A global survey by EY, which gathered data from 1,000 finance executives in businesses with revenue greater than US$500 million, finds that the level of CFO’s confidence in their corporate reporting is significantly lower than last year.
In particular, only 39% of respondents are confident in the cost-effectiveness of reporting, down from 68% in 2014. Just 55% of CFOs believe in the degree of compliance, a large drop from 84% in 2014. Only 44% are confident that the application of KPIs is consistent.
The effectiveness of corporate reporting in meeting expectations of both internal and external clients is also in serious doubt. In the last survey, 71% of respondents said their reporting can secure the confidence of the board. This figure now is only 48%. Similarly, just 43% of finance executives believe their reporting is good enough for outsiders.
The underlying reason for such dramatic drop in confidence in financial reporting is what EY calls a “perfect storm”, i.e. a combination of various challenges faced by the finance function in today’s business.
The level of organisational complexity continues to rise due to more systems being adopted and businesses being expanded globally. The key stakeholders, such as audit committees and supervisory boards, are increasingly more demanding. They request more information and better insights at timelier manner.
Additionally, companies must comply with multiple accounting standards and ever-changing regulations. Compounding the increased complexity and demand is the evolving role of CFOs, who are expected to play a bigger part in driving their companies’ strategy.
Read more: Four Evolving Roles of CFOs in The New Era
As the number of enterprise applications used by companies is growing, so is the number of systems used for reporting. ERP, CRM, Accounting, or even MS Excel could be used to generate different kinds of reports. In EY’s 2014 survey, one in five companies had 16 or more reporting systems. Today, the figure is 32%. Around 19% of American companies have 20 or more reporting systems.
The complexity also arises from the expansion strategy of global enterprises. Among 1,000 companies in this survey, 63% have more than 10 business units, and 50% are operating in more than 10 countries or jurisdictions. Unsurprisingly, 48% of them have to comply with more than 10 accounting standards, such as local GAAP and IFRS.
So what can CFOs and the finance teams do to weather this perfect storm and reinforce their strategic role in today’s organisations?
Transforming corporate reporting
The first step toward better corporate reporting is to strengthen the relationship between the finance function and stakeholders, i.e. audit committee and supervisory boards.
Second, the finance people’ skill sets need to be broadened to cope with the increasingly complex environment and heightened demands. Most notably, they need technical skills to best utilise enterprise systems other than Excel. Communication skills are also essential for strengthened relationship between the finance function and stakeholders.
And finally, companies should be able to harness the power of emerging technologies, particularly cloud computing and analytics. Cloud-based systems enable anywhere, anytime access to real-time information. Advanced analytics tools allow organisations to break down silos and transform data into actionable insight. Not only can they have a single and complete source of truth, but they can also greatly improve forecast accuracy, and even select the most effective course of actions.
Business Intelligence (BI) applications with integrated analytics capability allow companies to get the most out of their data. If you’d like to know more about how Business Intelligence and data analytics could transform your business today, please download the white paper “Going from reactive to proactive – what Business Intelligence means today”.