The free flow of trusted financial information is crucial to the smooth running of global financial markets yet there is a strong sense that the interests of companies, shareholders, regulators, the wider investment community and other stakeholders are not well served by the current reporting regime. And there is a widening gap between peoples’ expectations of information technology, particularly the internet, to retrieve the information they need when they want it and the relatively inferior access to critical financial information. But can CFOs close the gap, asks Gary Simon, FSN’s (Financial Systems News) managing editor?
For most investors, financial reporting is inert, the overwhelming majority of listed companies post their financial results as downloadable PDF files on their corporate websites, so the only choice that an external reader of financial statements has in the matter is to download summary statements and selected segments of statutory reports and other voluntary reports, or to obtain a printed hard copy “glossy” directly from the company or selected distribution services.
Roll forward to February 2014 and the position hasn’t really changed. A new report by ACCA (The Association of Chartered Certified Accountants) “Understanding investors: the changing corporate perspective” points to continuing dissatisfaction among investors concerning the speed of production of the Annual Report and accounts (just 51% of investors said that they are satisfied with the timeliness of company information) yet 70% of investors said that companies reporting in real-time would have an advantage in attracting investment.
But what is real-time reporting? There seems to be little consensus surrounding the definition of the term but it is generally accepted to mean “on-demand” rather than episodic reporting and that “on-demand” envisages anything from a few seconds to a few hours delay. CFOs are surprisingly supportive of the move towards real-time reporting. According to the ACCA report, two thirds say they would welcome a move to greater adoption of real-time reporting but fret that this could compromise competition-sensitive information and lead to misstatements. 45% said that the difficulty of instituting effective controls to ensure accuracy is a major obstacle.
Technologically speaking real-time reporting is certainly within the CFO’s grasp. Many businesses already have access to real-time dashboard information in areas such as, cash, sales and operational statistics. Dominic Policella, managing director of BOARD (UK) told FSN how real-time KPIs are becoming essential to competitiveness in the logistics sector, “Real-time operational reporting is crucial in logistics where one is monitoring the real time labour KPI’s, such as picking rates and quality. This real time visibility can even be displayed as a dashboard on a large plasma screen in the warehouse so that both management and other personnel can see performance against targets. This drives behavioural change and increases productivity in a very focussed way. We have seen productivity increases of over 15% in under 12 weeks from real-time KPIs which translate into real financial benefits”.
But when it comes to statutory reporting the picture is less rosy. A May 2012 Report “The Challenges of Corporate Financial Reporting”, by Accenture and Oracle, highlights that although 47 percent of companies have made substantial investments in their financial close, filing, and reporting 68% of respondents admit that they have inadequate visibility into reporting processes, 84% of finance managers say they find it difficult to control the quality of financial data and 15% of global businesses have missed statutory deadlines.
43% of the ACCA survey’s respondents say that technology infrastructure prevents further acceleration. Both surveys reflects a reliance on ageing consolidation suites and infrastructures which have not been able to adapt to regulatory pressure for accelerated reporting and newer information requirements.
Larger enterprises seeking to improve their statutory reporting will probably have to turn to more robust unified performance management suites such as BOARD or OneStream (which has recently launched in Europe). Tom Shea, President, OneStream told FSN, “Our single system approach allows companies to move along the spectrum from episodic or monthly reporting to real time or flash reporting. Real time reporting depends on transactional system data availability which can be difficult to coordinate. In our single system approach, OneStream can leverage available real time data along with episodic or monthly data to produce more complete reporting snapshots”.
Other potential options include cloud providers of financial consolidation systems, but these are relatively new, with the main contenders, Anaplan and AdaptiveInsights only launching their statutory consolidation capability last year. Financial Governance solutions such as Trintech’s Cadency are also helping to bring about faster reporting by combining risk and compliance reporting with financial reporting in a single environment giving CFOs visibility of all of the controls relating to the integrity of the financial statements at the point of sign-off.
Notable by its absence in the ACCA report is any discussion around XBRL. This technology held out the promise of accelerating reporting by driving standardisation through core financial processes and at the same time satisfying investors’ needs by enabling direct enquiry on financial data. But so far it is regulators such as the SEC and tax authorities that appear to have benefited the most.
However it is not technology that is likely to be the main stumbling block to real-time reporting although its importance should not be underestimated. CFOs are more concerned about the ability of auditors to sign-off more frequent reporting as well as the higher risk of misstatements in the unseemly rush to publish data more frequently. There are also those who point to the risk of unacceptable swings in share prices and a trend towards short-termism as investors react to every twist and turn in a company’s performance. More troublesome is the potential demands on management time as investors and other stakeholders bombard management teams with questions arising from more frequently published data, or perhaps more worryingly, from scraps of information obtained on a self-service basis.
There is no doubt that with the right technology CFOs can deliver real-time reporting however the deeper question is whether this is a priority when judged against competing priorities such as improving the speed and accuracy of existing statutory reporting and improving the availability of internal reporting. And then there is the question of totally changing requirements and the move to integrated reporting. Given these pressures, CFOs may say they are in favour of real-time reporting but what they probably mean is after they have done everything else!