Managing the typical close process is rarely easy—data is stored in multiple systems and formats, hours are spent tracking down missing information and spreadsheet calculations must be entered into the accounting system manually. For organizations with multiple subsidiaries or independent business units, however, closing the books is even more challenging, especially if they operate in multiple countries.
To add to the complexity, as companies evolve, they often acquire other businesses as a way to enter new markets or diversify revenue streams. Over the course of this expansion, an organization may wind up using several different ERP and accounting systems at the same time. While each one may serve its purpose individually, as a collection, these systems rarely integrate with one another. This makes gathering and normalizing data across the organization exponentially more difficult.
A lack of a common chart of accounts is another obstacle that must be overcome to produce consolidated financial reports. This means each transaction from each subsidiary should be reviewed by accounting before they are posted to the general ledger to ensure the correct account codes are used. In practice, however, this may not happen due to a lack of resources and pressure to close the books quickly. While major transactions will likely be analyzed, smaller ones are often skipped.
In the case of a multi-national company, there will also be different accounting standards and tax regulations to sort out, as well as exchange rates to look up so transactions can be converted into the corporate base currency for reporting. And because revenue recognition, depreciation and amortization rules differ from one country to another, revenue timing and expense schedules may also need to be changed for corporate reporting.
The extra effort required to review and manually adjust transaction data from subsidiaries extends the close process, requires finance and accounting staff to work overtime and increases the risk of errors.
Corporate Standards, Local Results
While it’s essential for subsidiaries operating in different parts of the world to comply with local and federal regulations, ideally, they should follow corporate accounting standards as well and use the same chart of accounts for consistency and easier consolidation. Replacing the hodge-podge of different ERP and accounting software with a single solution is an essential first step toward achieving this goal.
Software designed to meet the unique demands of multi-entity accounting should include:
- A shared general ledger with a standardized chart of accounts and the ability to create a custom chart of accounts at the region, country or subsidiary level
- Automatic currency conversion using updated exchange rates with simultaneous transaction posting in both the local and parent company’s base currency
- Support for multiple accounting standards and tax rules with the ability to apply multiple accounting treatments to a single transaction
- Seamless consolidation without the need to manually reclassify or adjust individual transactions
- Real-time access for authorized users to subsidiary financial data down to the transaction level
Automating the Creation of Different Books for Different Requirements
NetSuite multi-book accounting software allows finance and accounting professionals to create multiple sets of books with different rules to address a variety of financial, tax and managerial needs. For instance, a company headquartered in the United States with a European subsidiary will need to apply IFRS accounting rules to business transactions in France and Germany, but follow generally accepted accounting principles (GAAP) when those same transactions are included in corporate financial reports. Using NetSuite’s multi-book accounting, the company can create an IFRS-specific accounting book with rules that automatically post transactions occurring through the European subsidiary to both it and the primary accounting book that follows U.S. GAAP.
Because revenue management rules vary under different standards, separate books can be also be created with different revenue recognition schedules. Where the rules differ, revenue can be recorded in different amounts or at different times depending on requirements. Book-specific GL accounts and fixed asset depreciation and expense amortization schedules are also possible. An organization with subsidiaries in different U.S. states, for example, can create separate books to account for differences in corporate taxes or depreciation.
NetSuite’s multi-book accounting also performs currency conversion automatically based on predefined rules that determine which units are used for reporting purposes in each country or region and for each subsidiary. Individual transactions are posted in multiple currencies simultaneously using current exchange rates, eliminating the need to perform conversions manually as part of the close process. And because this happens in real time, the GL impact can be viewed in multiple currencies right away.
NetSuite multi-book benefits companies conducting business across borders or with multiple subsidiaries. Real-time consolidation, automatic currency conversion and the ability to apply multiple accounting standards, tax rules and revenue and expense schedules streamlines the close process by eliminating manual adjustments and time-consuming consolidation processes. The results are more timely, more accurate reporting, less stress on accounting personnel and better relationships with key stakeholders.To learn more about multi-entity accounting, watch the Consolidate Your Accounts with Multi-Book Reporting webinar.