It’s hard to ensure consistency and coordination when dealing with cross-border complexities, writes Chartered Accountant James Allsop. As a Manager at Page Kirk, he works alongside multinational groups and shares some of the key issues that require careful attention.
If you’re running a UK parent company with subsidiaries in the US, EU or Asia – or you’re part of a foreign-owned international group – accounting takes on additional levels of complexity. It’s important, of course, that you have professional advice from a firm that is used to working across borders, but it’s also good to have an idea of some of the key issues that arise. Here are my top five:
Group Structure and Governance ComplexityWatch out for unclear reporting lines between the parent business and subsidiaries. This might manifest itself in lack of formal oversight or clear minuting, or directors being unaware of local statutory duties. Under the Companies Act 2006, the responsibilities of UK directors apply at both entity and group level. Sometimes, we see inconsistent practices across different jurisdictions, which can mean different standards of board documentation or levels of control maturity.
Consolidation and Market ReportingIf you’re looking for the most common practical problems that arise during audit, they would probably be intercompany balances not agreeing at year-end, delays in eliminating intra-group transactions and foreign exchange differences not being fully reconciled. These are all areas that require careful monitoring over the course of the year. We also encounter inconsistent accounting policies across subsidiaries and poor documentation of consolidation adjustments.
Transfer Pricing and Cross-Border Tax RiskWatch out for weak documentation on transfer pricing, where intercompany services are not properly priced or management charges are not supported by agreements. Be careful to ensure that profit allocation is properly addressed. It’s possible for intellectual property to be located in one jurisdiction but managed elsewhere, or for key decision-makers to be based in a different country to the contracting entity. These issues will be picked up in audits and potentially by tax authorities.
Internal Controls Across BordersIn smaller subsidiaries, there can sometimes be just one or two people working in finance and parent companies tend to rely on trust rather than formal controls. IT and Enterprise Resource Planning systems can frequently be fragmented and, on top of that, firms may have no formal group financial policies or no matrix for delegation of authority across different entities.
Going Concern and Funding StructuresWatch out here for complex intercompany loans with no formal agreements and unclear repayment terms. Auditors may well challenge the use of group support letters, questioning whether they are legally enforceable or whether the parent company genuinely has the financial capacity to provide support.
Managing these risks effectively requires consistent processes, strong oversight and experience working across international group structures. At Page Kirk, we specialise in supporting multinational groups with these exact challenges.
We can help:
Our international capability is strengthened through our membership of the Accelerate network, a community of independent accountancy firms that share specialist knowledge, technical training and best practice. Accelerate is also a business associate of Crowe Global, providing access to trusted firms in more than 130 countries.
We operate a robust quality control framework, with audit files subject to regular internal review and ongoing regulatory monitoring in line with ICAEW standards.
In addition, our work is reviewed through the Accelerate network’s quality and technical review processes. Accelerate expects consistently high standards of audit quality and compliance, supported by ongoing technical training and peer review. This layered approach strengthens audit quality, consistency and resilience.
For more advice and guidance on multinational group issues, please contact us at enquiries@pagekirk.co.uk or on 0115 955 5500.
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