Overcoming local complexity in a shared service environment
Pavlo Boyko of TMF Group describes how to build a successful shared service centre when reporting requirements in different countries are increasingly complex and divergent.
Centralising your operations in a shared service environment can be really challenging when you operate in multiple countries.
It can sometimes feel as if local jurisdictions are doing all they can to throw a spanner in the works of the efficiencies that make shared service centres (SSCs) such an attractive proposition.
These efficiencies include standardised accounting transactions, super-fast processes and reduced costs. But there are significant local complexities to overcome.
Local tax reporting, statutory obligations and compliance risks can vary enormously in the regions that feed into an SSC. Statutory reporting can be particularly daunting. Each jurisdiction has different, changing and often inconsistent requirements.
Finance leaders at SSCs are often required to report in multiple languages, formats and currencies. They must also follow local Generally Accepted Accounting Principles (GAAPs) in the jurisdictions where these apply.
And it’s getting tougher, not easier, to overcome local accounting challenges, despite the trend towards more streamlined internal processes and digital transformation.
Local complexity is increasing
TMF Group’s 2021 Global Business Complexity Index (GBCI) reveals companies face far greater complexity at local level than at global level in terms of statutory reporting. The index reveals all companies must adhere to local GAAPs in 57% of jurisdictions and International Financial Reporting Standards in only 19 jurisdictions.
Even within a single jurisdiction, legislation requirements can vary greatly. When it comes to incorporation, the GBCI shows 27% of jurisdictions require notification at the provincial or state level while 42% require notification at the city or local level. Some countries, including Brazil, Mexico and Japan, require notification of incorporation at three levels: national, state and city.
The local complexity challenge has become more critical as organisations seek adopt new technologies to standardise and speed up transaction processing – arguably the biggest pull of the SSC model.
Do not just focus on tech
Rapid advances in Enterprise Resource Planning (ERP) and Robotic Process Automation (RPA) bring huge efficiencies to centralised operations but digitisation cannot solve the local reporting and compliance question.
A delicate balancing act is required to marry centralised operations with local peculiarities. A finance SSC is typically a huge department carrying out a single process such as transactional accounting more quickly than localised operations. Implementing a global ERP system would appear perfect from a corporate reporting perspective but it falls down when it comes to local compliance.
How can you possibly cover all statutory requirements in all countries, especially when these requirements quickly change? And what about language, legislation and tax changes? At some stage you will require manual intervention and expertise outside the SSC.
So, what is the best way forward for finance chiefs looking to consolidate and centralise their finance and accounting functions while ensuring compliancy at local level?
The simple answer is local expertise on the ground and integrating this expertise into the shared services model.
Organisations operating in multiple jurisdictions looking to adopt or enhance the shared services model need local experts who fully understand compliance requirements and proposed changes to legislation.
Timing is critical. Organisations face an avalanche of changes in regulations as jurisdictions try to recoup monies spent amid the pandemic or lost from tax avoidance. This will increase the speed of change and place greater demands on finance leaders.
To minimise risk now and in future, it’s important to balance the need to digitalise finance with the need to manage local compliance, especially when finance leaders are under increasing pressure to make efficiencies and to possibly outsource certain elements of their operations.
This requires a bold new SSC strategy that leverages the benefits of tech-driven centralised operations for better transactional accounting and the benefits of local expertise for better reporting and compliance, completing the ‘last mile’ of the journey to greater efficiency.
Accounting and tax global solution architect, TMF Group