Ulyana Toriya, head of “Financial Outsourcing” in msg Plaut Russia, spoke about the hot topics of the financial outsourcing routine, in particular, about accounting organization and automation and various approaches to organizing the financial outsourcing process.
Could you tell us about your company in a few words, please? What are its main activities?
Plaut was registered in Russia in 2010. The company’s core business areas are automation, IT consulting, and outsourcing. Plaut is part of msg Global, an international group of companies. msg Plaut is one of the oldest and most successful SAP partners, we have over 70 years of experience in international consulting, IT projects and financial outsourcing. All our customers are foreign companies that have subsidiaries in Russia or the CIS countries. Many of them choose to stay with our company for many years, which evidences the high quality of msg Plaut's services.
How long has your organization been rendering consulting and accounting project implementation services to foreign companies operating in Russia?
One of our business areas is financial outsourcing, payroll and accounting. This area originated from the methodological support for SAP deployment projects in Russia, and has been developing as a separate direction since 2013 (given the variety of customers’ needs that went beyond the SAP practice).
Who usually initiates requests, for example, for accounting outsourcing?
These are basically:
- Representatives of foreign companies’ the head offices who seek to speed up the preparation of reporting at their Russian subsidiaries and to increase the quality, transparency and consistency of data and reports they provide.
- Directors of Russian subsidiaries seeking to meet the requirements of their group’s financial management for accounting and reporting at the relevant Russian subsidiary.
What kind of accounting organization and automation tasks are most often set for you today?
As a rule, foreign parent companies have strict requirements for financial statements prepared by their Russian divisions. Many foreign companies are required to publish their consolidated financial statements under IFRS (GAAP, other local standards), thus, their subsidiaries in Russia also have to prepare financial statements under IFRS and obtain an auditor's opinion. Management accounting and controlling are of a high level in foreign corporations. Therefore, it is of great importance to prepare and provide operational data that are consistent with data and management reports of other companies of the group and contain analytics necessary to make management decisions.
When organizing and automating accounting in a Russian subsidiary, you should take into account not only its compliance with the requirements of Russian laws, the scale and specifics of such Russian subsidiary’s activities, but also the requirements of its head office.
Moreover, very often a foreign corporation already has an ERP system to keep its accounts. This should also be remembered when you set up and automate accounting in its Russian division. For example, our customers’ groups of companies use SAP, Microsoft Dynamics AX, ORACLE.
Generally, customers contact our Financial Outsourcing Department with the following type of requests:
- A company has been operating in the market for some time, the scope of its operations is growing, but its accounting processes do not allow the head office to receive transparent and timely data on the financial performance of its Russian subsidiary. RAS reporting is not informative for them; data provided by our accountant (or a specialized organization) is incomprehensible. The head office itself is trying to keep parallel accounting records in its ERP system based on the payment data from its Russian subsidiary; however, it fails to reconcile its own data with the statements prepared under RAS. The company submits different management reports, but the financial management of the group is not satisfied with them. Their accountant sends a trial balance unloaded from 1C, in which the account names are translated into English, but the data is presented in a form that is unusual for the head office, it does not contain the necessary analytics, and, therefore, the head office begins to look for a service provider that could provide financial statements in a form acceptable for the head office.
- A company has just been created, but the financial management of the group has strict requirements for reporting under IFRS (or the group’s standards) and controlling. The organization’s executives understand that they are not able to organize accounting in compliance with all the requirements of the head office on their own, and they turn to us for help.
- A head office elects to shift to a unified information system (SAP), and its Russian division needs methodological support to deploy the system in its organization, migrate data on the balances, launch productive operation and ensure further accounting. Such projects are implemented in cooperation with SAP consultants.
Would you, please, describe the approaches to accounting automation? What factors does the implementation of certain approaches depend on?
In our area of financial outsourcing, we proceed from the head office’s requirements, the scope and complexity of the Russian division’s activities, and the ERP system already used by the head office.
The most common solutions are as follows:
- Most of our customers in Russia keep accounts in SAP or 1C, while their groups of companies already operate ERP systems (SAP, Oracle, Microsoft Dynamics AX), but at a certain stage in the activities of its Russian division the head office considers it unreasonable to spend significant funds on software and its deployment in its division in Russia. Thus, the accounts are kept under RAS in 1C, while the management reports compliant with IFRS (or other standards applied by the head office) are prepared for the Russian division using two methods in MS Excel: either the transformation method (i.e. regrouping accounting data and adjusting statement items prepared under RAS as of the reporting date (for the reporting period), or the data conversion method involving the unload of the posting log from 1C and conversion (translation) of the RAS posting records subject to the mapping rules. A download file is generated in Excel, loaded into the head office’s ERP system where data is then analyzed and consolidated. Those accounting areas that, due to different approaches to accounting (e.g. fixed assets, leasing, work contracts, etc.) cannot be converted from RAS are maintained separately under IFRS in the ERP system of the head office or in a separate register.
Our task is to provide a methodological framework and organize the company’s accounting in way that would facilitate, as much as practical, the preparation of financial statements including all necessary analytics and its submission to the group, allow the company to prepare reports according to the group's standards and enable reconciliation of RAS reporting data and ERP system data.
- Given a complex organizational structure of the company (1500 to 2000 users), numerous differences between IFRS and RAS, it makes sense to consider, right from the beginning, using software that would support accounting under IFRS in parallel with RAS and transmission of data to the ERP system automatically (integration into one accounting system). There are a number of 1C tools for IFRS reporting, based on 1С: Enterprise, that have become widespread in Russia. They include: 1C: Holding Management 8, 1C: ERP, 1C: Accounting CORP IFRS, BIT.Finance. The project for integrating a 1C system and a corporate ERP system (e.g. SAP) requires additional investments in order to purchase 1C licenses, develop a methodological base, engage 1C / SAP specialists who would synchronize corporate accounting and reporting standards with the standards of the Russian division, create and maintain uniform corporate reference books of master data and a unified concept of information system development. Such projects take 6–18 months and require certain investments. At the webinar, we will discuss what we, as methodologists, can offer to support synchronization.
- As a Russian company grows, the importance of its financial performance for the group increases, and the latter usually requires that a corporate information system (e.g. SAP) be deployed in its Russian company. In Russia, it is widely believed that it is impossible for a Russian company to keep accounts only in SAP — it is necessary either to simultaneously keep accounts in 1C, or to build integration (hybrid) models, that we mentioned above. This is a common mistake. All our customers that have switched to SAP keep accounts only in SAP, either independently, or through the services of our Financial Outsourcing Department.
What should be considered when assessing various approaches to accounting organizing?
In principle, an assessment of any software deployment is an assessment of an investment project by comparing cost flows and future benefits that the relevant software could ensure. Therefore, when assessing different approaches, you should weigh future benefits of a solution against the cost of its implementation.
In particular, the following benefits and risks should be assessed in terms of their importance for the Russian division:
- Extent to which the functionality of an information system to be implemented would cover the company’s business processes and satisfy the needs of its users over the medium term.
- Extent to which the functionality of then-current software covers the company’s business processes and the needs of its users (often when making a decision to replace its existing software, the company’s management relies on benefits from a particular solution, as may be expected in view of best practices published in open sources. But the management does not take into account that the current software they are going to replace also provides certain benefits, therefore, their expectations are not met after its replacement).
- Extent to which the new solution would increase the transparency and accelerate obtaining data on the company's activities and, as a result, provide more flexibility for the group's management to make its management decisions.
- Standardization of the group’s business processes.
- Increased confidence of report users in the management of the Russian division and, as a result, its ability to raise additional funds.
- Cost of software implementation and ownership.
- Availability and price of resources required to implement and operate the new software.
- Costs of staff training on how to use the new software (here it is also important to avoid any additional costs that may be incurred after putting the software into operation due to a box-ticking approach to user training and testing).
- Time employees spent on participation in working groups to implement projects and perform tests.
When assessing an investment project, you should make sure that all financial flows, all costs and future benefits associated with its implementation are taken into account. It is not enough to focus only on expected benefits or on the cost of best practices you can read about in open sources. It is necessary to take into account such expenditure as the cost of distracting internal specialists from their routine, communicating with IT experts, participating in working groups engaged in deploying and testing the new software. When choosing a system integration solution, pay attention to staff hours required to reconcile data being converted from one system to another, and consider any possible expenditure on additional setup operations in the case of a transition to a new platform (e.g. many companies are moving to SAP S4 HANA). When deploying SAP in your Russian division, you should make sure that all of its business processes have been described and taken into account in your project plan, and the Russian specifics (e.g. VAT, calculations in USD, etc.) have been reviewed to avoid any additional expenditure on further system improvements. I think the future benefits from having a unified system (e.g. SAP) for all group companies to work in include, but are not limited to:
- Standardization of the entire group’s business processes and, as a result, reduction in management expenses.
- Ability of the group's financial management to get uniform management reports and financial statements with comparable figures; The effect of the above is an increased speed and flexibility in making managerial decisions, which is especially important in the constantly changing economic and business environment.
- Greater confidence of ultimate beneficiaries in the management of the Russian division.