For companies who are conducting business in multiple countries, defining processes globally, regionally, or locally is an ongoing opportunity to create efficiencies and take advantage of scale.  However, to meet legal and regulatory requirements, many financial statement processes require both a global view and one that complies with local statutory laws.  In this case, the opportunity that exists is to create a conversion process that is transparent, clearly defined, and as consistently applied on a country-by-country basis as possible. 

Recently the Senior Director of Accounting Services at a member company wanted to understand the method others used to covert financial statements to local statutory GAAP.  Using Peeriosity’s iPolling^TM capability, they were able to quickly get detailed responses from peers who faced the same challenge.

As background, the member company’s system environment is advanced, with a single instance of SAP that is primarily configured to drive compliance with US GAAP. This means for the other 50+ countries and 250+ legal entities the company operates in they need to adapt SAP US GAAP financials to local GAAP.  Currently, the company has no specific standards or global guidelines, so each country is on its own to determine the best method.  As an added complexity, the resulting records are often used differently. For example, they may or may not be formally filed, be subject to an independent audit requirement, or be used as a basis to support a local tax compliance package.

Peeriosity’s iPolling^TM results provided answers that were clear and actionable, with the ability for all respondents to easily communicate with peers to fully consider alternative approaches.  The results indicate that 36% of member companies maintain a parallel set of local GAAP accounting books and records to meet local requirements.  Another 29% of companies make statutory adjustments with a special ledger/coding structure within the same ERP to derive local statements, with 21% having conversion processes that vary by country.   No member companies indicated that they rely on assistance from a third-party accounting firm to complete the conversion.  Here are the details:

The second iPolling^TM question was designed to understand the metrics used to monitor performance with the conversion process (or processes) used.  For 29% of companies, the most effective metrics are used to measure the timeliness for meeting filing and reporting deadlines.  For 50% of the responding companies, few or no valuable metrics currently exist to monitor this process.  These results highlight the opportunity that exists at many companies to create and implement effective performance measures for this process.

Here are few of the comments added by iPolling^TM respondents:

• We are currently rolling out a global instance of SAP version 6.0.   Version 6.0, as part of our new GL, has parallel ledgers which allow maintaining multiple GAAPs in one GL by the SSCs.

• Parallel sets of books are maintained using Parallel Ledger in SAP.  Most transactions populate both ledgers, with US specific, or local GAAP specific being posted to the appropriate ledger (the local GAAP entries are generally periodic entries). We are currently engaged with a project to extract the data from SAP into a piece of software that enables the mapping of ledger balances to statutory filing requirements, tagging the data to disclosures, and production of the final documents for filing. The format of the accounts and disclosure requirements are produced by the software provider with input from one of the big 4 audit firms. This was piloted for 5 countries, and we are now working with the software providers to roll this out to several other countries.

• We use special GL accounts within the SAP chart of accounts to post the necessary “statutory” or local GAAP adjustments. Because we haven’t made any efforts to centralize statutory accounting, the local Finance team manages the process.

• We use the SAP Special Ledger in selected countries. In others, we simply manually create separate results.

• We maintain local IFRS and Tax GAAPs in parallel. We do not use the Special Ledger in SAP.  We use the traditional one.

• We maintain our local ledgers on the same ERP system as our US GAAP ledger and have centralized local statutory filings for most countries in our Shared Service centers.  Our one global metric is ‘filing on time’ but within the centers, we also measure the number of times we have to re-open a closed period to make adjustments due to local statutory audits or local tax audits, and we are considering developing a “local GAAP cycle time” metric that measures how much time passes between US GAAP close and Local GAAP close so that we can start trying to shorten the time between the two.

What process or method is used at your company to create local GAAP statutory accounting financial statements?  How standardized is your process?  What metrics do you use to measure timeliness, accuracy, and effectiveness?

Who are your peers and how are you collaborating with them?

 “iPolling^TM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated e-mail system, Peer Mail^TM, members can easily communicate at any time with others who participate in iPolling.