Zen and the Art of Multilingual Financial Reporting

An open letter to international finance and accounting managers

Over the past few decades, the accelerating trend towards globalization has inevitably generated extra work and stomach acid for the financial controllers, chief accountants and CFOs of companies that have been acquired by foreign multinationals.

Whereas in the good old days these multinationals frequently used to make due with a minimum of local reporting and some adjusting entries at a very broad level, the global trend towards improving visibility and reliability in consolidated financial reporting for listed companies is increasing the levels of detail and accuracy required.

Now, finance and accounting personnel, in addition to producing their normal financial statements and reports (perceived as both time consuming and pertinent) for the people to whom they report directly and who decide on their bonuses, are required to produce reports (viewed as time consuming and a nuisance) for the 'home office'.

This home office is often quite distant, in another time zone, and populated by people who speak a foreign language or the local language with thick accents and who have very little impact on local managers' individual compensation (a consideration not to be underestimated in the real world). In addition, one of the home offices' primary concerns always seems to be discovering where you've tucked away your 'cushion' to smooth out earnings when you need to. None of these conditions are predisposed to fostering a kindly spirit of Intercompany cooperation.

These reports to the home office frequently require that consolidating entries be made to present local accounts in a manner compliant with foreign accounting principles. These consolidating entries are frequently not fully comprehended by personnel on either side of the border (regardless of their individual expertise), as accounting principles differ greatly by country: goodwill may or may not be amortizable; economic lives differ; reserve and write-off policies vary greatly by country (not to mention that some reserves are called 'provisions' by some and by others 'reserves', and what the heck are 'regulated' or 'legal reserves' anyway?); some countries appear to use the "extraordinary items" line for the most ordinary events; financial assets are classified differently every local manager has his own list of pet peeves.

To complicate matters, the reporting software is often presented along with an accounting manual which looks to harried local managers trying to comprehend foreign accounting principles as pertinent as the familiar instructions: "Welcome to Chinese Restaurant. Please try Your Nice Chinese Food With Chopsticks, the traditional and typical if Chinese glorious history and culture."

The temptation to simply map accounts to whatever line seems plausible, without truly understanding whether the mapping is correct or not, is great. Unfortunately, it only means performing extra work without providing actual accurate, useful information to the people to whom the reports are sent.

Financial reporters of the world: do not despair, help is on the way!

The International Accounting Standards Board (IASB) is working with national accounting regulatory bodies to achieve the convergence of accounting standards worldwide, through the adoption of International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS, those standards issued by the forerunner to the IASB). In 2002 IASB and FASB announced that convergence in methods was a priority for both, and beginning in 2005 publicly traded companies in EU member countries started reporting in IFRS. One day, finance and accounting managers around the world will be looking at the same things the same way.

However, there is still the question of language.

Financial translators generally have years of experience in the business world prior to taking up translation. Unfortunately, even the best of them haven't worked at every company in every industry. What's more, they are restricted by the fact that terms vary greatly, even within the same language, country or industry. And there is just no convenient way of translating something that simply doesn't exist yet in another country's economic reality (any Americans out there ever have a 'postal checking account'? Or preference shares issued to the government upon nationalization?). Financial translation is an art, not a science.

Financial translation is an iterative process. At the best-managed translation companies, primary translators discuss terms with the secondary translators who proof-read them, to make sure that they are either accurate or at least coherent (when the corresponding accounting notion just doesn't exist in the target language). The translator frequently works closely with the financial staff at the company requesting the translation to ensure that they've understood that company's specific internal jargon and nomenclature. Translators take pride in the product they deliver, and every time they send off their translations, they hope that they will make life easier for the people receiving them (often their compatriots, as one generally translates into one's native language). Especially as the subjects are often let's admit it quite complicated and dry.

So, how do you get the most out of your financial translation and make your home office reporting package meaningful and pertinent, since (1) you're not allowed to just throw it away, (2) understanding it fully enables you to provide meaningful, accurate and useful data and (3) if you don't, then some day the auditors will discover that it's been done wrong for years, and someone will be held accountable for the very messy adjusting entries that will be required in consolidation? If parts of the accounting manual you are provided don't make sense to you, don't simply take a best guess and stick it on the shelf.

Get together with the financial controller from the home office, and verify how you've mapped your local accounts to the Group accounts. Discuss the notions or terms you're having trouble with. Tell him/her what the term already used internally at your company is (and have the controller provide feedback to the translator, modifying the document for once and for all to everyone's benefit).

It doesn't take long, and not only will the time you've spent enable you to improve your communications with your foreign counterparts, but you'll be able to "own" the data you're sending out with as much pride and competence as you do the local data.