Amid recent political and financial uncertainties, companies are increasingly considering global markets for their expansion activities. A clearly structured and comprehensive group accounting manual is a fundamental requirement for those who wish to expand successfully.
In 2024, the challenging mix of high interest rates, current valuations and political uncertainty has stalled many international mergers and acquisitions (M&A) initiatives. However, the strategic need for international expansion activity remains strong, creating pent-up demand that is likely to be released once these uncertainties are resolved. Commentators are optimistic about further growth in cross-border activities. Ambitious companies now have their sights firmly set on new opportunities to develop and grow their business internationally.
International growth comes with a host of additional considerations and requirements. One of the most important is the creation of an effective group accounting manual.
The development of a robust, practical and actionable group accounting manual is considered a crucial cross-border expansion activity. For organisations participating in an international M&A deal or expansion activity, accounting policies should be aligned and consistent in areas such as:
- acquisition accounting and consolidation processes
- internal accounting and finance function-related policies/procedures
- other important financial reporting topics, such as the treatment of property, plants and equipment, financial instruments and accounting principles applied for revenue recognition and/or lease accounting.
What’s a group accounting manual – and what should it contain?
A group accounting manual is an in-depth document that outlines the accounting rules and procedures of organisations at group level, providing firm guidelines for group entities. It should be developed internally by the organisation, or by an on-site service provider. Group accounting manuals will vary in size, depending on the type of organisation and its geographical footprint.
A group accounting manual is the key to unlocking good financial reporting and corporate management. It’s essential to ensuring that a company’s earnings and financial and cash flow positions are presented accurately and reliably in complex circumstances, in accordance with the underlying accounting frameworks.
For example, accounting standards, such as IFRS, Swiss GAAP, UK GAAP and US GAAP, allow numerous options when it comes to the accounting treatment of transactions. It’s vital that there are clear guidelines at the group level that outline the standards and accounting policies group entities should use to make sure there is a smooth and consistent approach for group reporting purposes.
And it’s something that a company should consider, and focus on, from the outset. It should be nailed down before a company makes acquisitions, grows into new markets or carries out complex transactions. The accounting must be consistent and harmonised when a company expands – making changes is much harder down the line.
A group accounting manual should start with an introductory section that explains the purpose of the document and the management team’s responsibility regarding the accounts of the firm. It should then cover an overview of the organisation and its entities and make it clear how they factor into the accounting processes.
Then, it should explain the accounting procedures and policies in detail and define how reporting should be conducted. It must include all the different accounting aspects, such as internal controls, accounting definitions, policies and management reporting processes.
A good manual, however, should also go well beyond a set of accounting policies and principles. It should act as a guide on regulatory compliance, and the relevant statutory and management reporting requirements, as well as serving as a reference tool to cross-train existing employees and educate new hires. It should be embedded at the heart of the business – and accessible but not editable.