Greater expectations on tax and financial reporting challenge world’s largest companies
Tuesday, 02 August 2011
- Evolving business models, finance transformations and increasingly complex regulatory landscapes are driving global businesses to re-evaluate their approach to tax and financial reporting. At the same time, the global financial crisis has driven these companies to redesign their operating models in an effort to remain competitive and take full advantage of opportunities for growth.
An Ernst & Young report has found Australian companies with global operations are struggling to comply with increasing regulation and growing complexity of financial reporting and tax rules around the world.
Traditional models are no longer sufficient to meet the needs of the evolving business environment.
The report Seizing the opportunity in Global Compliance and Reporting was based on a survey of more than 200 finance and tax executives from the Fortune Global 500 and Forbes Global 2000 companies.
It shows that 64% of Fortune Global 500 respondents experienced unplanned tax audits within the past year, with almost half receiving unexpected tax assessments or penalties. Nearly two-thirds said changes in rules would challenge their compliance and reporting processes.
Margherita Antonelli, Oceania Global Compliance & Reporting Services Partner said globalisation and the drive for sustainable cost advantages had changed the way companies positioned their financial and tax operations.
“Companies are seeing an increasingly complex regulatory landscape and closer, cross-border collaboration by tax authorities who are under pressure to increase revenue. It is imperative that global businesses that are Australian based or with regional headquarters in Australia update their processes for statutory financial and tax filings to maintain compliance and competitiveness,” Ms Antonelli said.
The survey identified a number of areas where global compliance and reporting (GCR) can be improved:
Successful GCR relies on strong governance
Effective GCR models require a strong governance structure. More than 40% of respondents indicated a lack of global governance of statutory financial filings, and more than 60% indicated no global governance over direct and indirect tax filings by their companies. These deficiencies suggest that current GCR models require greater control, transparency and accountability.
“By clarifying GCR requirements companies can improve effectiveness, enhance visibility and avoid costly and time-consuming surprises across the worldwide GCR spectrum. Doing so will also provide support to simplify, standardize, automate and centralize key processes which are high on the agenda for leading companies,” Ms Antonelli says.
Finance Transformation provides a catalyst for improved GCR
In response to the recent financial crisis and the pace of globalization, more than 80% of companies are undertaking transformations of their finance functions. However, many are not taking full advantage of the opportunities to integrate and improve their tax and financial compliance and reporting model. Because these finance transformations often reduce or redeploy local in-house expertise, the quality of filings required for compliance can be placed at risk.
“GCR is too often treated as an afterthought - or worse, not considered at all. Leading companies are proactively incorporating a strategy and staying ahead of the curve to ensure they are not caught unprepared,” Ms Antonelli says.
Notes to editors
About the report
The report, Seizing the opportunity in Global Compliance and Reporting, is based on a survey of more than 200 finance and tax executives from the Fortune Global 500 and Forbes Global 2000 companies. The report investigates the significant developments taking place as multinational companies determine the best way to meet their financial reporting and tax obligations worldwide. A copy of the survey is available at www.ey.com.
GCR includes statutory financial filings and filings to tax authorities, namely statutory accounting and reporting, tax accounting and provisions, income tax compliance, indirect tax compliance and governance and control of these processes.
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