May 01

Go Forth and “Multi-”ply

Going multinational opens up multiple extra dimensions in system complexity. The biggest strategic efficiency for multinational systems is gained by having front-end, administration and accounting systems that can travel in these extra dimensions

Multi-Format – Culture-specific number formats (thousand and decimal separators) currency symbols (prefixes or
suffixes) and date formats are essential to present users with the basic data in a familiar and unambiguous format. Supporting phone numbers of the right length and postal codes in the appropriate format and position in the address will allow efficient processing. I have seen collections systems where non-US format customer phone numbers had to be stored in a separate field displayed three screens away from the arrears details.

The systems will certainly need to support the extended western European character set in all text fields, with support for eastern European Cyrillic and Asian double byte character sets if you are going that far. Non-English character sets have a knock on effect with alphabetic sort sequences.

Multi-Lingual. – For international finance companies often the internal “lingua-franca” will often be that of the parent company – or English. While it may be simpler for the organisation to use the same terminology for use of the systems (terms such as “evergreen rentals” doget lost in translation) there are statutory requirements to offer users local language – particularly in France. For customer documentation and invoices then local language is a must. Bear in mind that several countries have two languages, so documentation must either have synoptic translations or the customer must be given the choice of language, as is the case in Belgium and Switzerland. And do you want to offer localisation for regional languages,
like Catalan, Welsh and Basque?

Multi-Currency – Systems must be able to work with several currencies in the same business unit and with
multiple exchange rates. This needs to work at both the transaction level, particularly in the CEE countries where deals are increasingly denominated in Euros or Swiss Francs, and for consolidation. Older systems often put separate currency deals into different portfolios or reporting units which greatly adds to the cost of managing a small part of the business.

It has challenges – for instance what exchange rate do you use to record a multi-currency invoice with a future due date? And when that invoice is paid late what exchange rate do you use then? In addition to your delinquency you have an exchange rate risk.

For consolidation, much management reporting will be based around year start rates and plan rates. But spot rates, average monthly rates, accounting period end rates and even a range of future scenario rates will all need to be used for different reporting, accounting consolidation and exchange risk exposure.

The particularly European requirement for multicurrency is to cope with transition to the euro, which may not be a hot topic at the moment. And even disengagement of a country from the euro?

Multi-Organisation – Seamless online access and reporting across multiple companies is needed, rather than having to exit the application and come back in, or run separate reports. A shared service centre could not be implemented effectively without this. Within a country you may need to have further subsidiaries for fiscal reasons, joint ventures and to separate bank regulated business.

At the same time you need to be able to “slice and dice” reporting across the organisations by major product lines, vendor programs, or channels.

Security, access controls, even database backup and recovery may also need to be specific to an organisational unit.

Multi-GAAP – Rather than restating accounts from local GAAP of an operating company to the parents accounting treatment each month, the system produces multiple accounting treatments concurrently.

This is the most complex of the “multis” but increasingly the biggest benefit: and not just for international operations. With many organisations moving to IFRS this allows parallel reporting in both IFRS and the “classic” accounting treatment – so the group parent can move to IFRS while operating units can adopt at a different pace.

Don’t expect IFRS and the global review of lease accounting rules by FASB and IASB to result in simplification or to eliminate the need for Multi-GAAP. Unless a lessor is of a size to influence the lease accounting in each of the countries where it operates, it will still be faced with country by country interpretations of standards. The need for other accounting treatments may remain for tax and regulatory reporting. Standardisation is likely to have the paradoxical effect of increasing the number of accounting methods you will need to manage.

Credit assessment too will need to accommodate the differing format of financial statements and the level of detail available when assessing potential credits.

Multi-Regulatory – In times gone by, one of the advantages of common finance platform systems was to arbitrage  regulation.  As long as you weren’t taking deposits in country you could report Bank regulated business through lighter touch regulatory regimes like Sweden or Luxembourg, rather than face full reporting in countries like France, whose BAFI reporting specification ran to 24 volumes. With the renewed focus on regulatory scrutiny in the last two years such loopholes are closing.

If funders are having to report directly to regulators in each country they are now faced with waves of new reporting requirements and with local interpretations of  BasleII. Companies like FRSGlobal provide software to support multiple regulatory interfaces, but such software comes with a bank- sized price tag and still requires the data to be extracted from business systems. Even if the parent company is presenting the reports to regulators, the asset finance companies will still be faced from analytical reporting from business data and history to feed the regulators appetite.

These are all complex requirements for a system and not features that can be retrofitted as an afterthought. When selecting a package for multinational use companies must identify the diverse requirements of each country up front – as well as considering future markets – and use due diligence to assure themselves that the solution will meet business needs.

Many advisors, even with international offices, will simply not have the experience of these multi-national considerations – after all few accountants would have a qualification in more than one country.

Don’t be fobbed off with the software salesman’s calm assurance that such features can be customised or are “in the next release”. To misquote Rudyard Kipling “If you can keep your head when all about you are losing theirs, then you haven’t understood the question.”

© Nic Evans 2010.

Nic Evans is Director of Evans Global Associates, delivering consultancy and interim management for international finance technology and business agility. If you want to discuss anything raised by these articles or broader issues he can be contacted by email nic@nicevans.eu or through LinkedIn http://uk.linkedin.com/in/nicevans

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