Despite continuing investment in close processes, research released this month by Oracle and Accenture reveals that the majority of companies are not getting the improvements they had anticipated, with many still complaining about poor data quality, lack of process visibility and the inability to meet crucial reporting deadlines. To add ‘insult to injury’ spreadsheets are still being used to pave over the gaps in reporting - even where modern disclosure management and workflow technologies have been deployed, says, Gary Simon, FSN’s managing editor.
It seems that businesses are throwing money at group reporting, hoping that some improvements will stick. But the evidence shows that investments are not joined up and, unsurprisingly, improvements are patchy.
Fascinatingly, the cost of the overall financial close process remains a ‘black hole’. The research report, “Challenges of Corporate Financial Reporting,” highlights that businesses are unable to fully understand the cost of their financial reporting, with 60% of finance professionals unable to identify the total cost. 21% of finance teams have seen their costs rise across the financial close, reporting and filing processes but the situation is so opaque that managers across the finance function are unable to fully understand the financial impact/cost implications of managing and publicizing their company’s financial results, with 60% of respondents admitting they do not know the total cost of managing and publicizing financial results.
Despite this uncertainty, 82% of surveyed companies have made changes over the last three years to their close, filing and reporting processes. 12% of businesses in the survey have invested in one of the three financial reporting phases (close, reporting and filings); 10% invested in two of them and 25% invested in all three. Yet spreadsheets (72% of cases) and emails (68% of cases) are still being used to track and manage reporting on a daily basis, suggesting that new investments are falling well short of expectations.
Conducted by Dynamic Markets, the report surveyed 1,123 finance professionals in large organizations in 12 countries, including the UK, USA, France, Germany, Russia and Spain.
Due to inadequate support, the majority of businesses reported that they still face significant problems with financial reporting. 68% of respondents concede that they have inadequate visibility of reporting processes, while 84% of finance managers report that they find it difficult to control the quality of financial data across the course of their reporting, highlighting that additional attention should be paid to performance management. Added to which, unreliable and opaque data is severely limiting the ability of finance professionals to do their jobs with 71% of finance managers reporting that their effectiveness is limited in some way by data analysis-related issues.
The knock-on effect of unreliable data quality is that 15% of global businesses have missed statutory filings, putting their companies at risk of financial penalties and potentially impacting share value. Even a simple change to the group chart of accounts takes an average of 21 man-days, with the average figure being much higher for companies with international offices.
John O’Rourke, Vice President EPM Product Marketing at Oracle, said: “It is clear from the report that businesses are well aware that financial reporting needs to change. The good news is that many are doing something positive about this by investing in new reporting systems. It seems however, that these investments are currently too piecemeal and sporadic to have had the desired effect. With businesses still looking to invest, our advice is clear: Take the time to find a truly effective solution that can address data integrity issues and optimize processes. By doing so, finance organizations can be more efficient, while accuracy can improve and reports are more likely to be completed on time.”
Scott Brennan, Executive Director, Accenture Finance & Enterprise Performance Consulting Group said: “These results mirror what we see and experience, and they’re illustrative of why companies increasingly find it necessary in today’s age of volatility to invest in their performance management. Those that tend to be happiest with the results of their enterprise performance management are those that have a vision – they understand their company’s strategy; they have a clear view of the metrics they need to monitor and they know the importance of integrating an enterprise-wide EPM solution.”
What is striking about this report is that despite the vast sums of money being spent the fundamentals are not being covered off. Foremost amongst these is data quality, because ‘bad’ data quality at the start of the process permeates the whole reporting cycle. And of course as the financial reporting process becomes more stretched, for example through regulatory change this becomes even more challenging.
So what are the lessons of this insightful research? It appears that if companies are to stop throwing good money after bad that they need to stand back and take a more holistic approach to process improvement.