Mastering Multinational Financial Statements
Barry Gibson (巴里~吉布森)
Barry Gibson (巴里~吉布森) is a qualified accountant and currently working as a foreign exchange trader at an international bank on a part-time basis. Before he joined the bank; he has over 20 years of finance and accounting experiences in some multinational corporations.
He deals with the operations of foreign currencies in depth throughout his career life. His achievements include 1) implementation of a file management and accounting system, 2) development of currency hedging strategy and related accounting procedures, and 3) enhancement of a financial model which support valuation for currency options.
With the further understanding of his career story in respect of professional accounting, although he is smart to deal with foreign currencies at the business contract level and associated transactions, he has some doubts in the management of a mass volume of financial statements denominated in different reporting currencies and underlying transactional currencies. At the end of the interview with Barry, he summarised there are three major pitfalls in the preparation of consolidated financial statements which involves different reporting currencies of foreign entities.
Multinational Group A: rely on using Excel Workbook to manage the preparation of group accounts which cannot support multi-user and proper audit trail
Multinational Group B: migrated all legacy systems into a single ERP software which triggers a problem of managing huge volume of data within a centralised database
Multinational Group C: implemented a complicated accounting software which specialises in the preparation of consolidation financial statements for statutory audit
Barry Gibson @ Communication Tech Group
Barry had joined the group at his early stage of accountancy career. The principal activities of the group are to manage a portfolio of communication technologies and production of custom communication solutions for clients. Every year the group acquires on average of 10 private companies in which most of them are incorporated in overseas.
Report to the Group Accounting Manager, Barry is responsible for managing a collection of financial statements and related version control with the reconciliation of differences between each version. His works are very mechanical and tedious because the number of oversea companies is over 1,000 which cover more than 30 countries.
The group accounting team of the headquarters has over 20 staff in which 15 staff directly involved in the process of preparation of monthly consolidated financial statements. All overseas finance offices are required to follow a standard chart of accounts, project codes and accounting policies. Other challenges of the financial close processes are frequently involving the following activities: –
Acquisition and disposal of companies
Amendment of financial statements by overseas finance offices
Addition of new account codes and project codes
Addition of new reports as requested by management
The disadvantages of the standard chart of accounts and project codes are significant. Firstly, headquarters sends notification emails in respect of new account codes and project codes to all overseas finance offices very frequently whenever any staff requests for new code. Secondly, some of them are required to follow local regulatory and management requirements; they have to maintain dual sets of account ledger for each company.
After the 2-year of mechanical works, he had proposed and completed an implementation a file management system which supports to automate sending alerts and keeping different versions of files and related data reconciliation. Financial close is reduced from 60 days to 45 days because the audit trail of the file management support to motivate the faster submission of financial statements by overseas finance offices as well as fewer amendments.
Barry Gibson @ International Trading Group
After Barry leaving the technology company, he joined an international trading group as an Assistant Finance Manager. He is responsible for treasury operations of the international trade business which mainly focus on risk management for exchange rate risk, liquidity risk and credit risk of the international trade business. Below are key statistics of the business: –
Number of contractual currencies: 18
Number of contractual parties: 1,300
Number of multi-currency account code: 9,500
Number of item code of inventories: 1,800
Number of warehouses: 200
Number of employees: 850
Number of oversea offices: 120
Number of legal entities: 180
Within first year he joined the company, the management had decided to implement a Cloud ERP service to unify trading and accounting systems for all oversea offices. Key reasons for such move are as follows: –
Long lead time of financial close of individual entity and group of entities
Some offices their accounting software cannot support multi-currency
Some offices their trading software are not integrated with accounting software
Significant works are involved in the reconciliation inter-company transactions
High cost of managing IT infrastructure for overseas offices
Inventory system supports FIFO for individual warehouse level only
Barry is one of the members of the implementation team. The cloud computing service cannot offer customisation service, but allow users to select particular implementation plan. So, the implementation is very smooth and efficient. The first milestone of completion for a production run is less than a year.
After one year of using the ERP, the management requested an interim review of the effectiveness of the implementation. At the meantime, Barry was promoted to Group Internal Auditor and responsible for the review.
The review work covers interview of select staff and questionnaire to most staff. The ERP review committee had completed the review by delivered a review documentation to the management. The review has uncovered some of the following operational issues: –
Performance Issue: All overseas offices are forced to work within a centralised system and database. Any report enquiry users have to wait at least 5 minutes.
Accelerated Unit Cost: Whenever request to increase performance, always associated with accelerated monthly service charge (i.e. CPU Power, Disk Usage) rather than software improvement.
No Monthly Cut-off: The system must process any data amendment retrospectively (i.e. back-date amendment). Impact on monthly financial close is very significantly.
Ad hoc Report: Users rely on printing all relevant reports to Excel files as a data source for management reporting when management demand for high quality of reports.
Proposal for Improvement: By outsourcing to develop a database extractor to output the following data set in Excel: –
Double entry voucher list by entity
Year-to-date trial balance by entity
Stock-in and stock-out by warehouse
Year-to-date stock item balance
Reconciliation of any back-date transaction
Barry Gibson @ Multinational Marketing Group
At the end of 15-year of working in the accounting field, Barry successes in a final examination of a professional accounting body and acquired the professional qualification. He had an aggressive plan of career development for the next five years. By an opportunity, he joined one of sizable marketing group as a Chief Accountant for headquarters. He spent only three years to achieve his original plan; he became a Chief Finance Officer of the Asia-Pacific regional headquarters.
At the beginning of the employment, he was requested to improve the workflow of global financial consolidation. The global deployment of the new accounting software which specialise in the preparation of consolidated financial statements can support the group to reduce financial close from 45 days to 40 days.
A posted implementation report is written by Barry which summarises key issues of the software: –
The accounting software supports customisation but not allow users to effect any customization.
The software does support the calculation of monthly transactional movement which involves foreign currency translation.
It is very time consuming to document and confirm all relevant report layout and calculation rules before executing customisation works.
There are lacking of real end-user reporting tool, so users are remained rely on using Excel to prepare consolidated financial statements manually based on some raw output from the system.
Some users claim that the software does not care for traditional accounting practices.
The key successful of his contribution to the group is mainly attributed to an excellent financial modelling design and practice. The business has to manage scalable projects (e.g. construction, engineering and information technology) to support delivery of marketing solutions for clients. There are a significant price and exchange rate risks for these activities. Barry had designed and implemented a financial model of hedging to support monitoring to minimise associated risks. The new accounting software can offer help because the software support to export raw data to Excel. It becomes a valuable input for the financial model.
At the end of 3 years he had worked for the group, he was promoted to Chief Financial Officer of the Hong Kong regional headquarters which is responsible for overseeing financial management throughout Asia-pacific regions. The change of finance roles are summarised as follows: –
Moving from stationing at the Germany to Hong Kong with frequent overseas travelling
Shifting from group consolidation for historical to budgeting for prospective business
Changing from working with finance departments to working with business units
Barry realised that his previous implementation of the complicated accounting software cannot support the area of budgeting for business. The software vendor recommended alternative software. With his direction, IT department had developed some Excel Macros to support streamlining the process of budgeting. In the meantime, the UK headquarters had decided to source an alternative accounting software to cover a wider scope which supports end-user implementation on a continuous basis. The sourcing had not yet to finalise at the end of his employment with the group.
Barry had decided to retire from the senior executive position but maintain a consulting role with his employer. He continued his new career on a part-time basis – foreign exchange trader for an international bank. With the leveraging of his experience, he can enhance a financial model which support valuation for currency options for the international bank.