CFOs are left exposed as the increasing volume and pace of data impacts their ability to provide meaningful insights to boards at speed with no errors.
This is according to a new report by EY Financial Accounting and Advisory Services (FAAS): 66% of respondents worldwide say this issue is having a significant impact on the effectiveness of corporate reporting, up from 57% in 2015.
"How Can Reporting Catch up With an Accelerating World?," an annual global survey of 1,000 CFOs or heads of reporting of large organizations across 25 countries (including 40 from Singapore) in organizations with revenue greater than US$500m, finds that 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% of emerging markets respondents and the number two issue for those in Europe.
“CFOs worldwide are struggling to make the most of the increased volume and speed of data available to them,” says Joon-Arn Chiang, EY Asia-Pacific FAAS Managing Partner, Ernst & Young LLP.
“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.”
Changing Stakeholder Expectations is Top Challenge Locally
Singapore CFOs appear to see greater issues around changing stakeholder expectations.
The top external challenges that Singapore respondents cited are changing stakeholder expectations of information (Singapore 32%, global 18%), and frequency of reporting requirements (Singapore 30%, global 17%).
“Many Singapore companies have overseas business interests or are subsidiaries of MNCs, and so are subjected to the various reporting requirements of GAAP and rules in Singapore, their home country, and their country-of-listing. This ‘onion-layering’ of regulatory risks compels Singapore CFOs to be adept in grappling with the different rules and reporting expectations across jurisdictions,” says Chiang.
Shifts in Reporting Operating Model
Close to a third (32%) and 40% of global and Singapore respondents surveyed rank their reporting operating model as “average”, and 56% and 37% of them respectively say transforming their model is a major focus of their role.
Over the next two years, 54% of CFOs globally expect to see a very significant or significant increase in the use of outsourcing, followed by managed services (51%) and captive shared services centers – onshore or near-shore (50%). Captive shared services centers – offshore and centralized centers of excellence are at 48% and 46% respectively.
For Singapore CFOs, more than half expect to see an increased use in outsourcing (55%), followed by captive shared services – offshore (45%), captive shared services – onshore or near-shore (43%), managed services (35%) and centralized centers of excellence (25%).
The top three drivers for what Singapore CFOs hope to achieve by these new reporting arrangements are: the use of data analytics to drive forward-looking strategic insight (50%); creating a more flexible and agile reporting function (32%); and future-proofing the reporting function against disruptions and changes (30%).
“High operating costs over more routine transactions are driving the outsourcing of high-volume work to lower-cost countries,” adds Chiang.
Chiang notes that the concentration of data prepared in a consistent manner in a centralized location, combined with the use of analytics, presents companies with the opportunity to derive insights and anticipate opportunities that were not viable previously.
“It also allows for faster and more specific and focused changes to the reporting function that enables organizations to respond better to evolving business and reporting demands,” says Chiang.
Yet, with all these changes, 42% and 62% of global and Singapore CFOs respectively 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 (Singapore 30%, global 33%). However, CFOs are likely to move towards control residing with head office but significant responsibilities assigned to local markets.
“CFOs are mapping out how they see the future of reporting. 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.
“The future-ready CFO needs to become fluent in the tools available for them to deliver a corporate reporting strategy that integrates technology with financial and non-financial reporting needs, so as to effectively elevate their role to become true strategic business partners to the CEO,” says Chiang.