Preparing for year-end? Collaboration is key
Article 4 minute read

Preparing for year-end? Collaboration is key

24 October 2018

Get your accounting and legal teams on the same page, and you should experience a much smoother year-end close.

It’s the time of year when financial and legal compliance requirements begin to loom large. Work can quickly pile up for in-house teams, especially those juggling both group and local reporting requirements. But a little pre-planning and coordination between departments can go a long way to relieving some of the usual stress that typically comes with year-end activities.

Alignment challenges

Year-end brings similar headaches in most regions of the world, with the key differences in approach determined by the GAAP (generally accepted accounting principles) that is being applied, ie. IFRS (international financial reporting standards) or local GAAP or US GAAP.

Companies that prepare both group and local financial statements need to cope with many challenges that come from two main sources:

  • The substance of the economic transactions, and
  • The form of the economic transactions and of the legal entities.

When it comes to substance, the sources of differences between group reports and local reports typically come in the areas of:

  • accounting estimates
  • provisions and  contingencies
  • post-balance sheet events
  • revaluation of plant, property and equipment.

All of these items should be carefully considered with checklists made for each area, so that the right level of information is collected, and the right accounting treatment identified in accordance with local rules. These local rules can vary greatly. For example, in the Netherlands it is allowed to make a provision even if an obligation does not exist, while in Germany and Italy the risk areas covered by provision are larger. Another example is the definition of the functional currency. Most countries in Europe comply with the definition for functional currency in IFRS, with the exception of Italy where it is not contemplated.

All these differences will have an impact not only in the local accounts, but also in the group accounts because they will influence the deferred tax calculation and provisioning. Therefore, a good understanding of such differences is paramount to having a correct set of books.

Apart from differences in substance, there are also differences in form that need to be catered for. And these differences in form relate to the contents of the financial statements and the level of disclosures required. For example, cash flow statements are not a requirement in the Netherlands, Italy and Portugal. In France and Germany they are a requirement, however only for consolidated accounts or enterprises listed in capital markets whose financial statements follow the IFRS.

In China, individual branches of companies are subject to virtually the same level of compliance obligation as a local headquarters, even if they are not separate legal entities. China’s complexity level for financial compliance is considered so high, it took out the number one position in the 2018 Financial Complexity Index.  Legal and finance representatives in the country must frequently visit tax and other official offices of local authorities personally, to sign documents and validate their identification.

For legal departments, year-end comes with its own challenges. Legal counsel must ensure that they have the correct documents and certificates in-house and available for review. They also must make sure that the agreements have not expired or been sold to another company. Revenue must be thoroughly documented and it must be ensured that all invoices have been issued. All of this reviewing can trigger different compliance obligations.

While in every jurisdiction the compliance landscape is different, year-end is when legal teams must make sure they are fully compliant to avoid penalties. If a company has different branches that have consolidated then the legal team must make sure that the regulations have all been followed correctly.

For legal teams aiming to improve their efficiency, it is recommended to use the financial year-end review to implement a clear process to review the company’s current AEOI (automatic exchange of information) status, as this will speed up FACTA (foreign account tax compliance act) and CRS (common reporting standard) reporting, and avoid surprises when the deadlines have to be met. What looks like compliance in one country for one entity could be lacking in another, especially with local requirements varying drastically.

The crossover

There are a lot of benefits to accounting and corporate secretarial teams aligning their calendars and being on the ‘same page’ as they begin their year-end close activities. In most countries, the filing of financial statements is only considered complete if they’re accompanied by the decision of the shareholders and directors’ report.

The legal team must make sure that the director’s reports are up to date with any changes correctly noted, from the past year. They must then have the director’s sign the results. Consolidation of the documentation between departments is a way to streamline the process and make year-end less arduous.

So close coordination is required to adequately address these inter-dependencies. Often we see the result of accounting and in-house legal teams working in silos on these activities; filing delays and in extreme cases, such as the United States’ first FATCA non-compliance conviction, penalties.

Close communication is the key to success at year-end. Even the smallest changes, such as a director or an address, should be communicated between departments.


Putting a collaborative framework in place before starting end of year activities is the best approach to make sure tasks are carried out as smoothly as possible. This framework should include the following.

  • A comprehensive financial close calendar with clear deadlines and deliverables for both accounting and legal teams.
  • Mapped out group vs local closing processes.
  • Specific checklists focused on estimates, provisions, adjusting events and non-financial information.
  • Use of the 13th accounting period to capture local adjustments and cut-off differences.
  • Early engagement with auditors in instances of a hard close.
  • Legal compliance health checks to identify areas of discrepancy and non-compliance and ensure public registry records are in line with corporate records.
  • Implement an annual AEOI review with a clear process to be followed
  • Use of management systems to keep up with legal changes.
  • Reviews of reporting obligations due to any changes in revenue or entity status.

Talk to us

Our accounting and corporate secretarial teams are on the ground in more than 80 jurisdictions worldwide. We have the in-depth local knowledge to perform specific year-end close activities for your company, acting as an extension of your internal teams.

Contact us today to find out how we can help.

Written by

Emine Constantin and Priscila Westerhof-Fittipaldi

EMEA Head of Accounting and Tax, and Director of Corporate Secretarial Services

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