By Ian Lavis on behalf of Praxity
Public and private sector organisations face a major challenge in understanding and complying with reporting requirements around the world.
As organisations seek to invest or develop business across borders, they are increasingly turning to international accounting firms for advice on reporting standards in different jurisdictions.
The problem is no single accounting firm can claim to be an expert on reporting standards in every corner of the world. To overcome potential knowledge gaps, accounting firms are developing ever closer ties to share knowledge and expertise on international reporting standards.
A leading example of this collaborative approach is that of Praxity, the world’s largest alliance of independent accountancy firm. Experts within the Alliance continuously exchange expertise on new or updated standards and compliance issues to help clients overcome the challenge of reporting across different jurisdictions.
Justin Stenberg, Tax Director at US-based Praxity participant firm BKD, says sharing expertise in this way helps clients meet their cross-border needs: “It is incumbent upon us as professionals to educate clients on what the reporting requirements are. It underscores the collaborative relationship between accountants. I work with many multinational tax specialists. I may be familiar with the jurisdictions in other countries but I am not a chartered accountant in Canada for example. As a result of BKD’s membership of Praxity Global Alliance, I have access to a multitude of professionals in Canada that can help my clients meet their Canadian business needs.”
Through its Praxity membership, BKD has forged strong links with Canadian accountancy firm MNP and has also developed collaborations with accountancy firms in Mexico and further afield. “It’s not like I am picking a random name of an accountancy firm in another country,” Justin Stenberg explains. “We have an established working relationship with these firms and I feel very confident in saying I have a cohesive relationship with them.”
Helping clients respond effectively
The need for international expertise on reporting requirements has never been more important. Companies may be unaware of the full complexities involved in reporting across borders or they may not have the resources to tackle all the compliance issues that arise as the business develops.
The wealth of standards and compliance issues is not just a problem for multinational companies. Not-for-profit entities such as hospitals, schools and universities may have monies they wish to invest in stocks in companies based in different countries. This triggers new reporting requirements which these entities may not be aware of.
Describing the extent of the problem facing public and private sector organisations, Justin Stenberg says: “It is quite a challenge trying to stay abreast of all the developments in each country and within each country because of the multitude of reporting standards and compliance issues that exist. It’s burdensome. It takes a lot of time.”
In the US, the Bureau of Economic Analysis (BEA) has implemented international reporting standards to track inbound and outbound investment but not all companies may be aware of this or know how to comply. Meanwhile, in the Caribbean the Organisation of Eastern Caribbean States (OECS) has produced a framework for new transfer pricing which a lot of US trading partners have adopted but the US has not.
“It’s just another example of compliance requirements that clients may not be aware of,” Justin Stenberg says, adding: “A bigger challenge on the US side is the example of a US business consolidating a tax return with a multitude of non-US affiliates. You have to take a local country reporting standard and use the functional currency in that jurisdiction. Then you have to convert it to US GAAP (General Accepted Accounting Principles). Then reinstate it into US tax principles. Then translate it into US dollars. Then put it in a US tax return.”
There is a strong argument for the convergence of reporting standards for the benefit of accounting firms and their clients but this is a long way off according to Justin Stenberg. He says: “I appreciate the value of having common standards. It provides harmonisation and an equal ground. Harmonisation will reduce the cost of compliance for firms and their clients, and I think it will be better for governments too. The cost burden to tax authorities is going to come down.”
He predicts continued harmonisation of International Financial Reporting Standards (IFRS) and US GAAP but that it will be a long process, adding: “It seems there is a concerted effort to bring some coherence but convergence is a long way off.”
This suggests the collaborative approach exemplified by BKD, MNP and their fellow Praxity participant firms is likely to become even more important in the coming years as clients seek greater understanding of reporting requirements worldwide.