7 Effective Ways to Ensure Local Entities Meet Their Deadlines
Posted by Sjoerd-Jaap Westra
Your parent company may be made up of dozens of subsidiaries (subs). Your subs have two broad types of financial reporting requirements. Each sub must provide financials to the parent company. Your subs must also meet deadlines for a variety of local and regional stakeholders. Use these methods to help your subsidiaries meet local reporting deadlines.
1. Prioritize, Plan and Communicate
A subsidiary may have to meet reporting deadlines for a dozen or more stakeholders. Those stakeholders include shareholders, creditors, regulators and other entities.
It's critically important for an accounting manager to get all the deadlines on one calendar. Once all the due dates are in one place, the manager can schedule the work of the accounting staff. The manager should assign each task that must be completed to a specific person.
Keep in mind that the reporting requirements have to be added to the day-to-day accounting work each person completes. There may be periods in a given month or year when a staff member spends most of his time on reporting deadlines. The manager needs to take this into account to ensure the daily accounting tasks are also completed on time.
2. Addressing Unusual Transactions
From time to time, all businesses have unusual transactions. These are transactions that are not part of normal business operations. Here are some examples:
- Gain or Loss on the Sale of an Asset: If a clothing manufacturer sells a large piece of machinery for a gain, that is not part of the income from its normal operations.
- Discontinued Business: When a business shuts down a store location or ends a product line, it may incur a gain or loss that must be posted.
- Asset Impairment: If an asset suffers a permanent decline in value, that amount needs to be immediately recorded as an expense.
These situations complicate the normal financial reporting process. Because these transactions are unusual, the proper accounting treatment may require research. For instance, the accounting entry may require more explanation, such as a footnote in the financials. The accounting staff also needs to keep good documentation in case an auditor or regulator requires more disclosure.
An accounting manager needs to plan for these unusual transactions by creating written procedures for potential situations. This enables staff members to post these transactions properly and on time.
3. Dealing with Legal Issues
Legal issues can also complicate the process of meeting local reporting deadlines. It's important that the accounting staff works closely with the legal department.
If a legal matter starts advancing through the court system, the accounting department may have to post an entry to the financial statements. Say, for example, that the business is a defendant in a lawsuit. The accounting department must work with the legal team to determine the dollar amount of any journal entries. A legal case may also require a footnote or some other additional disclosure.
To avoid delays in financial reporting, the accounting managers must get frequent updates from the legal department.
4. Amending the Financials
Typically, financial statements are filed quarterly. There are instances, however, when the financial statements must be changed after they are issued. This can happen for several reasons:
- Correction of an Error: If an error is found that is a material amount, the financials should be corrected and reissued.
- An Event That Existed Before the Reporting Date: In some cases, the financials must be changed because of a situation that was known before the financial reporting date. For example, assume that a lawsuit existed on the balance sheet date, but the legal matter is settled after the financial statements are created. That situation may require the financials to be changed.
If the financial statements need to be changed, that fact should be reported quickly. The accounting staff should make it a priority to issue the new financials as soon as possible.
5. Explaining Differences between GAAP and IFRS
If a U.S. firm has subsidiaries that operate outside the United States, the company must deal with two broad sets of accounting rules. Generally accepted accounting principles apply to U.S.-based firms. Most international businesses must operate based on International Financial Reporting Standards.
This can create confusion for financial statement readers. Assume, for example, that a subsidiary operates in Germany using IFRS accounting. The overseas subsidiary also reports to a parent company in the United States.
The German stakeholders need to know that the sub's financials are reported based on German accounting standards. They also need to understand that the parent company's consolidated financials are based on GAAP.
Good communication will reduce any confusion.
6. Handling Additional Required Documents
Many stakeholders require financial statements and additional documentation. A lender, for example, may require documents to verify the collateral backing a loan. If a building is serving as collateral for a loan, the bank may want a copy of the title to the building.
The accounting department needs to work with others in the firm to provide all the disclosure required for regulators.
7. Using Consolidation Software
Subsidiaries are responsible for a large amount of local financial reporting. Since they must respond to so many stakeholders, it's important to take steps to make the consolidation process easier. Consider specialized software to perform your consolidation. Software can speed up the process and help your subsidiaries focus on other reporting issues.
Considering all these steps ensures your company is more responsive to stakeholders. With proper planning, you can get your reporting requirements completed in less time and with less hassle.