Seizing the opportunity in global compliance and reporting: the CFO perspective

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In 2012, we published the results of a survey of more than 200 finance executives from companies in the Global Forbes 2000. The results show that many companies will reduce risks, increase their organizational agility and access cost savings by transforming their global compliance and reporting processes.

Global compliance and reporting comprises the key elements of a company’s finance and end-to-end tax processes, which deliver statutory financial and tax obligations around the world.

Its components include:

  • Statutory accounting and reporting
  • Tax accounting and provisions
  • Income tax compliance
  • Indirect tax compliance
  • Governance and control of these processes

What do CFOs need to consider?

In recent years, three trends that have increased the complexity of global compliance and reporting have made it a significant focus area for CFOs.

  1. Companies face an increasingly severe tax risk environment. Tax authorities are ramping up their enforcement efforts, sharing information more readily across borders and adapting tax policies at an unprecedented rate. This means that it is more vital than ever for companies to identify, manage and control the financial and reputational risks associated with evolving global compliance and reporting requirements.

  2. Companies have redesigned their operating models to survive the financial crisis and to take advantage of new growth opportunities, particularly in rapid-growth markets. This demands global compliance and reporting processes that are sufficiently agile to adapt to new markets and that can support business decision-making, both domestically and internationally.

  3. Companies are embarking on finance transformation programs that can have a significant impact on global compliance and reporting processes. Yet, a recent EY survey conducted for this report shows that almost half of companies have excluded tax-related global compliance and reporting functions from their finance transformations.

CFOs that continue to exclude global compliance and reporting from these transformation initiatives face substantial risks, including incomplete data, ineffective processes, increased penalties and higher tax burdens.

Companies must modernize their global compliance and reporting processes to provide greater efficiency, control and value.

Global compliance and reporting processes are at a tipping point

This combination of evolving business models, finance transformation and a complex regulatory and tax risk environment means that global compliance and reporting is now at a tipping point. The questions for CFOs and those who report to them is no longer if global compliance and reporting processes must be transformed, but rather when - and how.

By integrating global compliance and reporting into broader finance transformation programs, CFOs not only manage the inherent risks, but also have the potential to drive significant improvements, including enhanced operational agility, greater cost-effectiveness and improved decision-making and cash management.

Finance change initiatives provide a catalyst for improved global compliance and reporting

Greater standardization and automation of global compliance and reporting processes globally will help CFOs to minimize risk at a time when legislative and enforcement change is at its most rapid and complex in living memory. Almost two-thirds of companies in our survey reported that they have established such processes for tax provision preparation. However, less than half have such processes for other areas of GCR. The opportunities to extend finance change into all areas of global compliance and reporting are significant and tangible.

Local expertise is key to a successful global compliance and reporting model

Companies face significant challenges in accessing global compliance and reporting resources with local expertise. Local country resources are vital to successful compliance with tax and regulatory requirements. Yet, the trend in finance has been to reduce or redeploy to global or regional centers the in-country finance resources that traditionally supported global compliance and reporting processes.

At the same time, the trend toward more aggressive tax enforcement actually heightens the need for skilled local expertise. Accordingly, it is essential that global compliance and reporting functions have access to the right local expertise in a manner that supports quality and efficiency and drives value.

Leading companies blend the use of internal resources, infrastructure and external providers to optimize global compliance and reporting

Leading companies are taking a strategic view of their operating models and their global compliance and reporting requirements to identify the optimal mix of internal and external resources. The ideal mix of resources will vary by company. In practice, most companies find that the best solution is a combination of local, regional and global resources, both internal and external.

A growing number of companies are outsourcing one or more of their global compliance and reporting processes. The effective use of external providers can create a broad range of benefits. These include cost-effective and flexible access to skills, broader access to leading practices, the ability to target in-house resources on more value-adding activities and greater scalability.

Effective global compliance and reporting models require a strong governance structure

A common problem with global compliance and reporting is that responsibility is dispersed across multiple functions and business units. This fragmentation and lack of standardization makes the control environment difficult to operate, and improvement opportunities are difficult to identify and implement.

The findings from our survey point to a need for a greater level of control, visibility and accountability within GCR. By clarifying geographical ownership of global compliance and reporting processes and reducing the variety of departments responsible for those processes, companies are able to improve effectiveness, enhance visibility and avoid costly and time-consuming surprises.

Strong corporate governance reduces the likelihood of unplanned audits and is a prerequisite for simplification, standardization, automation and centralization of key processes. It is also a vital ingredient for most successful transformations.