s because SPbinder is a bespoke workpaper system designed specifically with tax professionals in mind. It allows users to track changes and cross-reference all file types, including PDFs, Excel spreadsheets, Word documents, and E-Mails—all the common formats for tax workpapers. This functionality not only makes leadsheets relevant again, but invaluable.
In this whitepaper, we’ll take a close look at how SPbinder’s next-generation leadsheets streamline the review process. We’ll cover:
Workpaper leadsheets are automatically generated when a new binder is created. Tax return data is consolidated into a familiar, spreadsheet-based interface that gives reviewers total overview of the data contained in the binder’s tax workpapers. From there, it’s easy to perform a top-down review. Simply clicking on an amount will bring up the underlying source document in a split-screen view. The exact source of the data is neatly labeled with a corresponding number.
The elegance and simplicity of this process is what makes leadsheets in SPbinder unique. Only SPbinder can create these direct hyperlinked cross-references between the leadsheet and all workpaper file types.
The process is made possible by SPbinder’s 1040SCAN integration. Workpaper leadsheets automatically populate with information from standard source documents, using the same verified OCR data in the binder. Information populated this way automatically links back to the source documents. This automated process eliminates the preparer workload constraints that caused some firms to exclude leadsheets from their paper-based processes. Only non-standard documents require manual entry, and even then, SPbinder provides click-and-drag OCR tools and easy point-and-click document linking to speed up the process.
SPbinder cuts down on review time with color-coding and alert icons, which enable reviewers to narrow their focus to areas that need attention. Instead of sifting through each source document one-by-one, reviewers can fast-forward through areas that don’t pose any meaningful risk.
Trusted data that has already been through OCR verification appears in green. Data that has been manually input, and is therefore subject to human error, appears in black.
Variances, which need special attention, appear in red. In this context, “variances” refers to differences between data input into the binder and data output by the tax software’s calculations. This can happen when the tax software uses information that can’t be found in the binder to make calculations, such as losses or carry-overs. It’s important to note that variances are not necessarily discrepancies, but do indicate that further review is required to confirm that totals were calculated properly.
In addition to these useful color codes, SPbinder places alert icons on any leadsheet data that has changed since a reviewer’s signoff. Even if a reviewer doesn’t open a return for months, they can quickly identify what needs a second look and what doesn’t, eliminating expensive labor redundancy.
The features that make these change alerts possible are change tracking and multi-level review signoffs.
SPbinder tracks all changes automatically and knows which users made which changes. This ensures that there is always a reliable record of any edits made, from the creation of the binder to the finalized tax return.
To bolster accuracy and accountability, users can choose to enable up to four levels of review signoffs. This means that someone at each review level must sign off on every workpaper in the return, and on any changes that occurred since their last signoff.
For example: A firm may wish to require that a preparer, a reviewer, and a partner all sign off on a return. After all three have signed off, someone makes a change to one of the workpapers. SPbinder revokes the signoffs for any data that was altered by the change and sends it back through all three stages of review. Only data affected by the change requires a new round of signoffs.
To save time, SPbinder makes it easy to perform a materiality-based review of any changes. Users can simply hover their cursor over the change alert icon, and immediately see the old and new values compared. This allows for quick signoff on changes that are not material enough to justify further review.
A Review Sheet Summary keeps a record of all these signoffs. This strict tracking process protects the accuracy and integrity of the workpapers and tax return, while improving efficiency by cutting down redundant review time.
Once the review is finished, SPbinder’s single-click export feature transfers all binder data to the tax software; no data-entry required. From start to finish, SPbinder offers the most efficient and productive review process available in today’s digital world. To see how leadsheets fit into the larger picture of SPbinder functionality, we recommend reading The 6 Fundamentals of Paperless Tax Workpapers
SPbinder offers two types of workpaper leadsheets: Classic and Simplified. Classic Leadsheets offer a full range of functions, while Simplified Leadsheets strip away all but the most essential features. Each has different strengths, and the choice of type depends on a firm’s unique needs. Classic Leadsheets provide the greatest benefit for reviewers, but do involve a steeper learning curve for preparers. Simplified Leadsheets are a solid choice for firms that don’t need the more robust feature set of Classic Leadsheets.
The single most significant difference between Classic and Simplified Leadsheets is how non-standard documents are handled. Classic Leadsheets include a Forms tab where preparers can enter information from non-standard documents without leaving SPbinder. The tab includes a click-and-drag OCR tool to quickly capture data. These data captures can be linked back to their source documents with a simple point-and-click. Some fields automatically generate links as soon as data is captured. And every field in the Forms tab is mapped one-to-one with a corresponding field in the tax software, ensuring an accurate export.
Simplified Leadsheets, in contrast, forego the Forms tab entirely. Non-standard documents are instead prepared directly in the tax software. Preparers can still import this data into SPbinder to generate leadsheets for non-standard documents, though hyperlinks back to the source documents must be added manually. Firms that process very few non-standard documents may prefer to forego the extra training required to use the Forms tab.
Another notable difference between the two types of leadsheets is the reconciliation structure. Classic Leadsheets have three columns: Per Leadsheet, which contains data as it appears in SPbinder; Per Tax Return, which contains data as calculated by the tax software; and Variance, which, as discussed earlier, shows any differences between the two. Simplified Leadsheets only have one column: Per Tax Return.
There are also compatibility differences between the leadsheet types. Firms who process both 1040s and 1041s will want to stick with Classic Leadsheets, as Simplified Leadsheets work exclusively with 1040s. At this time, Simplified Leadsheets are also compatible with fewer tax softwares. Each firm must weigh the pros and cons of these two leadsheet types against their particular needs, but at the end of the day, it’s important to pick one and stick with it. Training for two different processes can lead to confusion and mistakes.
All these differences are shown in the chart below.
SPbinder’s workpaper leadsheets are a powerful tool that can complement a firm’s workflow strategies in a variety of ways. Some SurePrep clients use leadsheets only for their most complex returns, while others use leadsheets for all returns to enforce a standardized process. SurePrep’s experts help firms choose the approach that’s right for them when drafting their custom implementation plans.
The benefits of using leadsheets are transformative. The increased efficiency of the review process results in significant time-savings, which effectively reduces the labor cost per return. Accuracy and record-keeping improve with tracked changes and review signoffs. And with this robust technology comes a way to bridge the gap between the tax workpaper software and the tax software, by consolidating and comparing information from both.
SPbinder’s leadsheets are just one of the many ways SurePrep is leading the digital revolution in 1040 and 1041 tax return preparation. To learn more about SurePrep’s transformative technologies, visit our extensive video library or contact a member of our team.