The Complexity of Combining Multi-Company Financial Data
In corporate finance, combining financial data across multiple companies is a core challenge. It is made particularly difficult due to differences in accounting rules, systems, timings, and even definitions.
By understanding the biggest challenges, finance teams can improve financial collection processes and reduce inconsistencies. This article will highlight four of the biggest challenges that parent companies face when combining data from different companies.
1. Technology integration
Each subsidiary likely uses different data structures and reporting tools. This makes financial integration especially difficult, especially when pulling data from different ERP platforms, accountancy software, and internal databases.
One company may use Microsoft, while the other company uses SAP or Oracle.
These systems may not integrate fully, which makes data collection slow and error-prone. To overcome this challenge, many use group reporting software. Emfino software, for example, has been adopted by many multi-entity organizations. This tool imports transaction-level data (not just Trial balances, as most mid-market reporting tools do) from various ERP platforms and accounting charts, and consolidates it into a unified reporting format.
2. Different accounting standards
Each company likely follows different accounting standards. Even when financial statements look similar, the underlying rules can differ significantly. For example, companies in the US must follow GAAP (Generally Accepted Accounting Principles). Meanwhile, the IFRS (International Financial Reporting Standards) is followed by over 140 countries. This includes both countries in the EU and the UK.
The fact that international companies follow different principles means that accountants must perform complex reconciliations.
This is made more difficult by the fact that regulations are ever-changing. Compliance rules can change from one month to the next.
3. Fiscal calendar misalignment
Fiscal periods vary from country to country. This is influenced by various cultural, regulatory, and economic factors.
For example, the tax year in the UK runs from the 6th of April to the 5th of April the following year. In the US, the federal fiscal year runs from the 1st of October to the 30th of September.
However, no company is bound to these dates, and they can choose whichever dates best suit business cycles. For example, it is estimated that 65% of US companies follow the standard calendar year.
Companies also select different quarter definitions, which causes further misalignment issues.
For example, while financial results may cover the same quarter - e.g., Q1 - they may actually represent different time periods.
4. Chart of Accounts (COA) differences
COAs can differ massively from one company to the next. One company may deal in the manufacturing industry, while another deals in the software-as-a-service (SaaS) sector.
This means that each company will likely categorize assets, liabilities, revenue, and expenses differently.
For example, the first company may categorize cloud infrastructure as an operating expense. However, the next company may categorize this as a long-term asset.
This means that COAs are not directly comparable, which makes it necessary to map and standardize financial line items. Without doing this, no meaningful cross-company analysis can be performed.
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