What the hell is this
The statutory (or Local GAAP) accounts… Go ahead, roll your eyes… For most stakeholders, they are seen as a pain in the neck, a useless statutory obligation… except for the tax team!
When talking to tax leaders, I regularly hear that the statutory accounts are a concern😱. Indeed, it’s often the case that organisations don’t have the processes, tools, or data to prepare the statutory financials. Even worse, the statutory accounts are sometimes just not a KPI.
What we often end up with is scattered data (in spreadsheets) all over the place, prepared too late or with only minimal quality. Data that needs to be gathered, reconciled, and interpreted by tax that is the only consumer thereof. It is like tax being the detectives following the data breadcrumbs to come to an acceptable set of Local GAAP accounts.
Many organisations still underestimate the importance of statutory accounts for tax purposes. They serve not only as the foundation for corporate tax returns but also for tax reporting and provision purposes (GAAP to Stat reconciliations), establishing transfer pricing obligations, making forecasts and simulations, etc.
Now, here's the big problem: Finance departments today are typically responsible for preparing statutory accounts, but their primary focus often revolves around Leading GAAP accounts (USGAAP, IFRS, etc.). Statutory accounts are merely an afterthought, often prepared "post factum" - in most cases weeks/months after the year-end!
That’s not the end of the chaos: Finance departments often lack the necessary tools and systems to prepare statutory accounts (and they can’t be blamed for this). While dual or multiple ledger setups can provide this capability, they can be prohibitively expensive, limiting their adoption to only a select few companies. From a timing perspective, it is very crucial to have these accounts well in advance of the corporate tax filing deadline (and best case even during the year for tax provision purposes), which puts an additional layer of pressure on the process…
Can you guess who it is that suffers? The in-house tax people💀. Often it’s the case that they need to just pull up their sleeves and source the data themselves, in order to have it ready in the quality they need and fast enough to meet the deadlines⌛.
We tax people know that we always need to wear multiple hats in our organisations and our task lists are ever-increasing. The same applies to finance teams, so no hard feelings, and no blame game here. Ultimately, we are both playing towards the same goal and our priority should be to be strategic business partners, with streamlined processes. To be able to do that, we need the right tools and the right budget. And of course the right people! The first two are hard to obtain in organisations, but the third one is often of abundance.
What is your opinion? How to best manage the production of the Local GAAP accounts? Should tax teams insource the entire statutory accounts process from finance?
