Greater expectations on tax and financial reporting create challenges for world’s largest companies
London, 28 July 2011: Companies with global operations are struggling to comply with increasing regulation and growing complexity of financial reporting and tax rules around the world, according to a report published today by Ernst & Young.
The report, Seizing the opportunity in Global Compliance and Reporting, 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 will challenge their compliance and reporting processes. The findings are based on a survey of more than 200 financial executives from the world’s largest companies1.
Steven Shultz, Ernst & Young Global Director of Global Compliance & Reporting Services, says, “Globalization and the drive for sustainable cost advantages change the way companies position their financial and tax operations. Companies are seeing an increasingly complex regulatory landscape and closer, cross-border collaboration by tax authorities under pressure to increase revenue. It is imperative that global businesses update their processes for statutory financial and tax filings to maintain compliance and competitiveness.”
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, visibility and accountability.
Shultz says, “By clarifying GCR requirements, process ownership and geographic coverage, companies can improve effectiveness, enhance visibility and avoid costly and time-consuming surprises across the worldwide GCR spectrum. Doing so will also provide support for simplification, standardization, automation and centralization of key processes which is high on the agenda for leading companies.”
Local expertise is key to successful 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. More than three-quarters (82%) of respondents said they consider the need for local knowledge a significant barrier to moving compliance and reporting to a regional or global shared service center. Between 64% and 78% indicated that local-country resources are vital to successful compliance with tax and regulatory requirements.
Shultz concludes, “GCR is too often treated as an afterthought - or worse, not considered at all. Leading companies are proactively incorporating a strategy and plan to benefit from the lessons learned and leading standards identified in our report.”
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.
About Ernst & Young’s Global Compliance & Reporting services
Fast-changing compliance and reporting requirements are more demanding on finance and tax functions today than ever before. So how do we help you improve quality, manage risk, create efficiency and drive value? Our market leading approach combines standard and efficient processes, highly effective tools and an extensive network of local tax and accounting professionals. In more than 140 countries, you benefit from an integrated, consistent, flexible, quality service to address direct and indirect tax compliance, statutory accounting and financial reporting, and tax accounting. This unlocks the potential of your finance and tax function, while improving efficiencies across your financial supply chain; it’s how Ernst & Young makes a difference.
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