’Integrate your compliance and reporting models’

By Kim Dong Chul

A lot of Korean companies doing business in India have recently been in trouble with tax audits by the local tax authority. In general, tax risks associated with tax audits stem from inappropriate tax compliance or statutory reporting in accordance with local tax law or local generally accepted accounting principles (GAAP).

These risks are mainly attributable to poorly equipped global compliance and reporting (GCR). Even world’s largest and leading companies headquartered in the United States or Europe are struggling to cope with these risks.

Korean companies are poorly equipped with GCR compared to those headquartered in the U.S. or Europe and thus risks associated with tax compliance and statutory reporting in jurisdictions where they are doing business are much higher.

Risks associated with the GCR are on the rise even for U.S. and European firms. Local authorities are rewriting regulations, focusing more intently on the collection of tax revenue and sharing more tax information across borders.

At the same time, the global financial crisis has driven companies to redesign their finance operating models for competitiveness and growth opportunities. Businesses are now focused on expanding market and customer reach and increasing operational agility. This in turn is leading to dramatic changes in finance models.

In this regard, Ernst & Young’s latest survey of GCR means a lot to Korean companies. Because this survey was completed by the world’s largest and leading companies viewed as far ahead of Korean companies in this area.

According to Ernst & Young’s latest survey of over 200 senior finance executives, 80 percent of companies have either recently completed or would complete a finance transformation in the next two years.

A finance transformation involves more than merely reorganizing the finance department and its practices. Rather, it is a comprehensive evaluation of the very mission of finance with an eye toward determining how these operations can be more optimally performed.

Of course, such transformations vary in their rigor and scope. For some organizations, the driver has been or will be largely cost-focused. Yet any finance transformation must carefully consider the impact on GCR.

Unfortunately, while GCR processes are inseparably linked to such transformations, our survey further reveals that companies are most likely overlooking many essential sub-processes such as the flow of financial data to GCR. This confluence of circumstances results in a new set of needs and opportunities.

More and more companies are now realizing that they must transform GCR to deliver greater efficiency, control and value, and to mitigate risks in an increasingly global and sometimes hostile tax and regulatory environment.

Companies that have addressed GCR opportunities within their finance transformations are already reaping the benefits. For others, whether their transformation has been completed or contemplated, now is the time to make a change. They should assess the gaps in their current approach along with the benefits available from a new GCR model. Of course, transforming the GCR model creates many challenges.

Globalization and the drive for sustainable cost advantages are changing the way global companies position their financial and tax operations. And it is imperative that global businesses update their processes for statutory financial and tax filings to maintain compliance and competitiveness.

With the benefits clear, there is no longer a question as whether GCR processes must change _ the only questions are when and how. Successful results will require due efforts. But the benefits and risks demand that companies begin the journey.