Why Statutory Reporting Is Ready for Digital Transformation
Statutory reporting is the mandatory submission of financial and nonfinancial information to regulatory authoritative agencies. With the need for both structured accounting standards and unstructured data, complying with statutory reporting is a complex and truly cross-functional effort. It requires collaboration that extends beyond the domain of chief compliance officers (CCOs).
The challenges of statutory reporting
What makes statutory reporting such a complicated process? Regulatory expectations are increasing for all industry sectors, which means everyone must be on alert for updates from their respective authorities. As penalties are being levied for noncompliance with existing rules, new rules continue to be released. Regulatory agencies’ reporting requirements also often overlap with one another. While you may satisfy one set of requirements, you must be cognizant of the differences between governing bodies.
Conversely, reporting teams must also be attuned to changes within the company. Statutory reporting involves compiling information and reporting that data to authoritative agencies at periodic intervals or when triggering events occur—for example, changes to macroeconomic conditions or company acquisitions.
As a result, compliance teams must reassess how they will meet their ever-evolving statutory reporting requirements.
The obstacles of data standardization
While many enterprises maintain some statutory reporting data in a structured enterprise resource planning (ERP) system, an IDC study discovered that more than 90% of the data that businesses create is “unstructured.” Unstructured data is defined as information that either does not have a predefined data model or is not organized in a predefined manner. This may contain dates, numbers, and facts that reside outside ERP systems, making it difficult for finance teams to retrieve it without workarounds. As a result, relevant statutory reporting data is often dispersed across a host of operational legacy systems and multiple spreadsheets, creating competing versions of the truth.
In addition, a 2015-16 consultation conducted by the European Commission Directorate-General for Financial Stability, Financial Services, and Capital Markets Union (DG FISMA) revealed that “reporting and disclosure obligations” and “overlaps, duplications, and inconsistencies” are considered major hurdles to corporate data standardization.
Breaking down data silos
The studies on corporate data reveal a disturbing trend: when information is siloed, it becomes nearly impossible to serve a single source of truth to all business reports, including statutory reports. The accounting department may rely on a different platform than the risk department, which may rely on a different software solution than the investor relations team.
Data silos create a Tower of Babel effect in the statutory reporting process. Different compliance teams are speaking different languages. This makes it difficult to build statutory reports effectively because they do not share the same data sources or work in the same digital, collaborative environment. Disconnected data between departments can cause confusion, mistrust and loss of productivity, and ultimately hurt the bottom line.
Streamlining the statutory reporting process
With the different sets of data needed to fulfill statutory reporting, modern reporting teams have shifted toward collaborative cloud technologies that enable data management across the enterprise. While the benefits are many, a central reporting platform delivers two very distinct advantages that span the enterprise:
1. Create a single source of truth
Advancements in information technology and data management platforms enable compliance teams to collect, aggregate, and manage their unstructured and structured data in a single cloud environment, which serves as the single source of truth. By linking numbers, commentary, charts, and graphics, the single source of truth becomes an organization’s central repository for critical data for all internal and statutory reporting.
Compliance teams can trust that the numbers and narrative within spreadsheets, documents, presentations, and dashboards are up-to-date and consistent. This vastly reduces the risk of reporting incorrect data, or worse—taking critical business actions based on erroneous information.
Using connected data from the single source of truth also reduces operational costs related to tedious ticking and tying. The cost savings can be significant, especially when you multiply the gained productivity times the number of reports that may be required. Forrester Consulting conducted a Total Economic Impact™ study on a major multinational manufacturer who moved its statutory reporting processes into a cloud data management platform. The company achieved a 108%, three-year, risk-adjusted ROI savings of $393,749 from streamlining its data compilation and report synthesis processes.
2. Enhance data governance
In a recent study, IBM estimated that the yearly cost of poor quality data in the United States alone reached $3.1 trillion in 2016. This figure is stunning, especially for executives who understand that the costs of bad data are more than monetary.
Data governance initiatives can be driven by a desire to improve data quality. However, they are more often a C-level response to external regulations. With new regulatory requirements for enhanced statutory audit reports, no one wants to risk weak data governance serving as the cause for a Key Audit Matter (KAM), as set out in ISA 701.
Executives can benefit from a data management platform that provides accountability and transparency through a detailed audit trail. Every change made by every user can be tracked as the statutory reports are being prepared. A complete record of data provenance and document changes will help compliance teams mitigate risk, gain insights, and make better, data-driven decisions.
As statutory reporting continues to change shape, global organizations would be advised to keep both a close watch on regulatory trends and their own processes. Follow the Workiva blog for future articles as we monitor changes to statutory reporting regulations and share tips on how you can utilize technology to stay compliant.