Reporting at the Pace of Automation: How the Cloud Accelerates the Statutory Reporting Highway
Statutory reporting isn’t getting easier for multi-entities. Increased enforcement of disclosures is complicating filings. Firms are under internal and external strain to digitize processes, as leadership struggles with visibility into local reporting and optimizing global reporting operations. As these stressors weigh on finance teams, legacy reporting structures continue to hobble reporting life cycles. To adapt to the mounting pressure, organizations are embracing digitization as a necessary strategy.
Coping with ordered chaos
An interplay of tax reform, local tax disparities, and outdated reporting frameworks is spurring multi-entities to reevaluate their tax operations. These drivers are pushing companies toward cloud technologies.
Governments are ratcheting up the tension
Tax authorities created global accounting standards, such as the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), to address inconsistent country-by-country reporting.
Although the standards are becoming more widely adopted, localized deviations from IFRS prevent uniformity, as some countries also demand additional disclosures, including ledger and subledger account details. Also, IFRS provisions generally require more disclosures than local-GAAP criteria, so organizations may be a little more skittish about adopting the IFRS framework wholesale.
Meanwhile, the European Commission has instituted the Corporate Sustainability Reporting Directive (CSRD) and the IFRS has established the International Sustainability Standards Board (ISSB) to monitor environmental, sustainability, and governance (ESG) standards overseas.
Against shifting tax policy and ESG pressures, governments have invested billions of dollars in automation technology to instantly assess filings, forcing multinationals to ensure ahead-of-market digital competence across their accounting operations to comply with electronic submission.
Data snarl-ups are jamming the pipelines
With authorities closing in on tax operations, many tax teams continue to wrangle data using ad-hoc and decentralized manual reporting processes. Introducing new data or updating records creates a ripple effect of manual adjustments across various standalone systems and presentations.
These manual processes make reconciling the tail end of reporting especially challenging. Localized data is difficult to gather because it can’t be extracted from an ERP system. And because data isn’t linked end-to-end, the majority of risk is introduced during this last mile of reporting.
As data-herding challenges linger, the amount and type of data being input into statements is increasing. Regulators are demanding more non-financial reporting data that’s held outside financial ledgers.
Spokes in “hub and spoke” reporting models are too varied
To adapt, companies have been operating using a default “hub and spoke” reporting model—vectors of disparate accounting teams scattered throughout various countries led by central hubs designated within strategic regions. But some nations have more difficult language barriers and stricter reporting requirements than others, calling for additional workloads in these areas, especially where automation isn’t viable.
Although corporate headquarters teams have invested in workforces in foreign tax regions, they still have limited visibility into these local jurisdictions. As a result, determining where automation opportunities exist and fulfilling local business needs are difficult to manage. Even if automation is implemented within certain domains, leaders are still tasked with deciding whether to restructure global operations for alignment or to keep operations the same.
Weather report: Sunny with cloud enablement
With these challenges, organizations are acknowledging that finance transformation is essential to keep pace with the flux of change. As a result, technology-forward teams are modernizing their reporting processes in the following ways.
Migrating to the cloud
Digitized reporting has roots in earlier center of excellence (CoE) teams, which influenced initial robotic process automation (RPA) adoption. As firms increasingly leveraged RPA, more tech-oriented CoEs began to emerge, which have since encouraged migration toward cloud automation.
Organizations that have achieved automation have also outsourced governance and processes to third-party firms, such as shared services and global business services teams, creating hybrid reporting structures that are becoming a key pillar of digital reporting strategy. Meanwhile, firms operating on decentralized reporting models continue to experience bandwidth gaps and heightened systemic risk.
Harnessing the technology tool belt
Global firms may be at a pivotal point in technology transformation, as many organizations have barely enough resources to deliver reporting in an efficient and controlled manner.
Technology-forward firms have invested in cloud ERP systems and cloud tools, and have extended integration within their reporting architectures. With digitization, teams can access standardized reports—such as IFRS and local GAAP—and other memos, and update them when needed, as auditors can review filings and add comments in real time, all reducing audit risk. Data lineage also allows central headquarters teams and leadership to gain transparency into local reporting.
Automating 80% to 90% of processes is ideal. However, some manual assistance is necessary, such as when updating accounting standards templates with regulatory changes, which can redirect data flow. And with public and regulatory scrutiny tightening, an additional premium is being placed on accurate filings, so expert review is essential.
Reining in the Great Resignation
Automation technology is also helping to solve labor shortfalls and employee attrition issues. Automation frees up finance teams to focus their talents on performing business forecasting and other strategic work.
However, traditional reporting models depend on local regulatory domain knowledge and individuals with subject matter expertise who may leave the company, leading to knowledge gaps. The cloud eliminates this issue, providing real-time or future access to source files when needed.
Firms are essentially realizing that digitization is a people management strategy, as people and technology are inextricably linked—companies can always invest in technology, but people are hard to replace.
Taking flight requires the right piloting
Although organizations may acknowledge the benefits of finance transformation, leaders are questioning automation’s promises while facing increasing corporate governance scrutiny. But companies that have successfully migrated their tax operations to the cloud have reevaluated their understanding of automation and tightened their internal controls.
Automating the reporting process changes the way people operate within it. But no matter how well-designed and necessary new technology is, if enough people resist using it, implementation efforts will eventually halt. Enterprises that have achieved scale have followed a well-organized change management plan. Transitioning to a cloud solution is a complex process, which significantly impacts accounting operations, the broader organization, and many people. Buy-in from leaders and finance teams as a whole is essential to ensure collective ownership over process change.
Gut checking corporate governance
With international tax policy undergoing reform, tax authorities are now scrutinizing businesses’ key decision-making processes. Specifically, they’re seeking more visibility into document exchanges at the leadership level, such as evidence of a business owners’ domain expertise or the credentials of senior management that signed off on disclosures.
Finance transformation led by good governance standards can lead to a consistent tax narrative and compliant disclosures. Opting for the right cloud solution can further ensure a lasting automation program and truth in your numbers whether you’re beginning, pausing, or scaling digitization efforts.
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