Data protection risk top challenge for our CFOs

Tuesday, 12 December 2017

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  • Data privacy and managing the complexity of changing compliance requirements are the top challenges for 78% of Australian CFOs
  • IT transformation seen as too costly and risky, despite concerns over lack of integration
  • Traditional governance and board structures challenged by geopolitical risks and technology and data environment

Managing the risks associated with finance data protection – from external cyber threats, to internal failure or workplace culture - are seen by Australian CFOs as the most significant risks affecting reporting effectiveness according to the latest report by EY Financial Accounting and Advisory Services (FAAS), Can innovative corporate reporting build trust in a volatile world?

When it comes to external reporting, forty-six percent of the Australian CFOs named finance data protection as their most significant risk, higher than their global counterparts (38%). Keeping pace with regulatory changes (41%) and responding to the fast-changing technology environment (39%) take up second and third places for Australian CFOs.

More than 1,000 CFOs or financial controllers of large organisations with revenue greater than US$500m across 25 countries participated in EY’s annual global survey. It found that lack of clarity over data ownership and governance has a significant impact on reporting effectiveness for 64% of respondents globally.

Eighty-five percent said that they found it either “very challenging” or “somewhat challenging” to actively manage data flows based upon different jurisdictions’ privacy laws. The same percentage of respondents also said that assessing the different security standards for data centres versus cloud computing was a key challenge to data protection, privacy and compliance. The survey also found that 49% of respondents say concerns over security and compliance risks of the cloud are seen as a major barrier to technology transformation and the implementation of innovative new technologies.

Peter Wollmert, EY Global FAAS Leader, says:

“There is a high level of uncertainty among the finance community on how to approach the issues of data security and privacy. CFOs need to ensure that they have clear governance processes in place for how they look after financial information and ensure that data is both compliant with relevant local laws and is secure – which can be a huge challenge in large and complex organizations. Responding by using advanced data analytics and integrated technologies as well as artificial intelligence, cloud computing and robotic process automation will be key to avoiding reputational and other costs that come with a mismanagement of financial data.”

Upgrading IT is a top priority for Australian CFOs, but IT transformation seen as too costly and risky

CFOs are even more concerned than their global counterparts about lack of integration between IT systems (59% vs 53%) and dated IT architecture (54% vs 46%), however perceive their Board’s view of cost and risk as the top barrier to implementing new finance and reporting technologies.

Patrick McLay, Managing Partner, EY Oceania Financial Accounting Advisory Services says, “With 63% of Australian CFO’s reporting that the board’s view of IT transformation is that it is too costly and risky, and with a high level of concern over cloud data security and compliance risk (56%) it is perhaps no wonder that more than half of the respondents want to focus on data and analytic tool upgrades, as their technology innovation priority. This could lead to missed opportunities.”

Tax Compliance and Internal Audit focus

Australian respondents identified tax compliance (37%), effectiveness of internal audit (37%) and new accounting standards (32%) as higher priorities for audit committees and the board than their global counterparts. “The fact that these are top of the list is not surprising” said McLay. “Boards are looking for internal audit to add even greater value through collaboration and process effectiveness. In terms of tax and new accounting standards, I see the difference with global results as being down to effective communication, or lack thereof; Boards are looking for greater visibility on implementation progress and greater commercial insights than they are currently getting. This is a big opportunity for CFOs when it comes to reporting.

Time to challenge traditional governance and board structures

Globally and in Australia, CFOs are under increasing pressure to rethink traditional approaches to corporate governance. Forty-two percent of those surveyed say their audit committees and boards are asking for more insights and information from corporate reporting on data protection and privacy, with the same percentage of respondents also saying they are providing corporate reporting on the risks from regulatory change.

With an increasing focus on technology and data challenges, Australian finance leaders believe that audit committee members will need to evolve to respond to the increasing focus on technology and data. The key changes needed are developing new competencies (71%) and building their understanding of how analytics can be used to identify data risks (63%).

McLay says: “It is no longer a time for reactive corporate reporting. Boards are expecting management to report issues to them in real-time. These increasing demands for more insightful corporate reporting means reporting teams need to draw on the volumes of data available, as well as technology advances, to deliver new levels of insights that board members require to fulfill their governance role.”

The full report can be viewed here.

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Notes to Editors

About EY

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About the survey

Can innovative corporate reporting built trust in a volatile world? surveyed 1,020 CFOs or heads of reporting of large organizations to understand the challenges they face in corporate reporting. More than 40% of the organizations were in excess of US$5 billion a year in revenues, with 8% in excess of US$20 billion. Respondents were split across the Americas; Asia-Pacific; Europe, Middle East, India and Africa (EMEIA); and Japan, and covered 13 main industry sectors. The survey was supplemented by in-depth interviews with CFOs and heads of reporting organizations, as well as EY subject-matter professionals.