As businesses grow, finance leaders face increasing stakeholder demand for timely and accurate financial and non-financial corporate reporting. Moreover, organizations must consider how they can keep up with current and future demands, and how they can provide accurate stakeholder reports in a timely manner.
CORPORATE REPORTING AND STAKEHOLDER DEMANDS
Corporate reporting provides a comprehensive picture of an organization’s financial and non-financial information, which can assist stakeholders and other relevant users in their decision-making. Furthermore, finance leaders can use corporate reporting to communicate the value their businesses create for people, society, and the environment.
There is also increasing stakeholder demand for non-financial information, such as sustainability reports that highlight a company’s environmental, social, and governance (ESG) commitments. This development continually influences businesses, encouraging more responsible and sustainable practices. Moreover, evolving accounting principles and other regulatory requirements are continually obliging organizations to report more reliable and relevant information about their performances, positions and their level of compliance. The increasing stakeholder demands trigger the need for finance leaders to revisit their transformation agenda on their finance functions.
According to the 2023 Global EY DNA of the CFO Report, 16% of finance leaders believe their finance function delivers best-in-class performance, with only 14% of respondents planning to pursue a bold transformation agenda over the next three years. The small number may imply that there is a hesitancy to adopt new and inventive ways of working.
COMMON PITFALLS
Through the years, finance leaders have faced the challenge of meeting internal and external stakeholder demands to comply with the financial reporting standards and regulatory guidelines. As such, some corporate reporting policies, processes, and controls have not yet been transformed to align with organizational needs and demands, resulting in a lack of confidence among stakeholders.
There are some common pitfalls to watch out for in corporate reporting:
Substantial reliance on manual processes. Even though some organizations have Enterprise Resource Planning (ERP) systems, there are still some corporate reporting processes being done manually. In the 2021 EY 7th Global Corporate Reporting Survey, 56% of finance leaders said that “there has been resistance to some of the changes we have had to introduce.” In addition, 51% said “finance team members have sometimes failed to adopt new processes, reverting to traditional ways of doing things.” These entities normally have siloed systems that rely on spreadsheets to reconcile corporate reports from different systems. Spreadsheets are prone to human error, making them unsustainable since processes may become more complex as entities evolve.
Policies are not aligned with regulatory reporting requirements and business demands. Policies are vital to corporate reporting controls. If they are not aligned with regulatory requirements and business demands, they can reduce efficiency and effectiveness in decision-making. Recently, there have been significant changes with regulatory reporting requirements, such as financial reporting standards. Despite these changes, some organizations have not yet updated their policies, which may lead to the inappropriate and inconsistent application of procedures and processes. Consequently, this misalignment may result in fines, litigations, or other consequences to an organization if this non-compliance has a material effect on its corporate reporting.
Outdated employee skillsets. Due to today’s fast-paced technological innovations, regulatory changes, and consumer demands, some employees may need to upskill. Moreover, limited skill development may lead to poor performance and outdated corporate reports. According to the 2023 EY Global DNA of the CFO survey, 19% of the finance leaders surveyed said that talent together with risk are the least priorities for finance transformation over the next three years.
BUILDING CONFIDENCE
Addressing these pitfalls can help organizations achieve agile corporate reporting. To do so, finance leaders need to integrate their processes, policies, and people. Additionally, they need to focus on the following areas:
Invest in technology to digitalize processes. The 2023 EY Global DNA of the CFO survey shares that 44% and 36% of the finance leaders are now prioritizing technology transformation and advanced analytics, respectively. Finance leaders need to leverage investments in technology and digitalization to standardize and simplify the corporate reporting process. They must also explore new ways of working where data is integral to unlocking the value of business portfolios. They need to implement integrated systems to provide accurate and real-time reports, leveraging automation from technology. These solutions will enable faster and better decision-making, shifting the focus of finance from back-office bookkeeping to being a trusted business advisor within the organization.
Align policies with regulatory reporting requirements and business demands. In aligning policies, finance leaders need to ask themselves whether their organizations have all the necessary policies in place. They also need to determine how their policies compare to those of their industry peers, and if their internal users and customers are satisfied with the policies. Lastly, after determining if the policies are user-friendly, they need to identify the key policy gaps related to regulatory requirements and business demands.
Once policies are aligned and updated, finance leaders must ensure their organizations also have a “policy on policies.” This overarching guidance will help define when to create, update, or decommission policies, including approval requirements for these changes.
Equip next generation leaders with the right skills and tools. Finance leaders can assess the skill gaps of their existing employees, encourage professional development, and reconcile both to align with business requirements. Any updated policies and processes should be cascaded to employees, especially those that require continuous training and education. These steps will help organizations ensure that the talent assigned to their tasks are aligned with current business and stakeholder demands.
THE FUTURE OF CORPORATE REPORTING
Finance leaders need to transform their corporate reporting agenda beyond the numbers, starting with a cultural change on their mindset and behavior. This journey can serve as a challenge and an opportunity to create long-term value for the whole enterprise, improve current ways of working and develop next-generation leaders. When finance leaders consider these, they can rebuild confidence and drive value for the organization today and tomorrow.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
Anna Maria Rubi B. Diaz is an assurance partner under Financial Accounting Advisory Services (FAAS) and Sheena Dyan C. Suarez is a FAAS director of SGV & Co.
