A new survey finds that data overload is affecting the financial reporting process
Certainly, internal audit executives and those involved in the reporting process are likely feeling just as frazzled, as they work to make sense of the endless streams of data and pluck the meaningful fragments from the meaningless noise.
According to a new report by EY Financial Accounting and Advisory Services, 66 percent of CFO (or those that head the financial reporting function) respondents worldwide say they are struggling to process the increased amount of data and that it is having a significant impact on the effectiveness of corporate reporting, up from 57 percent who said data overload was a financial reporting problem in 2015.
"The report, How Can Reporting Catch up with an Accelerating World?, finds that financial executives in the Americas, Asia-Pacific, Japan, and the Middle East all cite changes to technology as their number one external reporting challenge. Dealing with these technological changes, including cloud-based systems, data analytics, robotic process automation (RPA), and artificial intelligence (AI), is also the top issue for 35 percent of emerging markets respondents and the number two issue for those in Europe.
The results could present an opportunity for internal audit, which has typically excelled at processing and analyzing data and adopting new technology to do it. Making sense of increased data to inform the financial reporting process is an area where internal audit can add value and help organizations achieve more responsive reporting.
"CFOs worldwide are struggling to make the most of the increased volume and speed of data available to them," says Peter Wollmert, EY Global and EMEIA FAAS Leader. "Many are encumbered by legacy systems that do not allow reporting teams to extract forward-looking insight from large, fast-changing data sets. The result is an increasing expectation gap between what boards now look for from corporate reporting and what CFOs can deliver. Until reporting catches up with technological advancements it will continue to be compromised."
The difficulties are driving financial executives to look for new solutions, including looking at outside service providers. At a time when close to a third (32 percent) of CFOs surveyed rank their reporting operating model as "average", it is not surprising that 56 percent say transforming their model is a major focus of their role. Over the next two years, 54 percent expect to see a very significant or significant increase in the use of outsourcing, followed by managed services (51 percent), and captive shared services centers (50 percent).
Data Analytics to the Rescue
The top three drivers for what CFOs hope to achieve by these new reporting arrangements are: increased accuracy and effectiveness of reporting (30 percent); improved data analytics in reporting to drive forward-looking strategic insight (29 percent); and a more flexible and agile reporting function (28 percent). Indeed, data analytics, an area where internal audit has played a leading role, is one solution to the data problem, and could turn a difficulty into an advantage.
Yet, with all these changes, 42 percent of respondents are concerned about striking the right balance between central control and the need to devolve reporting so it is attuned to local needs. Today, the dominant organizing principle for corporate reporting is one where everything is controlled from head office (33 percent of respondents). However, CFOs are likely to move towards control residing with head office but significant responsibilities assigned to local markets. Twenty-nine percent of respondents see this as the future model, with just 24 percent operating this model currently.
"CFOs are mapping how they see the future of reporting," says Wollmert. However, unless decisive action is taken quickly to define a bold strategy and vision for advancing the reporting process, they will continue to fall behind the pace of technology. For CFOs contemplating this journey, the mantras for their reporting function needs to be responsive and streamlined.".