The New Art of Foreign Financial Reporting

An open letter to international finance and account managers

Over the past few decennia, the accelerating tendency towards globalisation has inescapably generated additional work and upset for the financial controllers, chief accountants and Chief Financial Officers of companies that have been acquired by foreign multinationals.

Whereas in the good old times these multinationals often used to make due with a minimal amount of local accounting reports and some adjustments of entries at a very broad level, the global trend towards bettering visibility and reliability in consolidated financial reporting for listed companies is increasing the levels of detail and accuracy expected.

Now, finance and accounting personnel, additionally to producing their normal statements and reports (sensed as both time consuming and appropriate) for the people whom they account to directly and who decide on their bonuses, are required to produce reports (deemed time consuming and a nuisance) for the 'headquarters'.

These headquarters are often quite remote, in another time zone, and inhabited by people who speak a foreign language or the local language with heavy accents and who have very little influence on local managers' personal compensation (a consideration not to be undervalued in real life). Additionally, one of the headquarters' primary interests always seems to be finding out where you've put away your 'cushion' to smooth out net profit when you need to. None of these circumstances are predisposed to fostering a kindly spirit of Intercompany cooperation.

These reports to the headquarters frequently require that consolidating entries be made to present local accounts in a manner compliant with foreign accounting standards. These consolidating entries are often not fully understood by personnel on either side of the border (irrespective of their individual expertise), as accounting standards differ greatly by country: goodwill may or may not be amortizable; economic lives differ; reserve and write-off policies vary greatly by country (let alone that some reserves are called 'provisions' by some and by others 'reserves', and what the heck are 'regulated' or 'legal reserves' anyway?); some countries appear to use the "extraordinary items" line for the most average events; financial assets are classified differently - every local manager has his own list of pet peeves.

To complicate matters, the reporting software is often laid out along with an accounting manual which looks to harried local managers trying to comprehend foreign accounting principles as pertinent as the familiar directions: "Welcome to Chinese Restaurant. Please try Your Nice Chinese Food With Chopsticks, the traditional and typical if Chinese glorious history and culture."

The temptation to simply map out accounts to whatever line seems plausible, without genuinely understanding whether the mapping is right or not, is great. Regrettably, it only means performing extra work without providing factual exact, useful information to the people to whom the reports are sent.

Financial reporters of the world: don't despair, help is coming!

The International Accounting Standards Board (IASB) is working with national accounting regulatory bodies to achieve the convergence of accounting standards worldwide, through the adoption of International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS, those standards issued by the forerunner to the IASB). In 2002 IASB and FASB announced that convergence in methods was a priority for both, and beginning in 2005 publicly traded companies in EU member countries started reporting in IFRS. One day, finance and accounting managers around the world will be looking at the same things the same way.

However, there is still the question of language.

Financial translators generally have years of experience in the business world prior to taking up translation. Unfortunately, even the best of them haven't worked at every company in every industry. What's more, they are restricted by the fact that terms vary greatly, even within the same language, country or industry. And there is just no convenient way of translating something that simply doesn't exist yet in another country's economic reality (any Americans out there ever have a 'postal checking account'? Or preference shares issued to the government upon nationalization?). Financial translation is an art, not a science.

Financial translation is a repetitive process. At the best-managed translation companies, primary translators discuss terms with the secondary translators who proof-read them, to make sure that they are either accurate or at least coherent (when the corresponding accounting notion just doesn't exist in the target language). The translator frequently works closely with the financial staff at the company requesting the translation to ensure that they've understood that company's specific internal jargon and nomenclature. Translators take pride in the product they deliver, and every time they send off their translations, they hope that they will make life easier for the people receiving them (often their compatriots, as one generally translates into one's native language). Especially as the subjects are often - let's admit it - quite elaborated and dry.

So, how do you get the most out of your financial translation and make your 'home office' reporting package meaningful and pertinent, since (1) you're not allowed to just throw it away, (2) understanding it fully enables you to provide meaningful, accurate and useful data and (3) if you don't, then some day the auditors will discover that it's been done wrong for years, and someone will be held accountable for the very messy adjusting entries that will be required in consolidation? If parts of the accounting manual you are provided don't make sense to you, don't simply take a best guess and stick it on the shelf.

Meet with the financial controller from the home office, and verify how you've mapped your local accounts to the Group accounts. Go over the notions or terms you're having difficulty with. Tell him/her what the term already used internally at your company is (and have the controller allow for feedback to the translator, changing the document for once and for all to everyone's profit).

It doesn't take long, and not only will the time you've spent enable you to improve your communications with your foreign opposite numbers, but you'll be able to "own" the information you're sending out with as much pride and competence as you do the local information.

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