Maintaining Compliance in Cross-Border Accounting, Trade

Logistical and regulatory challenges can make cross-border deals more difficul

As globalization continues to be the main growth strategy for many companies, corporate accountants have had to learn to juggle not only domestic finance rules but those of many other countries.

Forbes reports that this could become an even more pressing issue if U.S.-China and Europe-China cross-border mergers and acquisitions occur with greater frequency. The source notes that 2010 and 2011 were also heralded as the next big M&A years, yet that has not been the case. Part of the reason rests in Chinese CEO's hesitance to invest in foreign organizations.

"While they know how to do business in China and are willing to take risks there that most Western CEOs would never consider," Forbes contributor Jack Perkowski writes. He adds that "they are nervous about entering slow-growth economies, negotiating with labor unions, managing Western managers and employees and dealing with a host of other issues that are part and parcel of running a business outside China."

Another challenge for Chinese investors is sorting through all the information associated with an M&A. Accountants may be able to assist this process by presenting the data necessary for reviewing and analyzing the buying or selling company in a more detailed and clear way, instead of relying on the common "auction process" used for sales in the West.

On the Western business side, owners and their accountants could sidestep the common problems of dealing with Chinese parties by getting to know "any potential Chinese acquirer before proceeding too far in negotiations," and determining whether they will be able to deliver on promises after the deal is done.

Plans from Shanghai

Despite these challenges, China is working on new policies that would ease the process of cross-border trading and perhaps make financial and accounting compliance simpler to achieve.

Reuters reports that the country's economic planning agency recently unveiled a roadmap for centralizing global yuan trading, clearing and pricing in Shanghai by 2015. Having one location for the deals could simplify the compliance effort because there would be a single point of reference for benchmark pricing, regulations and other financial information.

According to the source, the strategy also aims to build up international listings of "qualified Shanghai-based financial institutions" and may pave the way for reforms that would open up the country's future and financial derivative markets to foreign investors.

Some countries have already mastered the art of transparency and disclosure, and as a result have enjoyed high rates of cross-border M&A activity. TheCityUK recently issued a report that found the U.K.'s financial services industry was heavily owned by international firms.

"The U.K. openness to investment is matched and facilitated by transparency of information," the company notes. "Every company has to file financial returns annually and the majority of firms that are active in U.K. financial services are regulated by the Financial Services Authority."

The reasons the U.K. financial services sector is attractive to investors include the skills of the local workforce, beneficial geographic position and the "robust legal and regulatory framework," report adds.

Is Global Trade Dying Out?

Yet with all of this preparation for ensuring compliance across borders and governments' efforts to streamline their regulatory processes, some say the pace of global trade is slowing. The Global Economic Conditions Survey found that many Canadian finance professionals saw a decrease in international trade in the final quarter of 2011.

Worryingly, the countries that are "heavily exposed to international trade and cross-border financial activity" had some of the lowest rates of confidence in the global economy. Researchers commented that these findings indicated that international trade was dropping off.

Regardless of whether the number of international trades is on the decline, it's still necessary for corporate accountants working on cross-border deals to ensure all involved parties are complying with financial regulations.