Accounting in corporate groups: Standardized structures instead of isolated solutions

Many medium-sized corporate groups grow organically over the years. New companies are established, shareholdings are built up and operating units increasingly act independently. What is often well structured at a strategic level, for example, through a holding company or group management, often presents a different picture in accounting practice: different processes, inconsistent accounting practices and a lack of coordination between the companies.

Particularly in corporate groups without central financial management, this results in frictional losses and a lack of transparency, which becomes evident at the latest in connection with annual financial statements, reporting or distribution issues.

A balance between centrality and autonomy

It is well known that there is a tension between the operating unit’s need for freedom of action and its own processes and the holding company’s need for consistent, comprehensible figures in order to make decisions and clarify tax or accounting issues.

In practice, clearly defined accounting interfaces between the holding company and operating companies are a key success factor – not only for the annual financial statements, but also for ongoing management.

Typical challenges in grown group structures

The problems are often less technical in nature but rather organizational and communication-related. Examples from practice include:

• Different accounting logic, for example, for provisions or accruals and deferrals
• No uniform deadlines or requirements for monthly financial statements
• No central coordination of special tax issues (e.g., distributions, valuation issues)
• Different tools, reporting formats and processes – without interfaces to the holding company

As a result, operating companies work correctly in accounting terms – but there is no comparability, no consistency and no reconciliation across the group.

Accounting as a connecting element

Experience shows that group-wide coordinated accounting is not a contradiction to the independence of the operating companies. On the contrary: it creates clarity, reduces the coordination effort and increases controllability.

This includes:

•  standardized accounting systems and accounting guidelines
• predefined timelines for monthly and annual financial statements
• a regular exchange between accounting, tax consulting and the holding company
• coordinated processes for topics such as allocations, cost transfers, deposits and distributions

Strategic integration instead of downstream control

The holding company should not only be involved when preparing the annual financial statements. Providing input at an early stage – for example, when it comes to operational investments, contract design or issues relating to the formation of reserves – allows for forward-looking tax and accounting-related decisions instead of having to correct them retrospectively.

This does not require centralized accounting, but it does require an overarching structure, clear responsibilities and coordinated communication channels. This can create a solid basis for reporting, management and subsequent audit compliance, especially for growing groups.

Joint accounting structures create transparency, reliability and decision-making capability

When operating units and the holding company work on the basis of uniform standards, there is more than just consistency: there is a common understanding of management, responsibility and economic transparency.

Accounting does not become the central controlling authority – but rather the connecting element that helps to bring together operational and strategic interests.

Please contact us if you have any questions in connection herewith.