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The fine art of push down

Many CFOs are looking for a faster and more value added reporting process. Faster access to relevant information enables the management team to take immediate corrective action where needed. Fast close projects generally focus on two mechanisms: more reliance on estimations in the month end close, and utilizing better technology to support the group reporting process. Challenging the role that head offices play within the group reporting process is however often overlooked. We have witnessed the optimization of that role to slice multiple days off the reporting process in some cases.

Optimizing the role that head offices play can slice multiple days off the reporting process in some cases. 

Head offices have the tendency to assume group reporting related tasks centrally. Sometimes because the utilized technology does not offer the right functionality to decentralize these tasks, but more often there are other forces at play. Let’s highlight some common examples.


International corporations apply many local accounting principles at their foreign operations, but there is only one applicable to the group reporting – generally IFRS or US GAAP. Who should be held responsible for bridging local accounting principles to group accounting principles? The argument often used by head offices is that operating companies do not oversee the complexity behind these GAAP adjustments. However, consider this: why should head offices supposedly have a better understanding of the transactions booked at their foreign operations than those foreign operations themselves?


A similar dilemma occurs with the allocation of goodwill and intangible assets from purchase price allocations. Should this be part of the consolidation entries, be accounted for on the balance sheet of the holding company or be accounted for on the balance sheet of the operating company involved? There are a number of practical reasons in favor of accounting these on the balance sheet of the operating company. In case of a foreign functional currency this approach allows to automatically revalue goodwill and intangible assets and to book the effect to the currency translation reserve. In addition it is much more effective to determine which goodwill, intangible assets and currency translation reserve should be derecognized when an operating company is divested.


Another common discussion involves the intercompany matching process. Should mismatches be analyzed and adjusted for by the operating companies amongst themselves, or is this a task to be allocated to head offices? When head offices choose to manage this process, someone in the consolidation department can easily spend days trying to identify mismatches, communicate them to the companies involved, and post the needed adjustments at the consolidated level.


Cash flow reporting is highlighted here as a final example. Head offices may choose to prepare the cash flow statement using the consolidated income statement and balance sheet as a starting point. This not only is a time consuming exercise, but it is also inefficient and inaccurate: such corporations generally do not see the cash flow statement as a performance management instrument but rather as a mandatory section of corporate reporting. A pity, as collecting cash flow statements bottom-up can provide valuable insights on the cash conversion efficiency of the individual operating companies.


Collecting cash flow statements bottom-up can provide valuable insights on cash conversion efficiency.

Head offices often use the argument that operating companies do not have the necessary expertise to manage such group reporting topics. This approach generally results in a group reporting process where tasks are cluttered at the head offices; after all, many small activities within a relatively large group of individuals across the corporation are combined into a few large activities within a relatively small group of individuals at head offices.


The solution is to take the principal standpoint that head offices should act purely as process coordinators. Group adjustments and other forms of data enrichment at consolidated level should be abandoned. This standpoint can implicate a significant paradigm shift at head offices. Key drivers for a successful change are on the one hand utilizing a well designed and modern group reporting software and on the other hand, perhaps more important, an attitude to manage and coach rather than an attitude to execute. Keeping this in mind I invite you to review the role your head offices play within the group reporting process.


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