Most companies have concluded that the benefits of centralizing their statutory financial reporting activities outweigh the risks, according to a new report from Thomson Reuters and the Shared Services and Outsourcing Network (SSON).
The report, Statutory Reporting in Shared Services: Harmonising Global Financial Reporting, is based on a survey of finance department specialists at multinational companies.
Within the next year, the majority of survey respondents will have centralized their statutory reporting process within a Shared Service Center: 44% already do, and 15% plan to make the transition within the next 12 months. An additional 18% say they intend to move from local to centralized reporting within two to five years. “Many organizations are looking for new areas in which to drive savings and efficiencies,” the report states. “Statutory reporting is emerging as a strong candidate for centralization, standardization, and automation.”
As a result, the remaining 23% — those with no plans to centralize the financial reporting function — may be at a competitive disadvantage in a few years.
The shared services model emerged in the 1980s to standardize and improve the efficiency of back-office functions such as human resources and finance & accounting. More recently, it has evolved from executing transactional, manual tasks to leveraging automation and data analytics to better streamline operations and generate actionable insights.
An SSON report published earlier this year found that multinational companies are accelerating their use of Shared Service Centers, including efforts to centralize and streamline financial reporting and tax compliance across the global enterprise.
You can download a full copy of Statutory Reporting in Shared Services: Harmonising Global Financial Reporting here.
The new Thomson Reuters/SSON report, meanwhile, says the main hurdle for companies that have not centralized their reporting function is the risk of losing knowledge of, and the ability to consistently comply with, local regulatory requirements. “The most common reason organizations give for not moving to a centralized model is concern about a Shared Services Center being out of touch with country- or jurisdiction-specific knowledge required,” the report points out. “In addition, they cite maintaining close relationships with local authorities, as well as local language requirements as key concerns.
“Ironically, deploying technology to support a standardized statutory reporting process mitigates a number of risk factors that are currently baked into the manual or decentralized process. For example, many organizations are still relying on Excel or Word documents to produce accounts or share information. The manual activity lends itself to errors, which lead to incorrect information being produced. Errors are particularly common when teams are operating under time pressure, or there are last-minute adjustments to accommodate.”
As noted above, many companies have overcome these concerns and centralized financial reporting in their shared service centers (44% of survey respondents) and a sizeable group (33%) intend to do so within five years. To confidently take this step, companies say they needed assurance that they were applying best practices in managing the knowledge required to comply with jurisdiction-specific reporting requirements. Other considerations include transparent automated workflow, language translation, and the ability to easily execute modifications and push changes across all entities in a jurisdiction through a template engine.
Utilizing centralized report preparation
Approximately one-quarter of survey respondents use a Shared Service Center to manage their entire statutory reporting process and another one-quarter deploys a hybrid approach by using centralized report preparation and in-country teams for review. One-third of respondents use the local or in-country team for the whole process.
Other takeaways from the report include:
The most significant anticipated changes in companies’ Shared Service Centers in the near future include increased use of automation (74%), increased use of data analytics (47%), expansion of processes covered (42%), a shift from transactional to knowledge-based work (38%), and expanded geographical coverage (20%).
Investment priorities for tax and finance processes are consolidating enterprise resource planning systems (30%), optimizing account reconciliation (26%), and enhancing tax compliance processes (16%) and statutory reporting (13%).
Technology and third-party solutions within the finance organization are used most often for automated account reconciliation (41%), robotic process automation to prepare and post general ledger entries (24%), audit readiness and support (17%), regulatory knowledge database (14%), and compiling and submitting regulatory filings (14%).
“The benefits of harnessing modern technology solutions for more reliable and efficient statutory reporting are measured partly in cost, but also in the ability to further leverage the core benefits of these tools,” the report states. “Language integrated in solutions, for example, reduces the risk of errors creeping into translations. Similarly, automated processing eliminates human error and operates around the clock.”
Four factors must be effectively managed to ensure a positive transition to a centralized model:
- People — Define roles and responsibilities clearly, align roles and compensation to desired outcomes, and monitor how roles are impacted by this transition in the way work gets done.
- Process — When moving local work to a centralized location, don’t simply “lift and shift.” Assess whether the current processes will work in a centralized model or whether the processes should be modified first.
- Data — Ensure there is consistent access to clean, structured data. It is needed to underpin automation, ensure accuracy and efficiency, and serve as the organization’s “one source of truth.”
- Technology — Technology “brings it all together, reducing manual activity, risk, and cost.” Ensure teams are trained to get the most from the solutions provided.