For many multinational corporations, preparing financial reports that comply with the laws and regulations of all the different countries in which they operate is a significant logistical challenge, involving everything from language, hiring, and formatting issues to inconsistent accounting methods and different jurisdictional requirements.
Known as “global statutory reporting,” this process not only costs time and money, it can threaten the integrity of the company if accurate reports aren’t filed on time. Late or improper submissions can result in penalties, legal action, or worse—dissolution of the company. In some countries, such as Norway and the Netherlands, individual directors can even be fined or imprisoned for failing to fulfill their fiduciary duties.
Correct, timely financial reporting is so important to multinationals that many are attempting to standardize their processes in this area, either through centralized shared service centers or a hybrid hub-and-spoke system of some sort. The hurdles are formidable, however, because different countries have different laws and regulations, in different languages, and their computer systems aren’t always compatible. Also, many current reporting methods are based on Excel and Word documents, and usually involve multiple drafts.
According to Andrew Hay, head of statutory reporting and shared service centers at Thomson Reuters, “It’s not uncommon for multinationals to have hundreds of offices in dozens of different countries, each with different reporting requirements, so a process involving multiple drafts can dramatically expand the time necessary to complete these reports.”
Consider the example of a multinational corporation with 163 entities, country statutory reporting in 23 jurisdictions, and local regulations that require 12 different preparation languages. The typical statutory reporting process for such a company would include basic research and the rolling forward of Excel and Word documents; an initial draft full of notes; several trial data downloads from an Enterprise Resource Planning (ERP) system; manual data entry of updated stats; several more drafts (four or more is not unusual); language translation and conversion to XBRL format; then report finalization and distribution. Research shows that it takes an average of 45 hours per entity to complete this process. Multiply that by 163 entities, and that’s 7,335 hours—or 1,048 days—of work!
TOWARD A MORE HARMONIOUS PROCESS
The shared service-center model— in which reports for multiple countries and jurisdictions are processed in a single place—can certainly help streamline global statutory reporting. But in order to create a successful centralized reporting process, four key components must work in harmony with each other: people, process, data, and technology.
People: In many jurisdictions, it can be a challenge to find qualified people with the proper skill set—e.g., diverse language skills, knowledge of local accounting practices, technical know-how—and to retain them over the long haul.
Process: Before changing a process, it is necessary to analyze the current process and identify specific areas of inefficiency before deciding how to improve it. This takes time, effort, discipline, and—back to the people problem—leadership.
Data: Bad data can be a tremendous time-waster, especially if auditors must manually correct errors. Reconciling different data sets—non-financial, financial, trial balance, etc.—can be especially challenging if GAAP modifications are required, as they often are when dealing with reports from different countries.
Technology: Automating and standardizing routine processes saves time and money, but choosing the right technology is crucial. A system that requires continual customization of content and doesn’t integrate well with other compliance software can actually add work. Language translation capabilities are an essential feature as well, especially if a broad centralization strategy is being implemented.
Another issue often faced by multinationals that want to centralize is a patchwork of legacy systems that were developed to meet local needs, not integrate with a larger network. The scaling required to manage and support these legacy systems can impede growth and ratchet up both the complexity and cost of reporting efforts, adding even more inefficiency to an already cumbersome system.
For all of these reasons and more, says Hay, “Multinationals grappling with global statutory reporting requirements are replacing their legacy systems with scalable software platforms that enable centralized control of reporting from multiple jurisdictions through a common interface.”
ONE SOLUTION: ONESOURCE
One such system is Thomson Reuters ONESOURCE, which uses a web-based, template-driven approach to ensure consistency of statutory-reporting input and output across the enterprise. ONESOURCE’s templates eliminate Word/Excel incompatibility issues and allow for the automation of many routine tasks, including error-prone and time-intensive manual data-entry. ONESOURCE also improves data quality, links statutory report and audit support materials, and dramatically reduces the time necessary to complete such tasks as forward rolls and data loops.
“Another significant challenge global organizations face is staying up to date with the many local reporting standards and languages that they need to report under,” says Sam Johnstone, Thomson Reuters global statutory reporting solutions consultant.
ONESOURCE ensures global compliance by continuously monitoring changes in local reporting and regulatory requirements, saving time on research and reducing the need for extra drafts if reports are out of compliance. Also, the platform’s language functions automatically translate content in any language into English, which eliminates the need for editing at the local level and makes deliverables accessible to all stakeholders.
In term of efficiency, the 45 hours needed for the average multinational to complete a single local report can, with ONESOURCE, be reduced to less than 15 hours per entity. A company with 163 entities—as in the previous example—could reduce the time necessary to complete its entire statutory reporting process from 1,048 days of work to a mere 349 days, saving more than two years of additional work.
In short, multinationals that need to transform their global statutory reporting process can do so by implementing an end-to-end solution like ONESOURCE, which is designed to centralize control, automate routine tasks, ensure consistency and compliance, and save both time and money at every step on the process.
Responsible governance of multinational corporations requires accurate, timely statutory reporting. In a world where governments worldwide are digitizing their finance and tax structures, and demanding greater transparency, ONESOURCE offers an elegant, scalable, cost-effective solution.
For more information about technology solutions that can help you automate, centralize and standardize compliance tasks in a Shared Service Center, visit our Statutory Reporting and Indirect Tax Compliance pages.
