Case study pharma

A leading Pharmacy chain in Northern Europe was facing pressures relating to managing expansion plans. Due to unexpected growth, the Company's back -office functions suffered from decentralization of financial management.

The high cost of automating business processes together with inefficient work processes had limited their ability to manage their back office operations. As a result, our client faced tremendous internal difficulties in managing workflow processes and critical financial reporting.

Eventually, the management acknowledged that many of the accounting and payroll functions were not directly related to their core business.

Leveraging a firm that specialises in providing these services may result in a higher quality, more flexible operation at a lower cost and risk than internal options.

Detailed analyses of the Client's internal accounting costs were performed.

The results were alarming:

• The Company's accounts receivable and payable departments were operating in the lower quartile of industry standard benchmarks.
• The Company historically was several months delinquent in their financial closings.
• The existing financial reporting tools that were used were not integrated and had inherent risks.

In summary, the Company employed 15 accounting personnel for which they incurred related costs of approximately £300,000 (excluding overhead costs) and was unable to meet the needs of both senior management and the board of directors.

Solution

Offshore Facility follows well-defined workflow that is monitored through strong quality control Processes.

The outsourcing company provides human and technological resources to enable clients and partners to cost effectively improve their financial processes.

Financial transaction processing and reporting is the core business operation. The solution provider has certain financial advantages most clients do not have: web-based workflow management tools, lower cost of skilled labor, and an operational structure that provides for dedicated, highly skilled staff in critical functions.

The methodology is principally the workflow and methodologies that we originally developed- based upon several accounting platforms, married up with document imaging and printing solutions - which can be installed on a client's premises, tailored to fit their particular needs and implemented in a reasonable period of time.

Our outsourcing services assumed management of accounting operations, including responsibilities of the Controller level and below. The following functions were transitioned to Prodat

• Accounts payable
• Billing and cash receipts
• Accounts receivable
• Payroll
• Cash management
• General ledger
• International financial and management reporting
• Compilation and monitoring of budgets
  

Corporate Tax filing

Tax filings are legally required in many financial jurisdictions. They should contain the statutory financial statements, which may contain information that are contextually different from that used in the tax returns. Tax laws allow the filers the freedom to define their own line item categories in these financial statements. However, tax forms do not require rigid reconciliation of the financial statements to the tax returns and supporting details of transactions are in free formats. This is where XBRL steps in by creating a standard taxonomy that reconciles context rather than figures.

There are many ways of organizing information in a tax return. Information that fits into predefined places in the tax form is very easily organized using XML/XBRL. For example if the form requires that a series of boxes should be checked to indicate whether or not a particular section in the form applies or not, it is sensible to use XML and definition of that data specific to that form. The existence of the check box, its name, its position in the form - all of which can be called Meta Data - is specific to that form. However, much of the information in a tax form is shared by and must be consistent with other information presented at different times. For e.g. depreciation expense in a financial statement is used to prepare the adjusted depreciation charge in a tax form. For this purpose it is efficient to define these terms in XBRL taxonomy, so that any software application that creates or uses this data can identify the meaning without any ambiguity. Every financial fact prepared using XBRL carries with it the entire context needed for application software to make use of it.

Further, in many tax regimes the organization of both the statutory accounts and the supporting detail in the tax form is relatively unconstrained. Thus meaning of some of the financial information becomes context sensitive. In order for the companies to express the facts as they mean it, and for the tax authorities to understand the meaning in the appropriate context, and determine consistency with tax regulations, it is necessary to agree on the framework by which the set of definitions can be shared, and facts expressed according to those definitions.

As an example, suppose that XBRL financial statement taxonomy were to include a figure of 'Marketing expenses' - a definition relevant to both the financial statements and for the purpose of determining the charge for tax purposes. A company operating automobile raceways may wish to extend this definition and wish to disclose that a significant portion of the expense is related to 'promotional vehicles' - a figure that could also be classified under capital expenditure under the head "vehicles". Using XBRL, a company can extend the taxonomy of these definitions. A tax examiner sees the financials in any tabular form and to any level of drill down detail he wants. The tax authority's tax system need not understand the meaning of promotional vehicles, yet could still use the XBRL definitions to perform a first pass risk analysis to verify that the filer did provide a named line item to account for an unusual increase in expenses relative to turnover.