Harmonisation of internal and external accounting

Transparency, clarity and efficiency gains through harmonization of internal & external accounting

The demands on accounting are constantly increasing. Whereas an annual balance sheet as well as a profit and loss account used to be sufficient to determine a company's success, today financial statements are expected on a monthly or quarterly basis. Complex accounting standards, particularly in the area of IFRS, and the simultaneous preparation of multiple accounts (e.g. under commercial law, tax law and IFRS) are a burden on finance departments. Due to additional requirements, such as the preparation of segment reports, cash flows and disclosures of notes, it is not only traditional accounting that is required; controlling is also making an increasingly significant contribution to comprehensive reporting. This shows how important close coordination between external and internal accounting is. Reducing complexity by harmonizing internal and external accounting not only helps to improve transparency and clarity, but also makes sense for reasons of efficiency. Experience shows, that most companies do not take the opportunity to harmonize internal and external accounting. This would lead to a general improvement in efficiency in the finance departments.

Consistent implementation of harmonization in the organization and systems

For a complete alignment of the perspectives, calculatory costs and risks must be eliminated in internal reporting. As external accounting requires only real values to be reported, the results can only be compared if an identical result is reported in both sets of accounts without the recognition of imputed values. To harmonize the views, all items in internal reporting must therefore be adjusted for imputed values (such as calculated contractor's wages, risks, rents, interest and depreciation). At the same time, calculations and control views must be reviewed and, if necessary, realigned so that, for instance, internal cost mark-ups continue to be taken into account (on a flat-rate basis) when determining offers and prices.

IFRS as a unified view between internal & external accounting

For internationally operating companies, it is advisable to prepare their accounts in accordance with standardized group accounting standards. However, standardized accounting in accordance with internationally recognized IFRS not only enables comparability and transparency. Companies that apply IFRS conversion generally find it easier to dispense with imputed valuations, because the IFRS valuations ("true and fair view") are much more in line with the way of thinking in controlling than the traditional commercial law regulations with their imparity principle. Companies that do not wish to adapt their accounting to international standards should also review whether and where imputed valuations (still) make sense.

A closer integration of the finance department is also useful from an organizational perspective. In addition to identical views of the figures, the harmonization of accounting views also enables an even closer exchange and integration within the finance department. Role profiles and responsibilities must be reconsidered and adapted in this context so that they lead to the development of efficient and cross-divisional competencies. Harmonized views must be consistently reflected in the ERP systems and therefore offer additional efficiency potential. Modern ERP systems, such as SAP S/4 HANA, ensure identical value approaches and a uniform database for accounting and controlling. Ledger solutions make it possible to map different accounting standards - such as HGB and IFRS - simultaneously in the systems. The changeover from a company code method with manual delta postings to a ledger-based accounting system with largely automated gross postings reduces the manual posting and reconciliation effort, resulting in additional efficiency and transparency potential.