example of accounting case study

Accounting and Finance: Case Studies and Reports

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Introduction to Case Studies

Case Studies are widely used in Accountancy and Finance education. They offer students the opportunity to develop their analytic and writing skills. They are most common used to examine the communication skills and team working ability of the student. 

Finding Case Studies

Textbooks .

Books containing case studies can be found by using our catalogue. Here are a some examples for Accounting and Finance :

Some databases allow users to search for case studies under a certain topic. Others allow users to filter or offer to limit their search results to case studies. Two examples are :  

• Taylor & Francis Social Science & Humanities Library This link opens in a new window

Writing Case Studies

Online guides and help when writing case studies

Emerald publishing has a useful how to guide for case studies access it here  

Cengage  has a good introduction to the topic covering definition, Analysis, and writing a Case Study. 

Five Misunderstandings about case study research by Bent Flyvbjerg

The Real Life Guide to Accounting Research Edited by Chrotopher Humphrey 

The Case Centre for Educators 

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Financial Statements Examples – Amazon Case Study

Financial Statements are informational records detailing a company’s business activities over a period.

Austin has been working with Ernst & Young for over four years, starting as a senior consultant before being promoted to a manager. At EY, he focuses on strategy, process and operations improvement, and business transformation consulting services focused on health provider, payer, and public health organizations. Austin specializes in the health industry but supports clients across multiple industries.

Austin has a Bachelor of Science in Engineering and a Masters of Business Administration in Strategy, Management and Organization, both from the University of Michigan.

• What Are Financial Statements?

Amazon’s Balance Sheet

Amazon’s income statement, amazon’s cash flow statement, usage of financial statements, amazon case study faqs, what are financial statements.

Investors need financial statements to gain a full understanding of how a company operates in relation to competitors. In the case of Amazon , profitability metrics used to analyze most businesses cannot be used to compare the company to businesses in the same sector.

Amazon remains low in profitability continuously to reinvest in growing operations and new business opportunities. Instead, investors can point to the metrics signified in Amazon’s cash flow statement to demonstrate growth in revenue generation over the long term.

There are three main types of financial statements, all of which provide a current or potential investor with a different viewpoint of a company’s financials. These include the following below. 

Balance Sheet

The balance sheet represents a company’s total assets, liabilities, and shareholder ’s equity at a certain time. 

Assets are all items owned by a company with tangible or intangible value, while liabilities are all debts a company must repay in the future.

Shareholders' equity is simply calculated by subtracting total assets from total liabilities. This represents the book value of a business.

Income Statement

The income statement represents a company’s total generated income minus expenses over a specified range of time. This can be 3 months in a quarterly report or a year in an annual report . 

Revenue includes the total money a company makes over a set time. 

This includes operating revenue from business activities and non-operating revenue, such as interest from a company bank account.

Expenses include the total amount of money spent by a company over time. These can be grouped into two separate categories, Primary expenses occur from generating revenue, and secondary expenses appear from debt financing and selling off held assets.

Cash Flow Statement

The cash flow statement represents a company’s total cash inflows and outflows over a specified time range, similar to the income statement. Cash in a business can come from operating, investing, or financing activities. 

Operating activities are events in which the business produces or spends money to sell its products or services. This would be income from the sales of goods or services or interest payments and expenses such as wages and rent payments for company facilities.

Investing activities include selling or purchasing assets, which can include investing in business equipment or purchasing short-term securities. Financing activities include the payment of loans and the issuance of dividends or stock repurchases.

Key Takeaways

• Financial statements have information relevant for investors to understand the operations and profitability of a business over a specified time.
• Fundamental analysis typically focuses on the main three financial statements: the balance sheet, income statement, and cash flow statement.
• Although analyzing business financials can provide an unaltered outlook into the operations of a business, the numbers don’t always demonstrate the full story, and investors should always conduct thorough due diligence beyond pure statistics.
• Investors must ensure all of a company's financial statements are analyzed before forming a thesis, as inconsistencies in one sheet may be caused by an unusual one-time expense or dictated by a global measure out of the company’s control (ex., COVID-19).

Now that we have a general understanding of the financial statements, we can begin to take a look at Amazon’s most recent quarterly filing. 

Company filings can be found by using EDGAR (database of regulatory filings for investors by the SEC) or from Amazon’s investor relations website.

Before we begin analyzing this sheet, it is important to take note of the statement just below the title, indicating that the data is being displayed in millions. 

This can throw off newcomers, who may be very confused upon seeing Amazon’s revenue is $53,888. Amazon’s quarterly revenue is indeed $53.8 billion as calculated in millions.

When looking at Amazon’s assets, it is important to note the difference between current and total assets. Current assets are categorized separately due to the expectation that they can be converted to cash within the fiscal year.

Current assets can be used in the current ratio to analyze Amazon’s ability to pay off its short-term obligations. The current ratio formula is:

Current Ratio = Current Assets / Current Liabilities

Amazon’s current ratio sits at 0.92, which is below the e-commerce industry average of 2.09 as of March 2023 (Source: Macrotrends ).

This could mean that Amazon is potentially overvalued compared to competitors, but this is only one metric and should ultimately be all of an investment decision, especially considering the capital-intensive nature of Amazon’s business model.

It is also important to understand all of the vocabulary used to detail items in Amazon’s balance sheet. Some of the major items’ definitions can be found below:

Assets are classified as follows.

• Cash and cash equivalents: Assets of high liquidity, such as certificates of deposit or treasury bonds.
• Marketable securities: Liquid securities can be sold in the public market, such as stock in another company or corporate bonds.
• Accounts receivable (A/R): Money owed to the company that has not been received yet, such as from items previously bought on credit.
• Inventories: Unsold finished or unfinished products from a company that has yet to be sold.
• Property and equipment (PP&E): Assets owned by a company that is used for business activities. It may include factory assets or other types of real estate.
• Operating leases: Assets rented by a business for operational purposes. Calculated as the net present value on the balance sheet.
• Goodwill: Calculates intangible assets that cannot be sold or directly measured, such as customer reputation and loyalty.

Liabilities are of the following types.

• Accounts payable (A/P): Obligations accrued through business activities that must be paid off shortly.
• Accrued expenses: Current liabilities for a business that must be paid in the next 12 months.
• Unearned revenue: This represents revenue earned by a business that has not yet received. Prevents profits from being overstated for a specific period.
• Long-term debt: Debts in which payments are required over 12 months.
• Lease liabilities: Payment obligations of a lease taken out by a company.
• Stockholders’ equity: Net worth of a business/asset value to shareholders.
• Retained earnings: Net profit remaining for a company after all liabilities are paid.

Amazon’s next statement in its quarterly filing is the income statement. The income statement is useful for comparing a company’s growth over time and matching it up against competitors in the same or different sectors.

An essential factor to note when looking at a company’s income statement is whether its revenue and net income are consistently growing year over year. Investors should also be aware of Wall Street expectations, as they can heavily influence the business’s share price.

Many important ratios are used when analyzing a company’s income statement. Some of the most notable ones include:

• EV/EBITDA = (Market Capitalization + Debt - Cash) / (Revenue - Cost of Goods Sold - Operating Expenses)
• Gross Margin =  (Revenue - Cost of Goods Sold) / Revenue
• Operating Margin = Operating Income / Revenue
• Net Margin = Net Income / Revenue
• Return on Equity (ROE) = Net Income / Average Shareholder Equity (End Value + Beginning Value / 2)
• Earnings Per Share = Net Income / Shares Outstanding

Let’s use these ratios to conduct a comparables analysis between Amazon and eBay, a company at a much lower valuation relative to the e-commerce giant.  Here are their ratios side-by-side, as of Amazon’s Q1 2023 and eBay’s Q1 2023 filings:

* = EV/EBITDA ratios sourced from finbox.com , March 2023 trailing twelve months (TTM)

Looking at these statistics on paper, it is clear to see that Amazon seems overvalued compared to eBay due to lower margins, negative earnings per share, and an EV/EBITDA multiple over three times as high as the business. 

However, pure stats on an income statement cannot fully justify purchasing one company or another. The statement merely shows what a company is doing without a corporate spin.

One thing to note that is unique about Amazon’s business model is how the company invests huge amounts of capital into R&D and technology to expand its operations continuously.

Their numbers don’t account for the massive cash flows and growth opportunities that the business takes advantage of.

When conducting fundamental analysis, an investor must consider all aspects of a business beyond the financial statements, including comparing business models to competitors and setting benchmarks encompassing the overall sector.

Amazon’s cash flow statement is where the company begins to shine compared to its competitors in the online commerce sector. The company has consistently increased cash flow from operating activities and constantly returns value to shareholders in the form of capital appreciation.

It is notable for focusing on what the company is doing inside of its cash flow statements to get a better picture of why its income or stock price is trending a certain way. 

For example, an explosive drop in net income in an otherwise stable company could be due to mismanagement or hampered growth but is most likely due to M&A activity charged in a quarter that may be skewing the numbers. The cash flow statement clears this up.

Compared to 2022, Amazon has increased its annual cash from operating activities by over 38% from the previous year based on a 12-month rolling basis.

This increase has also resulted in an 11.7% increase in investment expenditures, which should allow Amazon to continue growing faster than similar companies.

In comparison, according to eBay’s most recent 10-K filing , the company generated an 82% growth in operating cash flow (OCF), however, this stat can be very misleading due to the company’s lack of investment in processes such as R&D and SG&A.

In 2022, the company reported $92M in investing activities, representing only 26% of operating cash flows. Amazon reported over $37.6B in investing activities representing approximately 88% of its OCF.

The income statement can misrepresent how well a company is doing, as while eBay has a higher net income, Amazon strategically reinvests its cash flows into R&D and other expenses to produce more over time continuously. 

What makes the cash flow statement so essential to fundamental analysis is the fact that it is tough to manipulate its numbers through financial engineering or clever accounting. 

The statement purely shows precisely where all of the money a company makes is being used. Many investors use the cash flow statement to tell the true financial health of a business, as profits can often not be indicative of a growth company's value.

The stock price of a company can easily be swayed by sentiment or the market cycle , and the income statement can be skewed through large one-time transactions or large amounts of financed revenue. The amount of money in the possession of a company is very hard to adjust.

Amazon currently has much better growth prospects than eBay and thus sells at a higher premium in the open market , but you wouldn’t understand why unless you took in the full picture of the company.

Everything You Need To Master Valuation Modeling

To Help You Thrive in the Most Prestigious Jobs on Wall Street.

Financial statements are excellent tools to learn more about a business in terms of an overall market or sector of operation. Using financial statements to determine the current value of a business is essential for understanding a company’s stock price.

Along with the ratios mentioned, analysts often form their methodologies over time to focus on companies that are strong in specific financial circumstances. 

Tools such as stock screeners can sort millions of companies by certain factors. For instance, some investors may seek defensive companies with consistent dividend growth over long periods, while others may seek growth companies with the most innovative new technology.

Investors should keep all of this information in mind, as well as pay attention to the reports of analysts with varied performance outlooks. It is essential to seek out the opinions of multiple sources before establishing an opinion on a business.

Looking at reports from analysts specializing in the industry can also ensure that your expectations are reasonable compared to industry experts. 

If your thesis results in Amazon growing its revenues by 20% a year while analysts across the country are only expecting growth in the range of 5-7%, it could be a sign that you may have overlooked a key factor in your due diligence .

The overall goal of using financial statements is to fully understand the company you are investing in to justify a position. Although your views may slightly differ from experts, quality due diligence can result in somewhat varied outcomes based on an investor’s outlook for the future.

Using EBITDA instead of net income strips away the capital structure and taxation of a business to analyze the pure earnings potential of a business. This is more practical for investors to see the general trajectory of a company’s income over time.

For example, companies may decide on completing a merger or acquiring another company. This will require a company to report its current and acquired assets on its balance sheet .

Over time, these assets must be recorded as expenses through the use of depreciation, which is the process of deducting from gross revenue to account for the decreasing value of company plant assets. 

If these assets increase in value over time, this could decrease revenues over time not due to company performance but because of increased prices for equipment outside of the company’s control. 

Without looking at EBITDA, company financials may paint a completely different picture with the use of net income that may or may not be justified at all.

ROE is an important metric to distinguish how good a company is at generating profits with investor capital compared to its share price and competitors. It is yet another indicator used to analyze the trajectory of a business over time. 

Using ROE can also demonstrate how much financing a company requires to generate its revenue and if investors are really getting a great return for the amount of money shareholders contribute. 

A startup that has recently gone public on the stock exchange may have a very low to negative ROE compared to an established company. Still, the startup may have the margins and growth to justify its valuation . 

Much like every financial ratio, ROE doesn’t demonstrate the entire story of a business, and the full picture of a business must be considered to decide on an equity investment.

To proliferate and take market share from competitors , Amazon undercuts prices on many products to decrease competition and remain the top player in the industry.

Amazon, like many other companies recently since the pandemic, has also faced significant increases in operating expenses , thus lowering operating and net margins in the short term. Once Amazon begins to slow expansion, these margins are expected to rise.

Amazon’s net income is very low for many of the same reasons. The company is profitable yet is constantly reinvesting into new businesses and products to further grow cash flows for future expenditures.

Amazon investors are not focused on income but rather on its ability to continuously grow in the long term. Growth companies like Amazon do not issue dividends because they believe that the money is better reinvested in business operations.

Everything You Need To Master Financial Statement Modeling

To Help you Thrive in the Most Prestigious Jobs on Wall Street.

Researched and Authored by Tanner Hertz | LinkedIn

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Two Forensic Accounting Case Studies

by Todd Culpepper | Apr 3, 2018

What do you do when you think an employee is embezzling money from your company? Or how does a married couple facing divorce divvy up their money and assets? Money can be a sensitive subject at the best of times, so forensic accounting is often the quickest way to resolve a financial dispute.

What is forensic accounting ?

Forensic accounting is a specialized form of accounting focused on resolving financial issues.

Forensic accounting firms like Culpepper CPA get hired to analyze records, look for evidence of misconduct, and report their findings. The best forensic accounting firms also provide litigation support and forensic accountants will sometimes testify in court.

Financial disputes may be business related or personal in nature, and their complexity and duration vary widely, just like court cases. Here are some common examples of situations where forensic accounting comes into play:

• Securities fraud and insurance claims
• Divorce cases
• Motor vehicle accidents with personal injury claims
• Disputes among shareholders or between business partners
• Embezzlement, employee thefts, and other fraud investigations inside a company

Forensic accountants work with their clients and their attorneys to help develop the best strategy to resolve the situation. They organize investigations, analyze available financial data, share their findings, and educate you on the available courses of action.

Case Study #1 – Using Forensic Accounting to Investigate Embezzlement

Culpepper CPA has been engaged to investigate a number of cases where a high-level executive or an employee was “cooking the books.”

One of the challenges inherent to cases of suspected theft, fraud, or embezzlement is unearthing clues. A person stealing money tries to cover his or her tracks, and the more sophisticated fraud, the harder it is to uncover.

For example, a construction company once engaged us to investigate a CFO suspected of wrongdoing. The owners suspected that the CFO had embezzled a significant amount of money. The financials just weren’t adding up. The owners noticed some questionable transactions, but they lacked the objectivity and training necessary to connect all the dots.

We were able to dig through all the financial records, document the many unauthorized transactions, and deliver definitive proof. Over the last three or four years, the CFO had, in fact, manipulated payroll to give himself unapproved bonuses. He had also put personal expenses on company credit cards and paid personal bills with company checks.

All told, the CFO had embezzled over $700,000!

We interviewed the CFO, who became an ex-employee soon after. We also worked with our client’s attorney and insurance company to file a claim and recover the maximum amount possible. When the company later decided to press charges against the CFO, we provided testimony as an expert witness.

Case Study #2 – Using Forensic Accounting to Prove Fraud

Another one of Culpepper CPA’s clients was a school system. Several high-level administrators suspected that a principal was misusing school funds.

The principal used school funds to pay $25,000 to $30,000 of his Master’s degree tuition. He helped his wife, who was a teacher at the school, keep a retired teacher, who was their close friend, on payroll. He also created additional pay or salaries for people working at before- and after-school programs, even when those individuals didn’t work all the days for which they were paid.

Some of them even logged Paid Time Off (PTO) on the same days for which they received after-school pay! We were able to investigate these incidents, document the various unauthorized expenditures and fraudulent payroll, and give the local board of education the information and context they needed to terminate the principal and file a counter-suit against the ex-principal.

Final Thoughts

Unfortunately, we live in a world where forensic accounting is needed to resolve financial disputes. Though some people certainly make honest mistakes, others know exactly what they are doing. Being in the right may not be enough to keep you out of the courtroom, so it pays to have the right financial records and documentation, along with expert testimony from a forensic accountant.

If we can get you some peace of mind, by all means give us a call at (865) 691-8509.

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The first article in this series of two on Paper P7 case study questions discussed question style, what to look for in the requirements, how higher-level skills are tested, and the meaning of professional marks within a question requirement. This second article goes through part of a typical Section A case study question, applying the recommended approach described in the previous article. This approach comprises four stages.

Stage 1 – understanding the requirement

The first thing to do is to read and fully understand the question requirement. Here is the requirement we will be looking at in this article:

‘Prepare a report, to be used by a partner in your firm, in which you identify and evaluate the professional, ethical, and other issues raised in deciding whether to accept the appointment as provider of an assurance opinion as requested by Petsupply Co.’ (12 marks)

Note: this requirement includes two professional marks.

Having read the requirement, break it down. You are asked to do two things:

• identify, ie state from the information provided
• evaluate, ie discuss from a critical point of view.

The requirement asks you to consider ‘professional, ethical, and other issues’. This could cover a wide range of considerations, such as:

• ethics: independence, competence, conflicts of interest, confidentiality, assessing integrity
• professional issues: the risk profile of the work requested, the fee – and whether it is sufficient to compensate for high risk, availability of staff, managing client expectations, logistical matters such as timing, legal and regulatory matters – such as money laundering, and (in some cases) obtaining professional clearance
• other issues: whether the work ‘fits’ with the commercial strategy of the audit firm, the potential knock-on effect of taking on the work – such as the impact on other clients, or on other work performed for this client.

You are asked to produce a report, so remember that the professional marks available will be awarded for using the correct format, the use of professional business language, and for presenting your comments as a logical flow culminating in a conclusion.

From reading the requirement, you know that the question scenario will be based on a potential assurance assignment and will be broadly based around acceptance issues.

Stage 2 – reading the scenario

When reading through the detail of the scenario, you should now be alert to information relevant to this requirement. Highlight important points that you think are relevant to the scenario and remember to focus on issues that could affect your acceptance of a potential assurance assignment.

Now read the following extract from the scenario and highlight the salient points – remember to look out for any factors relevant to the ethical, professional, and other issues described above.

Extract: You are a senior manager in Dyke & Co, a small firm of Chartered Certified Accountants, which specialises in providing audits and financial statement reviews for small to medium-sized companies. You are responsible for evaluating potential assurance engagements, and for producing a brief report on each prospective piece of work to be used by the partners in your firm when deciding whether to accept or decline the engagement. Dyke & Co is keen to expand the assurance services offered, as a replacement for revenue lost from the many small‑company clients choosing not to have a statutory audit in recent years. It is currently May 2007.

Petsupply Co has been an audit client of Dyke & Co for the past three years. The company owns and operates a chain of retail outlets selling pet supplies. The finance director of Petsupply Co recently communicated with your firm to enquire about the provision of an assurance report on data provided in the Environmental Report published on the company’s website. The following is an extract from the e-mail sent to your firm from the finance director of Petsupply Co:

‘At the last board meeting, my fellow directors discussed the content of the Environmental Report. They are keen to ensure that the data contained in the report is credible, and they have asked whether your firm would be willing to provide some kind of opinion verifying the disclosures made. Petsupply Co is strongly committed to disclosing environmental data, and information gathered from our website indicates that our customers are very interested in environmental matters. It is therefore important to us that Petsupply Co reports positive information which should help to retain existing customers, and to attract new customers. I am keen to hear your views on this matter at your earliest convenience. We would like verification of the data as soon as possible.’

You have looked at Petsupply Co’s Environmental Report on the company website, and found a great deal of numerical data provided, some of which is shown below in Table 1.

Table 1: Petsupply Co's environmental report – numerical data

Stage 3 – take time to think about the requirement and the scenario

As discussed in the previous article, you must take time and not rush to answer. When evaluating this particular scenario try to think widely about the information provided. Your answer should cover a broad range of issues rather than concentrating on one or two. Your comments must be tailored to the scenario. It is pointless, for example, to write about a general acceptance issue which is not specifically related to Petsupply Co.

It is important to appreciate that few marks will be available for stating the issue. The higher-level skill marks in this question will be awarded for a discussion of why the issue is relevant to the decision about whether or not to provide the assurance service to Petsupply Co. The requirement is to evaluate the scenario and therefore it is crucial to demonstrate an appreciation that there may be two conflicting sides to the discussion.

Table 2 shows an example of a thought process which identifies the issues and explains why each issue is relevant to the requirement; the issues are shown in the order in which they appear in the question.

Table 2: Example of a thought process which identifies issues and shows relevance to the requirement

Table 2 is not an answer, it is a thought process. This is what you should be thinking about after reading through the scenario. The previous article stressed the importance of thinking through the scenario. It may help to jot these ideas down in an answer plan before making a start on your written answer, as this will help you to prioritise the points and give the report a logical flow.

Stage 4 – writing the report

The requirement states that two professional marks are available. As discussed in the previous article, these marks are not for the technical content of the answer, but for the way the relevant points are communicated. The report will be evaluated on the following:

• Use of a report format – a brief introduction, clear separate sections each discussing a different point, and a final conclusion.
• Style of writing – the report is addressed to the partner and so language should be appropriate. You do not need to explain things that would be obvious to a partner, and you must be tactful.
• Clarity of explanation – make sure that each point is explained simply and precisely, and avoid ambiguity.
• Evaluation skills – demonstrate that each point may have a positive and a negative side.

Remember, when answering any question requirement it is quality not quantity that counts. You should make each point succinctly and remain focused on the specific requirement. Questions can be time pressured, but it is important to remember that you should be able to read the requirement, think about it, and write an answer in the time available. This means that there is only a limited amount of time available for actually writing the answer, so keep it short and to the point. Irrelevant waffle earns no marks and will detract from the professional skills evaluation. What follows is an outline report format for this requirement:

Introduction

• Report is internal, addressed to a partner, covering proposed assurance service for existing audit client

Section 1 – ethical matters

• Provision of non-audit service
• Impact on total fee from client
• Competence to perform work – specialised engagement

Section 2 – risk-related matters

• High inherent risk – figures prone to manipulation
• Data highly subjective
• Need to rely on systems put in place by client

Section 3 – commercial matters

• Fee will have to be high enough to compensate for high risk
• Fee may need to compensate for specialists if used
• Strategic fit – assignment in line with commercial goals of Dyke & Co
• Build up experience in non-audit service
• Ascertain whether assignment will be recurring

Section 4 – other matters

• Managing client expectation regarding type of opinion sought
• Managing client expectation regarding timeframe
• Summary of key issues and decision on acceptance

Note: not all of the above points are necessary to secure a pass mark; the marking scheme is also flexible enough to cater for comments that may not appear in the ‘model answer’.

This article shows how to approach one requirement from a typical Section A question in Paper P7. It is important to practise technique by attempting as many questions as possible, starting with the Pilot Paper for Paper P7.

Written by a member of the Paper P7 examining team

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July 07, 2018

Robotic accounting – 5 use cases, a case study, and examples of RPA in finance and accounting departments

Robotic process automation (RPA) is rapidly changing the accounting and finance operations, arguably faster than any other piece of modern technology.

But a question remains. Why? Why is RPA becoming so popular? Why is it making robotic accounting a term to follow? Just for starters, it can be used to reduce data transcribing tasks by 80% in accounts payable, financial close, tax accounting and more. Robotic accounting is an increasingly popular solution for the limitations of legacy and disparate systems found in the finance and accounting operations, which have had a direct effect on the operational efficiency of back office finance operations and internal customers of shared services functions.

What is robotic accounting?

Robotic accounting, or robotic process automation in accounting, is defined as the use of automation applications, like UiPath and Blue Prism, to reduce the amount of human labor required to process accounting and finance department transactions. What does that mean in plain English? Just think of “accounting robots” as a tool that can reduce the effort needed to move routine data between different accounting systems and outside applications, instead of just being confined to one. Accounting RPA is often perceived as a human replacement, but accounting robotics is more of a “bionic arm” that can help finance and accounting operations staff process work faster by reducing data movement work. Software applications like UiPath, Blue Prism, and Automation Anywhere (who just got $250 million in funding last week, wow!) have simplified the work and skill required to create an artificially intelligent accounting workforce, a.k.a. robotic assistants by removing the need to understand computer code to integrate data movement in between multiple data sources.

REAL LIFE ACCOUNTING RECONCILIATION BOT IN BANKING IMPLEMENTED BY THE LAB CONSULTING

Remember that old slogan, “There’s an app for that!” Well guess what? Finance and accounting staff can now say that about RPA. There is an app that can remove all the copying and pasting of data in between different applications.

Robots in accounting and finance are similar to Excel macros. However, the key difference between them is that instead of being limited to the macro running only in Excel, RPA software runs across any accounting application that you point it to. Think of RPA as a macro that can tell three applications what to do instead of just Excel. Robotic process automation in accounting is also often referred to as AI (artificial intelligence) and machine intelligence. They’re interchangeable for a reason, as they all refer to the RPA process.

Most RPA providers for finance operations try to make the technology sound complicated to build hype and the sales interest of CFOs and leaders of accounting departments. But don’t be fooled. RPA is much simpler than you might be led to believe. Let’s break through the technology-consulting jargon to talk about finance and accounting robots (robotic process automation) in a simple way.

Top 6 benefits of robotic accounting and RPA in finance operations

RPA by itself is not a magic bullet or stand-alone solution for modern business process improvement in finance operations. But, if you’re careful to pair it with the right depth finance department process analysis and work standardization before implementing it, RPA can yield benefits far past any new system infrastructure implementation, in 3-6 months – not 3-4 years.

Benefits of RPA are different from traditional system integration. How? Well, RPA bridges the gap between disparate applications – it really is “the last mile” of process automation. Where most large finance system implementations like SAP and Oracle fell short in terms of straight through processing, robots integrate at the micro-task level where the big systems could not. The result of robotic accounting includes reduced labor costs, cycle times, increased accuracy and simplified workflows.

Robotic accounting’s benefits are both financial and operational, including:

• Non-invasive application. Robotic accounting is both a bridge and a layer, sitting on top/across current infrastructure, reducing reliance on needs to change a company’s IT infrastructure
• Customizable workflow. RPA in finance and accounting is not confined to one part of a process – it can be applied to multiple processes at one time; accounts payable, accounts receivable, financial close, controller work, financial planning and analysis, expense management, and even tax.
• Nonstop performance. Finance and accounting RPA has no working hour limitations. They can run 24/7/365, increasing productivity to levels traditional work can’t reach.
• Consistency and reduced errors in work. Robotic accounting excels at error free data movement with reduced output variability.
• Major lifting. With robots in accounting taking care of slow data entry type work, human workers are free to tackle high value work where they’re truly needed. You wouldn’t think it, but robots can actually make humans happier!
• Ease and speed of installation. A robot can be installed in less than a week. But – you have to do that analysis to figure out the best bang for your buck in terms of where to install them in your accounting operations first.

What is a RPA use case in finance and accounting?

Robotic process automation use cases in finance and accounting are defined as documented actions, or steps, of a process, that are opportunities to implement RPA. These are documented at the front-line employee level by capturing the work steps undertaken on their computers or other electronic end-user devices. Finance and accounting RPA use cases facilitate the preparation needed for automation of information movement across systems. Complicated? It doesn’t have to be. Think of use cases as finance and accounting operations process blueprints used by consultants to set up automated scripts for data processing across multiple IT systems.

A Detailed Finance and Accounting Use Case of Robotics (RPA) in Accounts Payable

This detailed finance and accounting use case example explains how to use robotic process automation (RPA) to automatically upload invoices to a Sharepoint website to be paid.

Cathy works in Accounts Receivable, and she’s responsible for uploading her company’s invoices to a Sharepoint website for their customers to pay. She normally processes each invoice manually, which takes 5-10 minutes per invoice depending on the customer. In the current-state (pre-RPA) process, she has to separate Excel files from xml files (in a folder created automatically by SAP), zip the xml files (invoices) and then upload these invoices to a Sharepoint website for their customers to access.

The pre-RPA estimate use case process is as follows:

• SAP automatically saves invoices to a specific network folder, depending on the customer.
• Cathy opens Explorer and navigates to the folder created for today’s invoices.
• She selects all xml files, being sure to not choose any Excel files.
• She zips these xml files into one folder.
• While Windows zips the folder, she waits.
• When the folder is zipped, she navigates to the appropriate website to upload the files.
• She logs into the website.
• She uploads the newly created zip folder containing the invoices to be paid.

This is tedious work, performed by multiple employees every day for numerous customers.

With the help of robotics, however, Cathy’s repetitive job is going to be very different. The RPA use case will now process the work as follows:

• Cathy starts the UiPath AR robot.
• UiPath asks Cathy to choose the correct folder for today’s invoices (folders change daily).
• UiPath then automatically navigates to the folder that Cathy has chosen.
• UiPath searches for and then selects all xml files.
• UiPath zips all xml files to one folder on the desktop.
• A pre-set delay allows Windows enough time to zip the folder (zip time depends on the number of files).
• UiPath then navigates to the company’s invoice site, logs in with Cathy’s username and password, chooses “upload file” and uploads the zip folder full of invoices.
• After uploading, UiPath deletes the zip folder from the desktop to reduce desktop clutter.

The above steps (1-9) only took a few clicks of a button compared to the 50+ clicks required before RPA.

It used to take Cathy 5-10 minutes to zip and upload invoices, but now it takes her 2 minutes—saving an average of 7 minutes per invoice. Cathy used to spend a large portion of her day just zipping and uploading invoices. Now she has time to focus on more important matters. With RPA, she can “set it and forget it.” The AR robot does most of the work for her.

Don’t believe it? This is an actual case and robot that we built and implemented for a client. We have video proof of before and after!

Sounds like something that you might want to try out, right?

Five other examples of RPA use cases in finance and accounting

As with any new frontier, most finance operations executives struggle to look past their legacy systems and find places where RPA opportunities can be implemented. That’s where use cases come in – and we have thousands of them.

Consider these five finance and accounting RPA use cases that we implemented and let them plant the seed of ideation for your own robotics implementation project, with or without or RPA implementation help from The Lab:

• Accounts payable RPA use case example – Vendor invoice processing cycle times were reduced by 60% by implementing a robot that aided accountants with the transcribing of inbound invoice information from PDFs (invoice number, data received, and dollar amount) into web-based SAP, internal use spreadsheets used for reporting, and by placing a final PDF copy on a local server to maintain SOX compliance.
• Controller function RPA use case example – Manual work time required to process weekly invoice data feed validation comparisons to previous week invoices received were reduced by installing an accounting robot that automatically reconciled the current period feed against the last period once the controller opened the file. The robot then spit out any exceptions or rejections that required human review if they did not reconcile automatically.
• Finance and accounting cost allocation RPA use case example – Business units submitted cost allocation data through Sharepoint, in bodies of individual emails, Excel spreadsheets, or Google documents – all of which had to be merged into one “master file” before being uploaded to SAP. RPA was able to eliminate the manual merging of data by scraping all of the inbound data submissions into the master file automatically in less than one minute, compared to 2 hours before the robot was installed
• Financial close and reporting RPA use case example – Baseline 10K and 10Q report creation processes were improved by implementing RPA that automatically processed tax entries into Quickbooks from spreadsheets received from business units – reducing manual copying and data transcribing tasks of finance managers by 85%.
• Accounting reconciliation RPA use case example – the exception review process required reconciliation of accounting data from Quickbooks, multiple Excel sheets, and customer invoices. RPA was installed as a bridge between the three data sources to automatically compare the invoice discrepancies in less than 1 minute compared to the 30 minutes it took prior.

Detailed robotic accounting case study – RPA in accounts payable

Let’s set the scene for robotics in finance and accounting with a robotic accounting case study: a day in the life of Jane, an accounts payable clerk.

The pre-RPA accounting process looks like this:

• Jane has Quickbooks, Excel, a PDF invoice from a customer, and Outlook open on her computer.
• Jane pulls customer data (name, address, invoice number, invoice amount) from the PDF invoice received in Outlook
• She then pastes it into Excel for internal financial reporting purposes
• Jane then paste the same data into Quickbooks
• She can cut a check for a vendor
• She then has to copy and paste info from Quickbooks into Outlook to send an email to the company that she cut the check for confirming the payment was processed
• We’re sweating just from talking about it!

Jane’s work life could be easier if she sat down and analyzed the process just discussed above, documented the accounting work flow, and figured out exactly what fields had to get copied and pasted from each application into the other. Add to that the ability to make the copying and pasting happen automatically? Well – that is exactly what a very basic use case for robotic process automation in finance and accounting operations sounds like.

You can remove literally all the copying and pasting work if you dedicate some time to standardizing the process and then putting an RPA action on top of it.

Let’s rewind time a bit and start the whole scene over, but with RPA installed. Let’s say, UiPath since that is our RPA software of choice at The Lab. In this new reality, the robotic accounting bot can find that initial PDF in Jane’s Outlook. Jane’s software robot helper can navigate through multiple screens (even taking control of her mouse and keyboard) to copy and paste everything into its appropriate documents. It can even send the final confirmation email, reducing Jane’s workload considerably while increasing overall AP cycle times. Now imagine that across an entire organization! This is an example of unattended RPA, meaning the whole process has been automated. These are a lot harder to do compared to an “attended” solution.

A simplified “quick hit”, but no less effective, version of robotics in finance and accounting can greatly affect your organization is known as “attended RPA”. This means that a robot is basically installed as an assistant compared to being installed as a human replacement. We call it the “bionic arm approach.” Think of this approach as crawling (or taking your first steps) before breaking out into a steady sprint. In this approach, Jane would still open her email and the necessary attachments herself, after which she would turn on her robotic accounting software which would move the data to where it needed to go for her.

At The Lab, we like to take an attended RPA approach to our implementations. Making a worker more productive by giving them a “bionic arm”  is much faster to implement and allows for greater flexibility in the future when compared to trying to automate away entire job positions.

If you’re looking for a more visual example, this YouTube video should work for you. It shows UiPath being used in a finance and accounting process similar to what we just discussed: https://www.youtube.com/watch?v=fjdLAqgwMKA

Robotic accounting implementation: Don’t automate until you standardize processes!

If processes are properly analyzed, RPA implementation in finance and accounting can:

• Automatically validate and send invoices to customers
• Reduce manual review processes in AR
• Increase accuracy of data in SAP, Quickbooks or similar core accounting systems
• Reduce manual effort in completing subledgers in close processes
• Reduce human errors

Implementing RPA in finance and accounting doesn’t have to be difficult, even if it might appear so at first blush. But you have to call us for help.

Of course, you can’t just throw a robot at one person’s spreadsheets and call it successfully implemented RPA in finance and accounting. Ultimately, the best approach will be to scale up process and data standardization across multiple FTEs first. After that, introducing RPA to major processes is much less likely to break the bank or take more than a few months.

Let’s walk through how a process standardization and RPA analysis project in finance and accounting should play out.

Step 1 for RPA implementation in accounting: Scope the robotic accounting project

Not all finance and accounting operations work streams are created equal for the purposes of RPA. The first step to any accounting and finance RPA project is identifying a manageable scope of processes that would benefit from robotics. Remember, start small, then scope up out. Thinking big before doing any pilot testing can leave you open to more rework and developer costs. Remember, first make a bionic arm – not a full Iron Man suit.

Common functions in finance and accounting that benefit from RPA include: Accounts Payable, Accounts Receivable, Accounting & Reporting, Budgeting & Forecasting, Expense Management, Internal Audit & Compliance, Tax, Treasury Management, and Payroll. Accounts payable, with its repetitive work, tends to lend itself better for robotic accounting than a process like budgeting, which requires a lot of human estimation.

In our experience, we’ve found that starting with a pilot scope to minimize risk and generate buy-in is best. Starting with two or three work streams out of the entire finance department works well compared to doing the entire thing at once. When you succeed at smaller scale, you can then invest in rolling it out to a larger group.

The main takeaway for this step? Start small. Get a feel for how your organization, and your workers, respond to robotics in finance and accounting. Learn about the cultural response to RPA, and then you can scale up.

Step 2 when implementing RPA in finance and accounting operations: Determine baseline operations cost to calculate total benefits realized from robotics in accounting

Without the initial operating cost for the accounting function in scope for RPA, how can you determine the financial benefits and business case for implementing robotics? That’s why step two of a robotic accounting project is always setting the baseline cost of running the accounting operations.

The easiest way to convince shareholders and the C-suite that RPA needs to be implemented is by showing how it can benefit an organization financially. Times, and technology, might change, but money always talks.

Step 3: Analyze current state finance and accounting processes to document RPA opportunities and use cases

Grab a laptop, a note pad, or your note-taking object of choice and get ready to sit at an accounting or finance worker’s desk all day long. That’s right, you’re getting down and dirty in the weeds during this step. You’re going to need to take note of every single mouse click that they do within the applications you are wanting to use RPA on top of. Or, you can go the OpsDog route and do these “day in the life of” observations using screen sharing software like GoToMeeting or Webex. We prefer screen sharing software since it doesn’t require on-site consultants, lowering the cost of a project.

Regardless of how you do it, you should analyze enough workers in the finance department to get a good sample size of RPA improvement opportunities across the entire in-scope group.

When you’ve figured out exactly what the accounting work flow is and what the screens that need robotic accounting look like, use process mapping software like Microsoft Visio to visually represent the processes in scope. Remember, you need to document all the way down to the screen click and copy/paste level detail or you’re just wasting time. No one wants to be stuck in a reanalyzing loop. Make sure that you document using BPMN 2.0 stencil, as that is the standard for IT folks. This format is easiest to hand off to the RPA implementation team when the analysis is complete.

Step 4: Standardize accounting workflow and procedures before or during RPA implementation – but not after

If you’re thinking about robotics in finance and accounting without first being ready to analyze and standardize manual processes, we have some advice: don’t. This is the lifeblood of robots in finance, without which they can’t do their jobs.

This is where things get difficult and real finance transformation work comes in to play. The hardest part of making a successful accounting RPA project is rolling it out at scale. Saving a few minutes of one worker’s day is great, but unless you uniformly roll out the work to an entire group, the financial benefits will fall short.

That’s why you must standardize the work of the entire scope in play first. Accounts payable worker A being analyzed most likely doesn’t copy and paste screen or fields in the same order as Accounts Payable Worker B. And who knows how Worker C does things. You must implement work standardization for the entire group at the same time as you’re implementing the robots.

Rely on your project managers with lean and Six Sigma experience. They have the experience with standardizing processes at scale necessary for projects like these.

Step 5: Hire an RPA vendor to implement – or do it yourself

RPA software is new and hot. But it is hot for a reason – it is not going away. If you can’t beat them, join them. Personally, we suggest that everyone get their hands on the Community Version of UiPath just to test it out and understand it. Like all new software, it has a bit of a learning curve but you can cut it short by watching some training videos on Youtube. Or even better, take an RPA certification class to get a leg up on your resume.

Now, remember, simply understanding a software application doesn’t mean you’ll be able to use it at scale without doing some serious scoped up analysis. Not feeling the DIY mood? If you don’t have change management experience, lean process improvement experience, or some type of other operations consulting work in your background, don’t bite off more than you can chew. Better call in the pros to help.

At the same time though, not all RPA vendors and consulting companies are created equally.

Which is the best RPA vendor?

There are two walks of life on the RPA vendor consulting side. There are consulting firms that can help you analyze and build a business case for implementation, and then there are software vendors that will come out and install the stuff for you. A couple do both – but they aren’t as good as the ones who specialize in certain area. Below we will review the biggest RPA vendors in each camp.

Process analysis firms to develop RPA implementation business cases

Accenture, IBM, and Deloitte all pride themselves in being the best integration and IT implementers on the planet. We call them full suite firms. But, if they are so good at IT integration and implementation, then why is there even a need for robotic accounting to fix where their past integration projects fell short? We will talk about that in later posts.

Here at The Lab Consulting, we have templates and 25 years of experience in lean implementation and RPA experience for finance operations at a huge scale – think “biggest retailer in the world” scale. We focus on the nuts and bolts, the non-core technology aspect of process analysis and improvement. White collar work standardization is a big part of our work.

Benefits of choosing The Lab for robotic accounting analysis, use-case development, and implementation support

We take an “a la carte” approach to our RPA mapping and finance operations work. We like to start small, do good work to prove that we know what we are doing. Remember the bionic arm approach we mentioned earlier? That’s the kind of work we can do reliably within a couple of days to get clients used to the idea of robotic accounting. Then we scale up to more work once we get in a groove with our clients. We come to the table with tons of template-related IP from past work experience to reduce RPA implementation cycle times. Contact us now to speed up your RPA efforts. Our team is ready to help.

Schedule a call

Case Study: Integrated Profit and Loss Accounting at Natura &Co

Presentation by Alessandra Segatelli, Controllership Director - LatAm, Natura &Co

• This case study article highlights Natura &Co’s Integrated Profit and Loss (IP&L) approach and methodology, as well as the role of the finance team in its development.
• Natura is a leader in impact accounting, using its IP&L and underlying methodology to quantify the impacts and net value of its corporate performance on environmental, social, and human capital.
• The IP&L captures the impacts of Natura’s business activities across its full value chain, ranging from Natura’s supplier chain and extractive communities in the Amazon region, through direct Natura operations, its beauty consultants, to product use and product end of life.
• Natura implemented the IP&L model as a strategic management and decision-making tool, as the results can be compared directly with the financial results, which helps in risk management and reporting to investors, and contribute to the operationalization of stakeholder capitalism.
• The controller and finance team are involved in the development of the IP&L methodology, including data collection, measurement and valuation. They support the measurement of key impacts linked to business activities and quantify these to enable decisions that achieve a balance between positive impacts and profitability.
• In terms of policy, to help develop the connectivity with financial statements, financial reporting standards could usefully develop common methodologies and accounting treatments for some ESG areas including carbon credits. International standards for measuring and valuing impacts would also help drive a more common approach to impact accounting that would lead to integrated reports being more quantitative.

Natura &Co Key Facts

• Founded in 1969, Natura is a Brazilian global cosmetics company headquartered in São Paulo. Since 2020, Natura is part of Natura &Co group, comprised of four purpose-led beauty companies: Avon, Natura, The Body Shop and Aesop.
• A pioneer within the beauty sector among B Corps, Natura obtained its certification in 2014, becoming the first publicly traded company in the world to earn it. In 2021, Natura &Co became the world’s largest certified B-Corp.
• Natura &Co’s consolidated net revenue is R$ 40.16 billion and net income R$1 billion, and has 35,000+ employees,7.7 million consultants and representatives, and 3,700 stores and franchises.
• Natura &Co issued a US$ 1 billion sustainability-linked bond related to selected sustainability targets, which is the largest single issuance of this type by a Brazilian company.
• Sustainability is an integral part of Natura’s purpose, strategy and business model across natural, social and human capital dimensions.
• Natura was highly commended at the 2022  Finance for the Future Awards  in the category for embedding an integrated approach and recognizing the finance team’s critical role in delivering this integration.

 Natura’s purpose:  To nurture beauty and relationships for a better way of living and doing business

Natura Integrated Profit & Loss Accounting

Natura &Co believes that the value and longevity of a company are directly linked with its capacity to contribute to the evolution of society and its sustainable development. To collaborate with the wide-reaching change our world needs, it is fundamental for us to measure our legacy or, in other words, the impact we generate through our operation.

Natura’s leadership in impact accounting has culminated in its IP&L and underlying methodology to account in monetary values for the impacts of its corporate performance on environmental, social and human capital.

The IP&L methodology connects business activities to impacts and allows the attribution of value to impacts be they positive or negative. This provides quantitative information that permits better strategic decision-making aimed at leveraging positive impacts and mitigating negative ones, for example, in improving supply chain processes and vendor selection, and operations. It also allows decisions to be made to balance profitability at the same time as achieving sustainability goals. 

Natura has a cross-functional committee responsible for the development and strategy of the IP&L methodology, which includes the controllership and technical accounting team, as well as members of the financial planning and analysis (FP&A) team and Sustainability Center of Expertise.

The development and publication of the IP&L started in 2010 with Natura’s efforts to understand its supplier network and key raw materials such as palm oil. Between 2014-16, Natura developed an Environmental Profit & Loss and expanded it to social impacts in 2017-19, particularly to measure and enhance the contribution of its approximately 2 million beauty consultants in Brazil, Argentina, Chile, Colombia, Mexico, Peru and Malaysia to their communities. A full IP&L model was issued in 2021 and is now included in internal decision-making and public disclosure with external assurance. The IP&L has become  Natura’s Integrated Report .

The IP&L methodology relies mostly on the Natural Capital Protocol and the Human and Social Capital Protocol (Capitals Coalition, 2016, 2019). The methodology involves

• Collecting data
• Identifying and measuring impacts
• Taking decisions to leverage positive impacts and mitigate negative impacts.

IP&L  Methodology

The Natura &Co IP&L methodology is available at  Natura Integrated Profit & Loss Accounting 2021, Technical Executive Summary and Insights . A summary is provided here.

•  Natura’s sustainability strategy and IP&L address three material sustainability topics covering natural, human and social capital: 
• Living Amazon Forest : Movement to transform the Pan-Amazon region into a global example of a new society that integrates people, the forest and cities in a sustainable manner, creating more shared value;
• More Beauty, Less Waste : Offers the most, using the least, and reducing excesses. Natura has used recycled materials and materials of renewable origin, as well as refills, for over 30 years and strives to do more;
• Every Person Matters : Each person in Natura’s relationship network matters a great deal to the company. With each one, the focus is on making a social pact that decreases inequality and intolerance and promotes social inclusion with effective transformational actions. Each person is a world. And the whole world matters.
•  Figure 1 captures the business impacts from activities across Natura’s full value chain, from its suppliers and extractive communities in the Amazon region to its direct operations (manufacturing and offices), the Natura sales consultants, the products used by customers, and the product end-of-life.
•  Measuring impacts involves identifying key activities in the value chain, relevant impact drivers across human, social and natural capital, and assessment paths to understand direct and indirect economic effects. This means that impacts can be monetized, allowing, for example, the value of nature or wellbeing to be expressed in monetary terms. 
• Methodologies and calculations to convert resources into economic value are based on two main possible pathways: Direct effects on health and quality of life or economic effects that are calculated through utilitarian models, which reflect a change in the quality of life of an individual or collective. Some examples of valuation factors considered for measuring IP&L outcomes are: 
• Social cost of carbon, which reflects the current and future economic damage per ton of carbon ($97/tCO 2  based on PwC’s Total Impact Measurement and Management Framework); 
• The value of ecosystem services and wellbeing of Amazon supplier communities for the sustainable use of the forest, and other sources for plastic ($760/ha of forest based on substitution or mitigation costs); and
•  Factors that translate income or taxes into changes in well-being and quality of life, such as HUI (Health Utility of Income) which determines the utility of money in different socio-economic contexts, or HUT (Health Utility of Taxes), which values ​​quality change of life and well-being of a population through the collection of taxes.

• Ultimately, the IP&L methodology provides an overview of Natura’s net value delivered across human, social and natural capital. In 2021, the IP&L showed a net positive societal value created by Natura of approximately R$18 billion (around US$3.5 billion), mostly driven by social and human capital. For each $1 in revenue, Natura generated $1.5 in positive social and natural impact. The impact of Natura's natural capital is still negative (as it is for most companies), mainly due to the final stages of disposal of products by the consumer and subsequent recycling. It is important to see this indicator reflected in the IP&L precisely to direct and prioritize actions.
• To address these issues, Natura follows the targets and 40 sustainability key performance indicators (KPIs) set out in its Commitments in its 2030 Vision - Commitment to Life - which covers topics such as net zero, regenerative initiatives, circularity and sustainable materials. Natura has been reducing its natural capital impact for many years. Through its sustainability strategy, it will continue to reduce its negative impact and increase the positive. The KPIs enable performance management and track the company’s sustainability strategy in conjunction with strategic planning.

The Role of the Finance Team

Natura’s Finance Team plays an important role in the measurement of impacts, supporting necessary data collection, monitoring the progress of socio-environmental issues and combating climate change through key indicators, supporting the establishment of tangible and relevant goals, and encouraging the creation of action plans to leverage all the company's results, whether economic, social, human or environmental. 

Now, the integrated assessment that IP&L generates guarantees the implementation of ESG policies embedded in the day-to-day strategy of the group's companies, and ensures decisions always combine both the search for profitability and return to all stakeholders.

In terms of the external reporting and assurance process,

• Currently, IP&L is disclosed in the Annual Report, separate from Natura’s financial statements. However, the IP&L was structured in the same format as the traditional financial statement, making it possible to identify which activity generates which level of impact and to link the financial statement line to a range of non-financial metrics, such as carbon emissions and offsetting, and supply chain indicators.
• All sustainability-related KPIs are externally assured since 2001 and by PwC in 2022, and some are outputs then used in the IP&L measurement.

Through its controllership function, Natura also engages and influences external groups that are establishing standards, frameworks, and guidance including the IFRS Foundation and ISSB, the Capitals Coalition, Impact Management Project, Value Balancing Alliance, and World Business Council for Sustainable Development. To help develop the connectivity with financial statements, financial reporting standards could usefully develop common methodologies and accounting treatments for some ESG areas including carbon credits. International standards for measuring and valuing impacts would also help drive a more common approach to impact accounting that would lead to integrated reports being more quantitative.

This was a presentation to the IFAC Professional Accountants in Business Advisory Group during their September 2022 meeting. Read more insights from IFAC’s Professional Accountants in Business Advisory Group’s report:  Professional Accountants as Finance and Business Leaders.

More From Forbes

International market entry strategies for businesses.

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Salvador Ordorica is the CEO of The Spanish Group LLC , a first-class international translation service that translates over 90 languages.

In today's interconnected world, businesses are constantly seeking ways to broaden their horizons and enter new markets. Business leaders cannot deny the allure of international expansion, but they often encounter challenges and uncertainties on the path to success.

I’ve been running an international translation company that started operating in Irvine, California, and now we’ve entered into over 18 foreign countries. So, I will share what I’ve learned over the years, exploring the essential components of international market entry strategies, the pivotal role of cultural intelligence and some real-world case studies of companies that have triumphed on the international stage.

Market Entry Strategies

Before embarking on the journey of international expansion, businesses must first carefully assess their motivations and goals. Market entry is not a one-size-fits-all endeavor; rather, it demands a customized approach based on factors such as the industry, target market and available resources.

Are you looking to tap into new customer bases, reduce dependence on a single market or take advantage of cost-efficiency in other countries? Each objective requires a tailored market entry strategy.

1. Exporting

Exporting is a market entry strategy where a business sells its products or services to foreign customers. It typically involves shipping goods or delivering services across international borders, often through intermediaries or distributors. Exporting is a relatively low-risk option for entering international markets, as it allows companies to leverage their existing products or services without making significant investments in foreign operations.

2. Licensing And Franchising

Licensing allows businesses to grant foreign entities the right to use their intellectual property, such as trademarks or patents. Franchising involves replicating a successful business model in foreign markets. These options offer a quicker market entry but require careful management .

3. Joint Ventures And Partnerships

This strategy allows businesses to share the risks and costs associated with expanding into foreign markets. It's a mutually beneficial arrangement where both parties work together to achieve common goals while maintaining a degree of independence. However, successful execution requires careful negotiation, clear agreements and effective cooperation to navigate cultural differences and ensure the venture's success.

4. Acquisitions And Mergers

Market entry via acquisition or merger with foreign businesses offers speed and access to established customer bases and distribution networks. But it brings integration, cultural and stakeholder challenges. It's high-risk, high-reward, demanding thorough due diligence and post-acquisition management for international success.

5. Wholly-Owned Subsidiaries

This represents a market entry strategy where a company establishes complete ownership and control of its operations in a foreign market. In this approach, the business sets up a new entity or company in a foreign country, fully owned by the parent company. While this gives the parent company maximum autonomy and decision-making power, it also entails significant financial investment and higher risks. Wholly-owned subsidiaries are ideal when a business seeks tight control over operations, brand consistency and long-term market presence in the foreign market.

The Role Of Cultural Intelligence

In working with international markets, I've learned that one of the key challenges is navigating the cultural diversity of global markets.

Cultural intelligence , often referred to as cultural quotient (CQ), is the ability to understand and to be able to adapt to different cultural contexts effectively. In international business, cultural intelligence plays a pivotal role in the failure or success of market entry strategies.

• Understanding The Local Market

Cultural intelligence helps businesses understand the values, customs and preferences of the local population. Adapt services to resonate with locals to gain local market understanding, enhancing your success in market entry.

• Building Trust And Relationships

Establishing trust with local partners and customers is paramount. Hire local people to understand the culture of each place. This makes you prioritize cultural intelligence, respecting customs and etiquette, exemplified in successful partnerships worldwide.

• Effective Communication

Language barriers can be a significant hurdle in international business. Cultural intelligence involves effective communication strategies that transcend linguistic differences. To achieve this, prioritize cross-cultural training for your team, hire local experts and foster a culturally sensitive work environment.

• Adaptation And Innovation

Successful market entry often requires adapting products or services to meet local needs and preferences. Cultural intelligence implies innovation and adaptation in response to cultural insights.

To achieve a successful market entry through cultural intelligence as a company, I have focused on adapting services to local customs, languages and trends. Simultaneously, we encourage innovation in translation technology to maintain a competitive advantage across diverse markets.

Case Studies: Companies That Successfully Entered The International Market

Now, let's dive into some case studies, drawing inspiration from companies that have successfully entered international markets.

I think Apple's gradual but well-calculated entry into various international markets exemplifies "market entry success factors." Their localized approach to product launches and marketing is a masterclass in tailoring strategies to diverse audiences.

2. McDonald’s

We can see that McDonald's excels with franchising as a market entry strategy. Their ability to adapt their menu to local tastes while maintaining a consistent brand image is impressive.

3. Coca-Cola

Coca-Cola's global success underscores the significance of adapting to diverse drinking cultures. In the 1970s , the "I'd Like to Buy the World a Coke" campaign and the unforgettable jingle propelled international expansion. Coca-Cola maintained a consistent product while allowing room for cultural taste adjustments. Meticulous adaptation in advertising, promotions, distribution and pricing cemented its global triumph.

Today, international market entry is not just an option; it's a necessity for businesses seeking growth and sustainability. Expanding into international markets is a transformative experience that can propel a company to new heights. By leveraging the right strategies and a global mindset, businesses can unlock the door to global success and write their success stories in the international market.

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