THE WORLD of accounting standards increasingly resembles a mush of new and old rules, half converged GAAPs and ongoing revisions.
Global standard setters are straining valiantly towards convergence with the US and in the meantime, their domestic peers are updating local GAAPs and helping companies stranded in the no-man’s land between.
What does this mean for international businesses? How do the HSBCs and the BPs of this world reconcile accounts from far-flung jurisdictions without getting in a mess – or a huge bill?
One answer could be accounting hubs. Proponents say these one-stop-standard-shops suck in numbers from transactions around the world and spit out perfectly reconciled accounts that are comparable, transparent and standard-compliant.
They work by divorcing the processing of data from the generation of the accounting event, meaning users can control their financial reporting precisely and, in theory, turn out perfect audit trails.
And some banks may already be using them, unbeknown to customers who like to think financial institutions are perfectly equipped to crunch their own numbers, thank you very much.
One Big Four voice said banks are reluctant to admit they use a hub, for fear of publicly branding their accounts as an unwieldy mess. One notable exception is Swiss Re, which began using the Microgen offering last year. Other banks could also be interested, as once in place they might make financial reporting faster, cheaper and a whole lot less painful.
It’s installing them that could be putting off would-be users right now. Banks were early IT adopters and consequently, have a long legacy of programmes, systems, half-remembered rules and re-imagined processes, all of which would have to be reconciled for an accounting hub to work.
Inputting one product system on to a hub should take between one and two months, meaning transferring the accounts of an international entity could be incredibly time consuming. The first step would be analysis of existing systems, and extensive risk-testing would be essential before launch.
Of course, to enjoy maximum benefits companies would have to run multiple systems through the hub, extending the time and cost involved in transfer. The pay-off, supporters say, would be a much higher level of control over group and individual accounts.
Once businesses have made this leap, producing financial reports might be a doddle. Changes to accounting standards could be incorporated into the hub, making IASB deliberations a less worrisome prospect, and the process should be much less staff- and cash-heavy.
Providers such as Microgen, Oracle and SAP are clamouring for converts to the accounting hub. One expert said for any significant shift towards widespread use, regulations would have to change.
If the regulatory framework tightens, potentially requiring companies to rapidly churn our transparent, comparable accounts, finance directors might turn their thoughts to a hub. The ability to easily demonstrate each step of consolidating every account of an international behemoth is undoubtedly attractive; one commentator said: “If you were starting a new bank you’d undoubtedly put in a hub.”
Theoretically useful to banks, are there any other sectors that would benefit? Our Big Four expert wasn’t sure of the case for wider business, but conceded insurance companies might see the advantages.
It looks like accounting hubs are an interesting theory, and standard-weary FDs might be tempted by the apparent simplicity they offer. But with the huge challenge of transition, lack of role models and associated stigma, it might be a while before we see users queuing up to tell their accounting hub success stories.
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