Greater expectations on tax and financial reporting create challenges for world’s largest companies

Monday, 8 August 2011 00:00 - - {{hitsCtrl.values.hits}}

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 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, “Globalisation 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, standardisation, automation and centralisation 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 globalisation, 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 centre.

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.”