Accountancy encourages digital-first formats, research shows

Data compiled by TMF Group shows that, despite differences in both legislation and reporting standards, global movement is being made towards a digital-first tax and audit system.

Pulling research from 76 jurisdictions, the 2019 Global Business Complexity Index discovered that – despite the global differences in local tax practice – accountancy continues to influence how businesses both audit and file taxes.

Emine Constantin, the global head of accounting and tax for TMF Group, said: “Worldwide, we see small steps towards the standardisation of tax and accounting principles.

“However, based on experience of supranational legislation, whatever the extent of convergence, the reality for businesses is that they will still need to navigate different regulations in different countries.”

For example, Argentina’s taxes are managed across multiple levels of its government, with corporate tax and VAT being handled separately from profit tax. Further, some jurisdictions like the UK follow the International Financial Reporting Standards (IFRS), while others follow Generally Accepted Accounting Principles (GAAP).

Although the two practices are similar, accountants in the Americas have a clear preference for IFRS (57%) – while over half of surveyed jurisdictions preferred to use GAAP.

However, if an international reporting standard is found, accountants could more effectively manage their accounts in a global fashion as the industry grows increasingly digital. Although it will take time, the first steps are being taken in the form of digital reporting.

A focus on digital reporting

Globally, e-filing represents a small, but growing, section of how the world is filing its taxes. In Europe, the Middle East and Africa (EMEA), only 28% of jurisdictions are required to submit tax invoices in an electronic format; likewise, in the Asia-Pacific regions (APAC), only 46% of jurisdictions are required to e-file.

However, in the Americas, e-filing (like the UK’s MTD programme) is compulsory for 67% of its jurisdictions, capitalising on the digital trend in both Argentina and Brazil.

Despite these continental differences, there seems to be an underlying push to embrace digitisation – despite not being required by law across the board. For companies who work internationally, digitalisation creates a more straightforward e-filing and auditing process.

“The depth of cross-border variances impacts not only the cost of business operations but determines which systems and processes to implement and the types of professional skillsets needed,” Constantin said.

With a digital-first platform, accountants will have less legwork to do to get from start to finish – although they will have to be technologically-minded.

Creating a global tax network

A great deal of information is already shared digitally between governments to catch offshore tax evaders and financial anomalies via the Common Reporting Standard (CRS).

As legislation is highly dependent on both country and union, the move to find an international standard has taken time. Some jurisdictions have infrastructural problems to face in terms of digital connectivity, while others are slow to adopt a digital-first mindset.

According to the Index, markets like Japan – which place a great deal of value on both paper transactions and a traditional market – make global e-filing difficult. However, despite this, there is precedent for a digital-first global standard to be agreed upon.

Despite the range in tax filing regulations and approaches, globally, 83% of jurisdictions will significantly fine non-compliant companies. Coupled with CRS, this could create a network of sophisticated information, available worldwide.

Although only 13 jurisdictions require audits, multinational firms can, and often do, choose to carry out their own audits. With a global standard, these audits become much simpler, all the way from a macro to a micro level – while also easing the burden on accountants.

Bridging the divide between GAAP and IFRS

According to the Index, the European Union is taking steps to promote harmonisation between the current reporting standards.

The ‘EU Definitive VAT Regime’ allows countries within the EU to work together as a single member state, while the Common Consolidated Corporate Tax Base (CCCTB) sets the groundwork for multinational companies to operate within the EU.

Although steps are being taken to find an international standard, Constantin warns that it will take time.

“Despite the current trend towards harmonisation, the goal of global conformity will not be achieved quickly,” Constantin said. “Until then, local tax and accounting practices will continue to influence business decisions and operating models.”