While operating a business in different locations could be a feat you can be proud of, dealing with a multi-locational business comes with its own set of difficulties. Running your own business means across multiple time zones means pressure on manpower, financial resources and time management to guarantee smooth operations. It requires immense effort to align partners – segregated by nationalities, languages and work cultures – towards the shared objective of the company’s success.
Keeping books of accounts of multiple entities across different geographies, and consolidating them for presentation isn’t an easy task, given the different currencies, they manage and conflicting bookkeeping models, distinctive practices, guidelines and regulations. Bookkeeping benchmarks cover topics such as how to account for inventories, depreciation, research and development costs, income taxes, investments, intangible assets, and employee benefits – all of which are calculated differently in different geographies. Here are some major bookkeeping issues faced by multinational companies around the globe, and how they are handling them:
- Different Local Regulations For Every Country: Generally Accepted Accounting Principles (GAAP) vary from one nation to another. For example, IFRS, SFRS, US GAAP and Ind AS; there is no globally accepted reporting standard. Regulations on bookkeeping, legal issues, tax collection, and others change for all nations on the planet, which impacts bookkeeping and even the profitability of an organization operating in multiple geographies. With the markets getting tougher for businesses, these laws are often changed to keep up with the changing realities. It is critical to stay abreast of these changes to make sure that an MNC’s financial statements are in sync with the updated rules and regulations.
- Consolidation Of Entities In A Group: Records of every individual entity should be maintained as per the bookkeeping norms of the country of operations. However, given the constant changes in currency rates, it is vital to make sure that the correct FX rates are applied for converting local currency amounts to reporting currency. As this influences all parts of an organisation i.e., Income, Costs, Fixed Assets, Current Assets and Liabilities, Share Capital, Loans, etc., the entire activity is very challenging and tedious.
- Calculation Of Impairment Of Investment In Subsidiaries: Making investments in subsidiaries abroad is a typical issue at MNCs. It is vital to monitor the impairment of investments in subsidiaries, particularly in firms that are making losses and/or are located in remote locations that cannot be accessed, or nations with a volatile political situation; until the subsidiary is able to recover the investment made by the holding organization.
- Transfer Pricing And Intercompany Cost Allocations: Transfer Pricing (TP) is settling the cost of goods and services sold between the related organisations, within a group of entities. For example, if a subsidiary sells goods or services to the parent organization, the consideration concerning those products/services paid by the parent company is called TP. TP results in the setting of prices among divisions within a firm and can be utilized as a profit allocation system to attribute an MNC’s net profit (or loss) before calculating tax to countries where it does business.
Hence, accurate bookkeeping from the viewpoint of TP and intercompany cost specifications is exceptionally important for multinational corporations that are engaged in regular financial transactions with its subsidiaries around the globe. There are different laws regarding TP, and guaranteeing compliance in different geographies that the Group works in is becoming very difficult and expensive, as businesses and regulations change constantly.
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With such a great amount of work to deal with, bookkeeping firms stretch themselves thin as they also oversee payments for these MNCs. Advanced payment platforms like InstaReM can truly help accounting firms in this space. With features like multi-currency payments & accounts, competitive fee, transparency and speed; InstaReM gives you an online platform to process payments to any place at a fraction of the cost you bear right now.