1. Establish and enforce one set of standards
The global standardisation of accounting started in 2002 with the convergence of the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). However, this movement has slowed down and there is no sign of any further significant changes.
In practice, the choice is not just between GAAP or IFRS. A report of 1000 financial leaders reveals that nearly half of them had to comply with more than ten sets of standards, and a third worked with more than 15 reporting systems.
For multinationals there is another layer of complexity. Assume all local operating subsidiaries prefer IFRS to their local accounting standards; and yet, what they actually use can be different from what the International Accounting Standard Board (IASB) set up. Especially in emerging markets where compliance is poor, it is common for local subsidiaries to make their own versions of the IFRS by adjusting it to their countries’ regulations.
“Nearly half of financial leaders had to comply with more than ten sets of standards, and a third worked with more than 15 reporting systems.”
As a consequence, comparing and consolidating accounts between countries are particularly difficult. In areas such as trade receivables, cash flow problems might be obscured due to the substantial discrepancy between countries with different practices.
Bridging the accounting gaps between all local entities requires extra operational capacity from financial leaders. Many of them already state the lack of time as their greatest concern and opt for delegation.
To make this work, the delegated partner needs to be familiar with the international financial standards and to understand the specific reporting systems adopted by the organisation in question. For accounts receivable, the delegated partner is usually an external party with global reach and professional expertise. Based on the input from the financial leaders, the external party works with each local operating entity to ensure that any unpleasant surprises are mitigated and coherence is created.