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What are some efficient ways for U.S. multinationals to maintain their books in other countries?

Mohan Giridharadas's Profile

FCPA compliance

 Given the complex set of accounting and tax regulations in each country around the globe, not to mention FCPA compliance, multi-nationals have to resort to a wide range of methods (duplicating their books), manually reconciling accounts, implementing multiple versions of financial systems, etc to comply with GAAP as well as the local tax and reporting regulations.  The burdens imposed by this vary dramatically from country to country.  

I would welcome any advice or input on this topic - either from CFOs/FP&A executives who have dealt with the issue as well as from consultants with relevant experience in one or more regions around the world.

 

Answers

Richard Allison
Title: International Business Develop
Company: ABC llc
(International Business Develop, ABC llc) |

Dear Mohan:

For multinational, likely requiring consolidated reports at the top tier, my recommendation is to go with a top-tier Big “4” Accounting Firm with worldwide network of firms in place and the experience and expertise to accompany the resources.

IMO, when conducting cross-border business focus widens from debits and credits, to center on regulatory compliance, definitely not an area to cut corners – especially with FCPA and the anti-money laundering under the Patriot Act. Having a big “4” share in the responsibility would be a primary consideration for me to protect the shareholders.

I think the bigger challenge is for the smaller than “multinationals” organizations that don’t have the size or stature to afford the Big “4”s services or attention.

Hope this helps to stimulate further thought/conversation.

Richard

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Mohan
If you could provide some context to your question, it would be easier to answer specifically. I say this because factors like 1. your business model and industry, 2. the size of your operations in each country (or range in size), 3. whether you have much by way of intercompany activity or not (e.g. transfer pricing and currency hedging implications), 4. local country regulatory and statutory tax/reporting needs, all need to be factored in to what you would like to do.

While the Big 4 firms clearly can help with some planning (and I am an ex-Big 4 auditor), there are other firms out there who have international operations and can also provide solid advice to you.

Paul Johnston
Title: CFO
Company: OneSoft Solutions Inc.
(CFO, OneSoft Solutions Inc. ) |

Would also suggest you have an accounting system fully supportive of your needs. For instance, it must be supportive of multi-currencies, multi-languages. Subsidiaries should have their boooks tied to the home office either on a live basis or an a replication basis whereby the remote office replicates its system nightly to the home office (and vice-versa) as required. Most of the mid to high-end ERP's provide this level of service.

Also agree on the use of one of the larger accounting firms, or at least on one with mulit-national links. We find the local office of the accounting group can help us get attention to our requests when the remote accounting office may not put you to the top of their list. They can also help explain why we need an opinion for the remote operation and help set context faster for a more succinct response. Lastly, good staff that are educated, inquisitive and can be supportive of the remote offices (who also need good staff)is also imperative.

Augusto Gautier
Title: VP Finance
Company: McLean
(VP Finance, McLean ) |

Comments refer to a multi-national insurance operation.

As to auditors - we search for the best in the region (limited to the Big 8 back then) since we found that our corporate external auditor did not have the qualification in Asia. This increased the risk in that it was not a seamless audit firm but decreased the risk in that we felt we had better audit coverage at the local level. Our auditor committed to improve local know how by transferring talent and increasing regional training.

As to reporting system - invested time in understanding local solvency accounting (very close to cash basis) and how it reconciled to local statutory basis, then we created US GAAP bridge/reconciling process. For example, Mexican statutory accounting did not allow for deferred commissions so bridge was from zero to what was allowed in US GAAP; while Argentinian statutory accounting allowed for deferred commissions amortized straight line over 5 years thus the bridge was from some level to US GAAP. For the larger operations we developed manuals explaining the differences from local stat to US GAAP. More material subs required visits almost monthly from home office until local staff was fully trained, less material subs merited quarterly, semi-annual or annual visits.

Robert Honeyman
Title: CFO
Company: Advanced Predictive Analytics
(CFO, Advanced Predictive Analytics) |

I've run close to a dozen offshore subs using local firms tied into worldwide affiliate groups. The cost worked out to around $2k-$3k per month. Had we used one of the top 4 firms, our costs would have sky-rocketed.

You need to consult with your auditor to make sure that you've defined a worldwide tax strategy that makes sense for your current size. Once that's done, your CFO needs to find the local legal and accounting resources for each country in which you plan on having employees. In our case, we used firms associated with INPACT (http://www.inpactcy.com/inpactint.html) wherever we could find them. In some cases, such as France and Bulgaria, it took a bit of effort to get the attorneys (in the former country) or the accountants (in the latter) to catch on to the musical score but once we got through those issues things went very smoothly.

Your charge to the local accounts has to be clear: all period reporting to the parent must comply with US GAAP (or IFRS, if you're not US based); all local requirements must be managed by the local firm. This includes tax, statutory reporting, maintenance of legal status (board minutes, annual renewals of charter, etc.) and compliance and advice on labor issues.

I set this up for a software company. It worked quite well, requiring about one additional person to coordinate, collect, analyze and compile monthly reports. We used a standard template that included our chart of accounts and room pages for account reconciliations and roll forwards. As I was leaving the company, we were instituting a system that would allow the company to require local use of our accounting system for all transactions, thus accommodating anticipated growth.

There are some things where it only makes sense to use a Big 4 firm. Doing transactional work is not one them. But be sure you have a CFO and corporate controller who are comfortable with handling foreign subsidiaries. That will help you get to the finish line intact.

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