Transparency, Clarity and Efficiency Gains through Harmonization of Internal & External Accounting
The demands placed on accounting are constantly increasing. Whereas an annual balance sheet and income statement used to be sufficient to determine a company’s success, today financial statements are expected on a monthly or quarterly basis. Complex accounting standards, especially in the area of IFRS and the simultaneous application of multiple accounting standards (e.g. commercial law, tax law and in accordance with IFRS), place a heavy burden on finance departments. Additional requirements, such as the preparation of segment reports, cash flows and Notes to the financial statements, mean that it is no longer just classic accounting that is required, but rather controlling is also making an increasingly significant contribution to comprehensive reporting. This shows the importance of close coordination between external and internal accounting.
Reducing complexity by harmonizing internal and external accounting not only improves transparency and clarity, but also makes sense for reasons of efficiency. Experience has shown, however, that most companies do not consistently address the opportunities for harmonizing internal and external accounting and generally streamlining reporting systems and thus fail to achieve a sustained increase in efficiency in their finance departments.
Systematic Implementation of Harmonization in the Organization and Systems
Imputed costs and risks in internal reporting must be eliminated for a complete alignment of the views. Since external accounting solely requires the disclosure of real valuations, the results can only be compared if both sets of accounts show an identical result, which is achieved without the recognition of imputed valuations. In order to harmonize the views, all items in the internal reporting must therefore be adjusted for imputed valuations (such as calculated entrepreneurial wages, risks, rents, interest and depreciation/amortization). Calculations and controlling views must, however, be reviewed and, if necessary, realigned during this process so that, for example, internal cost surcharges continue to be taken into account (on a flat-rate basis) during quotation and pricing.
IFRS as a Uniform View between Internal and External Accounting
It is recommended that internationally operating companies report in accordance with uniform Group accounting standards. However, uniform accounting in accordance with internationally recognized IFRS does not only enable comparability and transparency. Companies converting to IFRS generally find it easier to dispense with imputed valuations because the IFRS valuations (“true and fair view”) correspond far more to the way of thinking in controlling than to the traditional commercial law regulations with their principle of imparity. However, companies that do not wish to adapt their accounting to international standards should also check whether and where imputed valuations (still) make sense.
Closer integration of the finance department also makes sense organizationally. In addition to identical views of the figures, the harmonization of accounting views also enables even closer exchange and integration within the area of finance. In this context, role profiles and responsibilities need to be reconsidered and adapted in order to lead to the development of efficient and inter-departmental competences. Harmonized views must be consistently reflected in the ERP systems and thus hold additional potential for efficiency. Modern ERP systems, such as SAP S/4 HANA, provide identical valuations and a uniform database for accounting and controlling. The use of so-called ledger solutions makes it possible to depict different accounting standards, such as the German Commercial Code (HGB) and IFRS, parallel in the systems. The conversion from one accounting area method with manual delta postings to a ledger-supported accounting system with largely automated gross postings reduces the manual posting and reconciliation effort and thus results in additional potential for efficiency and transparency.
Our Services for Clients
Our proven expertise in the area of accounting harmonization is underpinned by numerous successful client projects and references. Our holistic professional know-how in the area of accounting, IFRS as well as in (internal) reporting and controlling and our understanding of the interaction between business and IT let us be at your side for the successful and secure implementation of your projects. We are happy to use our accompanying change management approach to secure your project and company success in the long term.
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