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Can innovative corporate reporting build trust in a volatile world?

Finance 4.0 and the transformation of reporting and governance in a high-risk world

Introduction

EY - Fourth Global corporate reporting survey

The trust and confidence enjoyed by businesses is being disrupted. In our hyper-connected world, the reputational impact of scandals such as data breaches and unethical conduct can be catastrophic. Trust can be destroyed forever if organizations do not keep up with the public’s shifting expectations of acceptable corporate behavior, or they fail to safeguard personal data.

We surveyed more than 1,000 CFOs or financial controllers of large organizations to understand the challenges they face in corporate reporting.

Our findings

To manage risk and build trust finance leaders and corporate reporting should explore two critical areas:

  • Advanced data analytics and integrated technologies — or “Finance 4.0” — can position them as the “trust-giver” to a wider group of internal and external stakeholders — such as boards and regulatory authorities — around both financial and nonfinancial information.
  • Rethinking traditional approaches to corporate governance can give audit committees and boards the competencies and sophisticated insights they require to provide effective oversight and support effective compliance and control.

A disrupted reporting environment: technological, political and social risks are on the rise

EY -  A disrupted reporting environment - technological, political and social risks are on the rise

Two major shifts are changing corporate reporting and governance. First, innovative technologies and sophisticated analytics are becoming key to managing growing risk and volatility to help organizations meet increasing compliance requirements.

Second, as the political and social environment changes, the rules and norms of business — regulatory standards, accounting standards, legal protocols and ethical regimes — are evolving in response.

These trends are affecting corporate reporting in two areas: the way in which financial statements are prepared; and the level of financial oversight provided by audit committees and supervisory boards.

To remain effective, corporate reporting should adapt to changing compliance, legal,regulatory and technology risks

EY - To remain effective, corporate reporting should adapt to changing compliance, legal,regulatory and technology risks

Preparing financial statements: smart reporting data and innovative finance technology are key to governance and oversight

EY - Preparing financial statements - smart reporting data and innovative finance technology are key to governance and oversight

Data analytics and innovative new technologies — an important element of what we call “Finance 4.0” — can help the finance function to operate differently, add significantly more value to the business and become the trust-giver to a wider group of stakeholders around nonfinancial information.

This should be in real-time, at a greatly reduced cost, with more automated control and lower risk. However, finance leaders face significant challenges here: there has to be an effective approach to data governance and there is the perennial obstacle of systems integration.

Getting ahead

To overcome roadblocks that stand in the way of technology innovation, finance and reporting, teams often focus on two areas:

Collaboration with teams across the business

With the benefit of a broader understanding of the complex dependencies between risks and existing information risk management initiatives, an integrated approach to information governance can help tackle complex areas such as:

  • Responding to regulatory requirements. Rigorous compliance requirements may include international standards, such as EU laws or regulations issued by the U.S. Securities and Exchange Commission (SEC).
  • Increasing global flows of data. As volume increases and new information systems are procured, information may shift around the globe. As this happens, organizations tend to lose their understanding and control of what information is stored where. This introduces risks when they have to apply record retention policies, respond to discovery or regulatory requests, and determine compliance with privacy requirements. If companies cannot identify data and dispose of it in accordance with retention policies, then that data may be discoverable.

Managing the compliance challenges of new technologies

Our research finds that 87% of organizations surveyed plan to increase their investment in reporting technologies over the next two years.

However, even with a strong investment commitment, organizations face significant barriers in implementing innovative new systems. In particular, there is some concern from finance and reporting leaders as they consider making the transition to cloud computing.

Concerns over cloud compliance risks are the number one barrier to technology innovation in finance, according to group CFOs.

The finance function plays a critical role in providing trust and confidence for investors around financial data.

Audit committees and supervisory boards: seeking new competencies and data-driven insights

EY - Audit committees and supervisory boards - seeking new competencies and data-driven insights

The reporting requirements of audit committees and boards are changing in two ways.

What they do in terms of where they are focusing their attentions and the competencies they need for effective oversight. And how they provide oversight, with boards requiring more regular, real-time and relevant information to perform their role effectively.

What audit committees do

Today’s volatile and fast-changing environment is making areas such as internal controls, compliance and culture, and fraud prevention increasingly important.

When we asked respondents to select the main priorities of their audit committee and board in terms of their oversight role, we found that implementation of new accounting standards is the top priority for public companies. For private companies, the top priority is fraud prevention.

Board and committee members face increasing expectations from the public and media in managing key risks such as lapses in individual behavior. With an increasing focus on technology and data challenges, finance leaders believe that audit committee members will need new competencies to ful fil their oversight role effectively

New competencies and skills are being sought for board members

EY - New competencies and skills are being sought for board members

How audit committees provide oversight

Increasing volumes of data and advances in analytical tools and capabilities have transformed how organizations generate insight. However, organizations should question whether the information they present to audit committees and boards has evolved in line with these developments in terms of the sophistication of the content and how it is delivered.

With more sophisticated insights, organizations can improve the quality of board debate and decision-making, transforming the effectiveness of oversight.

Our survey shows that some organizations — particularly larger ones — are making progress here.
Only 19% of small organizations (annual revenues of up to US$1b) agree strongly that they are supplying their boards with a management dashboard that gives a close-to-real-time view of reporting and performance. But this increases to 35% for large organizations (annual revenues of over US$10b). Overall, one-third of large organizations are making progress in the use of sophisticated analytics to provide boards with reporting intelligence.

Increasing volumes of data, as well as advances in analytical tools and capabilities, have transformed how organizations generate insight.

A way forward: rich data combined with smart technology powers new governance era

EY - A way forward - rich data combined with smart technology powers new governance era

Whether people trust an organization depends on a whole host of reasons, from the tone of their communications to the personal integrity of the senior leadership team.

But taking a different approach to reporting and governance is likely to be an increasingly important factor. This is about reporting teams drawing on multi-dimensional data, as well technology advances, to deliver the reporting insights that stakeholders who have governance responsibilities, such as board members, seek to fulfil their role. Board members will tap into sophisticated, forward-looking data that helps them to fulfil their oversight insight.

Those organizations wishing to deliver those insights should consider managing data as a strategic asset; shift the finance mindset to embrace technology innovation; and challenge traditional governance and board structures.

Contact us

Global and Europe, Middle East, India and Africa

Peter Wollmert
FAAS Leader
+49 711 9881 15532

Karsten Füser
FAAS Markets Leader
+49 711 9881 14497

Americas

Dana Bober
FAAS Leader
+1 212 773 8670

Asia-Pacific

Joon Arn Chiang
FAAS Leader
+65 6309 6997

Japan

Shuji Suto
FAAS Leader
+81 3 3503 1100