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Internal control health assessment: What about your foreign affiliates?

January 18, 2016 Blog 1 min read

As the pendulum of internal controls swings to a more conservative approach, many middle-market companies and larger, privately held organizations are starting ask, “What about my foreign affiliates?” To be sure, many organizations that have taken a holistic approach to risk management should have identified critical business and financial risks at foreign operations, but many have ignored smaller (less financially impactful) entities.  While this may be a cost-effective approach to internal controls, it’s often these small operations that can have a significant control failure (or lack of control to begin with) that results in a material audit adjustment, FCPA violation, or other operational failure.

High-performing, well-controlled organizations establish baseline control objectives throughout the global organization — both from an entity level down to the operations (including sales offices) and from a financial and operational perspective. Smaller foreign operations shouldn’t be required to house a control suite similar to that of its parent organization.  These organizations should have certain controls and expectations to meet on a monthly, quarterly, and annual basis that ensure the integrity of financial information is maintained, operational objectives are met, and compliance requirements are upheld.

Whether entering a new foreign market or executing a control health-assessment, organizations are encouraged to understand the current state of internal controls, communicate openly with their foreign entities, and develop a defined work plan to establish a system of internal controls with recurring (not necessarily annual) assessments of the operating effectiveness of those internal controls.

Please contact Plante Moran’s International Concierge Desk at   for more information regarding global internal controls implementation.

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