The future impact of technology was identified as being among the biggest complexity issues for companies globally, by the experts surveyed in the TMF Group Financial Complexity Index; it was also in the top 3 for both the EMEA and APAC regions.

The question is, though, is it the technology that causes worry, or the way in which it gets deployed?

The why

First, let's take a look at why companies invest in technology. Usually this is to:

  • increase operational efficiency
  • achieve fast month-end closing
  • improve data analysis and obtain close to real-time, reporting
  • and gain productivity advantages.

ERP (enterprise resource planning) systems and OCR (optical character recognition) technology are among the most-favoured solutions in multinational companies; the former, in particular, helps to standardise and streamline internal processes, and thus reduce costs.

Then there's mobile accounting and cloud computing, both of which have transformed the lives of accountants. Technology reduces the burden of having a human pore over every detail of every document and report; scanned paper documents, PDF files and images can all be turned into editable and searchable data thanks to technology today. And companies take advantage of that technology to help keep them compliant, wherever they operate.

Technology can help adapt to regulatory changes

In fact, OCR technology could help companies to cope with coming changes in accounting standards. IFRS 15, concerning changes in revenue recognition, and IFRS 16, which looks at lease agreements, require companies to search through a large amount of data. For example, a leasing company will need to review each and every lease agreement, as well as each covenant on loan agreements so that they can identify the accounting treatment under the new standard. If you have all of this information in one database, it's a straightforward process - but many companies store these things in different databases, which make it much trickier. You could, though, invest in technology which would bring that information into one database to make the analysis process much easier, using OCR to scan and identify the relevant information.

These accounting regulations are not changed on a whim, and we're seeing a trend of IFRS and GAAP becoming increasingly aligned. As these standards are amended, technology can be deployed to search databases, increase efficiencies in internal processes, and align accounting systems to accommodate new requirements. Changes in regulation can bring short-term pain to companies as they work to adapt, but in the long-term these changes will make global operations easier and more streamlined.

Local expertise can't be replaced

Technology is a complement to processes, but it will never replace the need for the human touch. You will still need specific local expertise to negotiate local requirements, no matter how aligned to international standards they are.

Your global ERP can be used in every country - as long as you're talking about countries with consistent and standard processes, and consistent reporting requirements. But as soon as you add, say, Brazil or Mexico to your operations, that global ERP becomes less reliable. In these countries, and in others around the world, you need to follow very specific electronic reporting requirements, and your ERP needs to be able to interface with the electronic platforms of the tax authorities. You could spend a huge amount of money customising your global ERP system, but you may find even then the functionality is not there and you'll need to use a locally-compliant software in that country.

Any technology deployed needs to be flexible and agile, and needs to be able to adapt to changes in legislation quickly. This is one of the major challenges for CFOs looking at expanding across borders. They have a system in place that is good enough for compliance and corporate policies and reporting requirements, but they need to adapt the system to the local requirements of each country in which they operate. While the member states of the European Union are fairly aligned, you also have regions such as Latin America and Asia Pacific where rules vary greatly from country to country.

Whenever you look to expand to a new market, one of the first things to check is the local regulations for accounting and tax, as well as the language requirements of those regulations, then assess whether your current accounting framework, process and systems is appropriate for that local deployment.

Tax authorities have their own technology, too

Technology can help companies to increase internal efficiencies, but tax authorities also have their own reasons for deploying technology. Brazil's eSocial has caused plenty of havoc to reporting in that country, and we'll see Vietnam and Thailand implement electronic invoicing soon. India's GST (Goods and Services Tax) roll-out included a new, sophisticated IT infrastructure to get real-time data for GST, and it allows data matching between that reported by companies. We're seeing technology is impacting not only the ecosystem of a company, but also the way in which companies communicate with tax authorities. It's no wonder the future impact of technology is a trend playing on the mind of compliance professionals around the world.

We see that tax authorities are using technology to make the tax return submission process easier and less time consuming but – more than this – tax authorities use technology to get close to real time data on turnover or VAT transactions. Tax authorities also deploy technology to match and analyse data and – thus – identify discrepancies that would be further investigated during tax audits.
Technology could make compliance easier when it comes to data aggregation and analysis, but could also be restrict the way in which companies could make use of it. Simplification of tax rules and alignment of accounting standards would allow companies to make better use of technology, with less investment in further developments and customisation.

And, of course, keeping up with trends in financial compliance, and working with a local partner with local expertise, can help keep you compliant.

Read more on the issues facing cross-border financial compliance - download the 2018 Financial Complexity Index.

Have questions or need further information?  Make an enquiry with us today.

Find out how our services help companies of all sizes maintain focus on their core operations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.