"Compliance may be a routine function — if done right, it can add tremendous value and if done wrong, it can destroy a company. But not many have reached the stage of optimal global compliance efficiency — they are still maturing."Fortune Global 500, conglomerate
Summary: Many distribute responsibility for Global Compliance and Reporting (GCR) processes throughout their organization creating a patchwork. The results are suboptimal. Our survey shows a need for a new approach. Read on for survey results, case studies and additional insights. We have also included an approach for implementing a better GCR model that balances efficiency, control and value.
What is Global Compliance and Reporting?
GCR comprises the key elements of a company's finance and tax processes that prepare statutory financial and tax filings as required in countries around the world. These duties include:
- Statutory accounting and reporting
- Tax accounting and provisions
- Income tax compliance
- Indirect tax compliance
- Governance and control of the above processes
GCR activities reside in the middle of a broader set of so-called record-to-report (R2R) processes. R2R is the intersection between any company's finance and tax departments and is used to capture, process and store information that is essential to statutory accounting, tax compliance and reporting. Any change to R2R processes, information, finance systems, roles and responsibilities will have a direct impact on GCR processes.
Record-to-report and GCR
GCR deserves a close look today for three reasons
Global Compliance and Reporting is at a tipping point. Global businesses need to reevaluate their approach to GCR processes due to:
- Evolving business models
- Transforming finance functions
- Increasingly complex regulatory landscape
There are new opportunities to better optimize efficiency, control and value to help mitigate risk and improve performance.
Evolving finance models mean adjustments to GCR too
Our survey indicates that 80% of companies have either recently completed or will complete a finance transformation in the next two years.
Unfortunately, while GCR processes are inextricably linked to such transformations, our survey further reveals that companies are most likely overlooking many essential subprocesses, such as the flow of financial data to GCR.
Finance transformation isn’t just a reorganizing
A finance transformation is a comprehensive evaluation of the very mission of finance with an eye toward determining how these operations can be more optimally performed.
Of course, such transformations vary in their rigor and scope. For some companies, the driver has been or will be largely cost-focused. Yet any finance transformation must carefully consider the impact on GCR.
Increasing risks and complexity with regulators
Local jurisdictions are rewriting regulations, focusing more intently on the collection of tax revenues and sharing more tax information across borders.
At the same time, the global financial crisis has driven companies to redesign their finance operating models to remain competitive and to take advantage of opportunities for growth. Businesses are now focused on expanding market and customer reach and increasing operational agility. This, in turn, is leading to dramatic changes in finance models.
Top five insights into the GCR situation for finance and tax executives
“Though the company has been around for over 100 years, we had no structure in finance. This was the first time the company pulled all its finance institutions into one hub — and it has definitely helped us.1”
— Forbes Global 2000, financial services organization
GCR must be pulled into change initiatives
Historical models are not sufficient to support the needs of the new business environment.
Fortune Global 500 respondents to our survey indicated that, in just the past 12 months, 64% experienced unplanned tax audits, and almost half received unexpected tax assessments or penalties. In addition, almost two-thirds say that changes in regulatory requirements will impose significant challenges on GCR processes.
A more rationally organized, efficient and controlled GCR function can help mitigate these risks and unexpected costs. The question is no longer whether companies need to redesign their GCR processes, but how and when.
Finance change initiatives provide a catalyst for improved GCR
The focus on standardized business processes — particularly in finance — provides a significant opportunity to create vastly more efficient GCR processes.
Almost two-thirds of companies in our survey reported they have established standard global processes for tax provision preparation. However, less than half have standard global processes for other areas of GCR.
The opportunities to extend finance change into all areas of GCR are significant and tangible. The risks that could result from excluding GCR from structural changes in the finance department are substantial.
GCR processes and systems in most companies lack standardization
Companies with global standards for GCR processes and systems
Local expertise makes for a successful GCR model
Between 64% and 78% of survey respondents indicated that local-country resources are vital to successful compliance with tax and regulatory requirements.
Yet the trend in finance has been to reduce the in-country finance resources that traditionally supported local GCR 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 GCR 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 and external providers to optimize GCR
Companies are taking a strategic view of their operating models and their GCR requirements to identify the optimal mix of internal and external resources and to create opportunities for internal resources to focus on the highest-value activities.
The ideal mix of resources will vary by company, but more than 80% of those who outsourced GCR processes indicated that external providers create access to a needed level of local expertise.
Similarly, more than 70% reported that it enables access to expertise and methodologies that enhanced their processes while almost 60% said that it provided needed levels of flexibility and scalability.
Effective GCR models require a strong governance structure
More than 40% of respondents indicated a lack of global governance over statutory financial filings. More than 60% indicated no global governance over direct and indirect tax filings required by their companies.
These results point to a need for a greater level of control, visibility and accountability within GCR.
By clarifying ownership and reducing the variety of departments responsible for GCR processes, companies are able to
- Improve effectiveness
- Enhance visibility and
- Avoid costly and time-consuming surprises across the GCR spectrum worldwide
About the report
Our survey is based on responses from more than 200 finance and tax executives from Fortune Global 500 and Forbes Global 2000 companies.
To execute our survey about the current and future state of GCR, we developed a series of related questions and engaged the survey company Consensus Research to conduct interviews.
The sample also included companies headquartered around the world.
1All quotes in this report were from the survey interviews and were provided anonymously.