In this article, we discuss what most companies get wrong about group reporting.
Organizations underestimate the complexity of group reporting. Those who are new to the process often wrongly assume it consists only of data collection. In reality, it’s a complex process involving intercompany reconciliation, currency conversion, and many other tasks.
Failing to realize this early creates bottlenecks, inaccuracies, and even compliance risks.
With all of this in mind, let’s take a closer look at what group reporting actually involves.
What group reporting actually involves
Group reporting involves:
1. Intercompany reconciliation
If one company records revenue from selling goods to another subsidiary, a corresponding record of this must also exist on the other side of the transaction.
Using financial consolidation and reporting software makes this easier by automatically compiling data from all entities into a unified format. With uniform data, intercompany transactions can be automatically reconciled. Not only does this reduce manual effort, but it also means that inconsistencies are flagged immediately.
2. Data validation
Normally, before reconciliation, data validation must occur. This is the process of verifying that all data collected from all subsidiaries is complete and consistent.
Specifically, it involves checking for missing or incorrect transaction data vs Trial Balances, or incorrect mappings.
Again, using reporting software allows for this data to be validated in real time. This allows for errors to be flagged immediately, rather than at the end of the month.
3. Currency conversion
Multinational companies must collect financial reports involving multiple local currencies. Many wrongly assume that currency conversion involves only applying an exchange rate.
For each different type of statement, a different exchange rate may be required.
- Income statements typically use average rates
- Most Balance sheet items typically use closing rates
- Equity and Investment components use historical rates
Failure to use the correct exchange rate will invariably lead to inaccuracies. It could also mean failing to comply with IFRS and GAAP standards.
4. Consolidation adjustments
Several adjustments must also be applied to consolidated data.
Adjustments include:
- Removing intercompany transactions, balances, and unrealized profits
- Removing internal dividends
- Adjusting minority interests
- Recording acquisition-related entries
Failing to make these adjustments will mean that financial statements won’t represent the company’s true position.
An inaccurate reading of a company’s true position will inevitably lead to poor business decisions. A recent study by Gartner found that bad data can cost businesses approximately $12.9 million per year.
5. Regulatory compliance
Many companies ensure that group reporting satisfies internal management needs. However, some forget to satisfy external regulatory compliance.
Regulatory compliance doesn’t only refer to the accuracy of data. It means complying with the required reporting processes, approval workflows, and documentation standards.
Depending on where and how the company operates, it will have to comply with several of the following:
- IFRS
- US GAAP
- Tax regulations
- ESG disclosure frameworks
- Local statutory reporting rules
Plus, there will be industry-specific reporting rules that must be adhered to. By complying, companies will have documentation ready for inspections by regulators and auditors. Failure to comply can lead to penalties, reputational damage, and loss of investor confidence.
