The case for a holistic financial reporting process

why cfos need to take holistic approach to financial reporting
31 October 2017

The adage "garbage in, garbage out" rings true across lines of work. No matter the industry, poor ingredients always create a poor end product. For professionals tasked with managing the financial reporting process, this is especially apparent. The use of incorrect information in reports can inadvertently mislead your organisation's decision-makers and, ultimately, do harm to your business.

However, as the 2017 Future of Financial Reporting survey indicates, many finance functions are aware of this problem, yet continue to build their reporting processes on unstable foundations. Compiling, reporting, and analysing business data is manual, repetitive, and error-prone work for many organisations. Incorrect data permeates and taints the whole reporting cycle.

According to the report:

  • Half of the 900+ senior finance professionals surveyed worry that not all documents and disclosures are updated with the latest changes to accounts
  • 40 per cent of respondents are concerned their data is not always trustworthy and accurate
  • Nearly half worry about unexpected errors being identified in a critical spreadsheet

While CFOs and finance professionals are always concerned with the quality of their reports, their attempts to improve them are often futile. To successfully ameliorate the situation and create holistic financial reporting, entire systems must be changed.

Data integrity and the reporting supply chain

An able carpenter can put together a house, but if he or she uses rotting wood, the integrity of the end product is seriously in question. Similarly, any attempts at improving the overarching functions of the reporting process are effectively pointless if doubts exist about the integrity of data in use throughout the entire reporting supply chain.

When errors are inadvertently woven into the supply chain early on, they ripple outward and are propagated along the entire process, from data collection to filing. Errant data is much easier to fix close to where it originates, as the farther an error creeps into a system, the more it influences other aspects of the report.

In an effort to lessen the impact of incorrect data along the reporting supply chain, overburdened and time-crunched finance functions pursue bite-sized initiatives, typically further from the source, on account of the difficulty and demands of removing inaccurate data from the bottom up.

Patchwork changes such as these can only go so far for many organisations, as they address the symptom and not the underlying cause of data corruption. Accordingly, many financial professionals are seeing the pressing importance of holistic procedural alterations—a substantial overhaul of the entire supply chain—for the long-term integrity of their financial reporting.

Spreadsheet management: the root cause

Seasoned finance professionals will not be surprised to learn that the main culprit in this dilemma is spreadsheet management—juggling various versions and carrying facts and figures across multiple documents. Not only does this task invite human error, the problems it creates often multiply.

When the root-level, essential modification of financial spreadsheets is impossible to accomplish in an acceptable timetable, the only perceived panacea is adding more spreadsheets to paper over the cracks. This pulls the organisation down further into a spiral of ever-increasing spreadsheet dependency.

These faulty processes also have a negative impact on organisations as a whole, writes Stuart Miller, Chief Financial Officer at Workiva, in the report. These spreadsheets often contain unstructured data of uncertain provenance, yet drive the substance of presentations to boards and investors—a serious concern for businesses of all size.

Data viability and structure

In decades past, the majority of the data that the finance function needed to support management reporting came from the general ledger, with only a small amount of unstructured data coming from outside.

Today, the opposite is true. Valuable nuggets of data are likely to be transmitted via email, a PDF, an instant message conversation, a screenshot, or another unorganised format. After all, finance teams are pressed for time, and translating necessary figures to a structured format is tedious and resource-heavy.

The challenges set in front of financial professionals—data governance, maintenance of the financial reporting process, and much more—are not slowing down nor becoming less perplexing. To keep growth sustainable and vibrant, the finance function must recognise that future process improvement initiatives cannot survive without meticulous attention to data, from beginning to end.

If CFOs want to make holistic, enduring improvements to internal controls and document management and filing through automation, they must pay attention to the data that underpins it.

The need for technology modernisation for data management is a pressing concern in many areas of finance. In fact, a mismatch between the needs of modern business reporting and the technology currently used to create these reports is a major hurdle for many businesses, according to the 2017 Private Company Business Trends and Insights Survey. Read the full survey for more information.

Michael Volkov

About the author

Michael Volkov is the CEO of The Volkov Law Group LLC, where he provides compliance, internal investigation and white collar defense services.