Published on 07 May 2010

The biggest strategic efficiencies for pan-European systems will be gained by having systems designed from the ground-up to support efficiently the diversity of different requirements of multi-national operations.

Culture-specific number formats, currency symbols and date formats will be essential for lessors needing the basic data to be presented in a familiar and unambiguous format. Phone numbers of the right length, and postal codes in the appropriate format and address positioning, are examples of what will be required for efficient processing.

I have experienced collections systems where non-US format customer phone numbers have had to be stored in a separate field and displayed some three screens away from the arrears details. In addition, pan-European systems will need to take into account the myriad of European text fields. This will mean compatibility for eastern European Cyrillic and, possibly for the future, Asian double-byte character sets.

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Accounting principles

Rather than re-stating accounts from a lessor’s local GAAP to its parent’s accounting treatment each month, a pan-European system must produce multiple-accounting treatments concurrently.

This is perhaps the most complex of a pan-European system’s requirements - but one that will provide the biggest benefit: and not only for international operations. With many organisations moving to International Financial Reporting Standard ( IFRS) this will allow parallel reporting in both IFRS and the “classic” accounting treatment – so the group parent can move to IFRS while subsidiary operations can adopt it at a different pace.

Leasing companies should not expect IFRS, and the global review of lease accounting rules by FASB and International Accounting Standard Board ( IASB), to result in simplification or to eliminate the need for Multi-GAAP. Unless a lessor is of a size to influence the lease accounting in each of the countries where it operates, it will still be faced with country by country interpretations of standards.

The need for other accounting treatments may remain for tax and regulatory reporting. Standardisation is likely to have the paradoxical effect of increasing the number of accounting methods lessors will need to manage. Credit assessment too will need to accommodate the differing format of financial statements and the level of detail available when assessing potential credits.

Andrew Denton sales and marketing director of CHP Consulting says: “You just have to have the ability to handle multiple GAAPs. When we designed ALFA we started thinking: should we have one GAAP? Two? Three reporting GAAPs? A fiscal GAAP? And in different currencies? Eventually we just decided to have n-way accounting and it was needed. Although one must always keep one eye on how this will perform, one certainly needs the level of flexibility.”

Regulation criteria

In times gone by, one of the advantages of common finance platform systems was to arbitrage regulation.  As long as companies weren’t taking deposits in country they could report bank-regulated business through lighter touch regulatory regimes like Sweden or Luxembourg, rather than face full reporting in countries like France (whose BAFI reporting specification ran to 24 volumes). With the renewed focus on regulatory scrutiny in the last two years such loopholes are closing.

If funders have increasingly to report directly to regulators in each country they will find themselves faced with waves of new reporting requirements and with local interpretations of Basle II. Companies like FRSGlobal provide software to support multiple regulatory interfaces, but such software comes with a bank-sized price tag and still the requirement for data to be extracted from business systems. Even if the parent company is presenting its reports to regulators, the asset finance subsidiaries will still be faced with the need to provide analytical reporting from business data and history.

These are all complex requirements for a system and not features that can be retrofitted as an afterthought. When selecting a package for multi-national use companies must identify the diverse requirements of each country up front – as well as considering future markets - and use due diligence to assure themselves that the solution will meet business needs.

Into Uzbekistan

Andrew Denton explains: “Country to country there are different reporting standards and very different interfaces. Take for example the Baltic countries; they are viewed as a trading bloc but there are three very different countries with different interfaces and reporting requirements. The key there is to get business ownership of interfaces. When I want to go into Uzbekistan, I don’t want to have to call in my vendor to configure new interfaces. I need well defined APIs (application programming interfaces) and routes into the system.”

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The above was published online by Asset Finance Europe on 7 May 2010.
Reproduced by permission of the publisher.