Today’s businesses are not confined to a single country or jurisdiction making financial audits complex. An intelligent data management platform will be the way to deliver an accurate and complete audit.
Advancements in communications technologies, improved transportation, trade liberalization, and the internationalization of finance have enabled companies of all sizes to operate within the complex global business environment.
But while this has allowed companies to sell into new markets, source materials through international supply chains, and set up corporate offices to benefit from local regulations, it has also made the job of internal and external auditors more difficult.
Faced with changing regulatory frameworks, complex foreign transactions, and multilingual environments, auditors must ensure they have a flexible data management platform in place to deliver an accurate and complete, audit.
The Challenges of a Globalized Business Environment
The implicit challenges that come with conducting audits across jurisdictional boundaries can increase the cost of the audit and negatively impact accuracy and completeness.
1) Jurisdictional Differences
Multinational companies operate across jurisdictions, each with its own legal and regulatory requirements governing financial reporting, auditing standards, taxation, and corporate governance.
Further, countries may use different accounting standards. The US, for example, uses the Generally Accepted Accounting Principles (GAAP) while the European Union uses the International Financial Reporting Standards (IFRS).
Navigating these diverse and distinct regulatory frameworks adds to the burden on auditors, while failure to comply can result in legal liability, regulatory penalties, or reputational damage to both the client and the audit firm.
2) Complex Business Structures
Corporate business structures are often set up to address issues of control, governance, and taxation. Firms may establish international operations and holding companies to minimize taxes, drive new sales, or take advantage of local incentives.
A recent analysis showed that 65 percent of Fortune 500 companies have some physical operations in multiple countries. Similarly, a 2016 study found that 73 percent used offshore offices to minimize their tax burden.
These global business structures quickly become complex, especially if they are publicly traded companies or listed on international exchanges.
But as we’ve highlighted before, this complexity does not, in itself, suggest that a business was setup for nefarious purposes. These international corporate structures are legitimate, and sometimes required, but they add to a need for specialized resources required to review, and use supporting business process documentation during the audit.
3) Cross-Border and Related-Party Transactions
Just as operating in multiple jurisdictions increases complexity, foreign transactions add to the cost of conducting the audit.
These transactions are subject to varying tax laws, regulatory requirements, currency exchange rates, and accounting standards. They are also often complex and significant journal entries that have a high risk of material misstatement.
Similarly, related-party transactions occur between businesses with pre-existing relationships, such as a subsidiary, affiliate, or minority-owned company – often in separate jurisdictions. They are subject to additional disclosure and reporting requirements, and auditors must assess the supporting business process documentation to ensure they comply with regulations and tax laws.
4) Language Barriers
International companies often operate in multiple languages, with documentation, legal agreements, communications, and other processes carried out in the local language.
This can add multiple layers of complexity to the audit team. For example, they must ensure that control documentation available in multiple languages is consistent, or that any translations are reliable and accurate. They need to have auditors who are fluent in each language, and they need tools and software that can accommodate and account for supporting documentation written in other languages.
Why Spreadsheets Simply Can’t Keep Up
The volume and complexity of the data, as well as the need for local knowledge and expertise, have made it difficult for auditors to effectively review, process, and confirm the business process data associated with global enterprises.
However, auditors are also being held back by the platforms they use to collect and review data.
Many still rely on Excel spreadsheets to consolidate transactions and record complex business processes. But while Excel can be a powerful tool, it has some pretty significant limitations when it comes to linking supporting documentation required to confirm transactions.
As a result, it’s easy for things to get missed during the audit, leading to misunderstandings or misinterpretations of key processes, controls, and transactions that affect the accuracy and completeness of the audit.
The Need for an Intelligent Data Management Platform
Rather than rely on Excel, auditors can instead turn to an intelligent data management platform for international audits.
The cloud-based platform creates a fully contextualized and linked data lake of both accounting entries and supporting business process documentation. It automates the initial review of source documentation against the selected sample. Artificial intelligence then scans, reviews, and categorizes business process data to selected transactions in any language you want.
International audit teams can speed up the audit and perform it in their own language of choice for each of the corporate structures set up regionally or nationally.
With all the critical source documentation and selected accounting entries in one place, auditors gain a single, unified source of truth that is available through a secure cloud-based application.
Reducing the Time and Cost of International Audits
A globalized business environment is allowing companies of all sizes to operate across jurisdictions and borders.
In response, auditors need to ensure they have the data management platform available to them to overcome the challenges associated with international audits.
By creating a single source of information and reducing the time and cost required to review documents and identify areas of risk, auditors can easily confirm routine transactions and spend more time on the complex and materially significant journal entries.
Instead of struggling with the limitations of traditional spreadsheets, auditors can leverage an intelligent data management platform to deliver a more accurate, complete, and independent international audit.
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