Is India Inc prepared for corporate reporting’s perfect storm? India findings

New Delhi, 18 April, 2016

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  • The main external challenges for reporting are satisfying the differences in reporting standards (43% vs. 20% globally) and changing expectations around reporting formats (40% vs. 21%)
  • 33% say audit committees have significantly increased their attention overall on reporting (vs. 34% globally); as have financial regulators (28% vs. 21%); investors (33% vs. 30%) and analysts (28% vs. 19%)
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EY’s latest survey; ‘Are you prepared for corporate reporting’s perfect storm? Why trusted relationships, innovative technology and world-class talent matter’ found that the demands, scrutiny and expectations facing finance and corporate reporting continue.to increase. The sample for India findings consisted of 40 India-based CFOs (50%) and financial controllers (50%) of large organizations.

In particular, Indian businesses are seeing a greater increase in the number of business units and products and services offered. 28% percent say there has been a significant increase in business units (vs. 17% globally) and 20% increase in the number of products and services sold vs.14% globally. This complexity is having an impact on reporting effectiveness. The top challenge is a devolved operating model and local business unit resistance (48% vs. 44% globally).

The main external challenges for reporting are satisfying the differences in reporting standards (43% vs. 20% globally) and changing expectations around reporting formats (40% vs. 21%).

Several recent regulatory developments and notifications including the amendments in Companies Act and introduction of Indian Accounting Standards (Ind AS) are creating a perfect storm in corporate reporting. Difficulty of integrating non-financial measures, weaknesses in supporting IT infrastructure and lack of appropriate skills and talent base in finance function team are resulting in enormous pressure on finance departments to be prepared for what lies ahead.

Indian stakeholders are giving more attention to corporate reporting. 33% say audit committees have significantly increased their attention overall on reporting (vs. 34% globally); as have financial regulators (28% vs. 21%); investors (33% vs. 30%) and analysts (28% vs. 19%). This focus has had an impact on the main drivers of effective reporting in India. Globally the top driver is meeting the needs of audit committee and boards, but in India the top drivers are need for greater transparency (38%), improving compliance and control (35%), need to meet new reporting regulations (35%), meeting the increasing demands from the investor community (35%).

To meet reporting’s changing needs, finance leaders need to consider three key areas. These include governance; build relationships with audit committees to understand the insight required, technology and data; utilize technical and analytical capabilities to meet increased demands, more efficiently, and people; broaden the skillset of the team.

Other key findings

  • Indian stakeholder relationships are weaker compared to global relationships with the audit committee and the board but are stronger with other groups. 38% of finance functions have a strong or good relationship with the audit committee (vs. 54% globally) and 48% have a strong or good relationship with the board (vs. 56%). However, other relationships are stronger, for example, 60% have strong or good relationship with investors (vs. 51% globally) and 60% have strong or good relationships with the media (vs. 41%).
  • Despite a relatively weak relationship, Indian respondents are less likely to believe that they need to improve the information provided to the audit committee (30% vs. 38% globally).
  • Indian respondents have higher confidence in their degree of compliance (30% fully confident vs. 20% globally), but are less confident in IT integration (13% fully confident vs. 20%), and flexibility of report timing, frequency and format (10% fully confident vs. 20%).
  • The most effective aspects of reporting in India are the internal stakeholder view and speed of closing. Fifty-seven percent of Indian respondents say the internal stakeholder view is effective (vs. 47% globally); while 57% say speed of closing is effective (vs. 44%). The least effective areas for Indian reporting include degree of integration (38% effective vs. 43% globally) and confidence of the board (40% effective vs. 48%).

EY report analyzes the reporting improvements needed-

  1. The lack of integration, data quality and dated IT architecture are the main technology barriers. Businesses in India see these as more of an issue relative to the global picture: lack of integration between IT systems (53% India vs. 35% globally); poor quality data (43% vs. 32%) and dated IT architecture (40% vs. 26%).
    • I.  Data consistency is a key challenge to organizing reporting with 48% of Indian respondents identifying it as top challenge (vs. 42% globally). Indian companies place a higher priority on most challenges compared to the global sample, in particular dealing with rules and restrictions on services from advisers (45% vs. 32% globally); and reconciling regulatory and compliance requirements across markets (43% vs. 35%).
    • II.  Building audit committee and board relationships is top priority for reporting (38% in India vs. 27% globally). Indian respondents place a high priority on several other factors at 35% including upgrading existing IT infrastructure (vs. 30% globally), harnessing big data and analytics (vs. 30%), and integrating reporting with the value drives and strategy of the business (vs. 28%).
    • III.  Reflecting the priority of big data and issues with data consistency and quality, 100% of Indian respondents expect to increase investment in reporting technologies over the next two years, as compared to 82% globally. The increase in India will also be significantly higher than at the global level — 70% in India expect increases of greater than 20%, compared to 20% globally.
    • IV.  The reporting functions in Indian organizations tend to be mainly centralized with some local activity (73% vs. 42% globally). Looking forward, 63% would like to see control still residing at the head office but with significant responsibilities being devolved to the local market compared to 45% globally. Only 18% would like to continue to see a mainly centralized function, compared to 29% globally.
  2. Adoption of analytics in corporate reporting is gathering momentum. In India, companies report a higher use of analytics in reporting to the CEO and management team as compared to our global findings with 23% them extensively with audit committees (vs 12% globally). They report slightly lower levels of use when reporting to the audit committee and external stakeholders.
    • I.  Reflecting the fact that implementation of analytics is in progress, Indian confidence levels are largely consistent with the global average across the different uses of analytics. However, confidence in reporting relevant data is higher than our global findings (60% vs 41% globally); as is reporting accurate data (55% vs 43%). Looking across a range of analytics tools, Indian companies have particular focus on developing more sophisticated storage solutions (61%) and use of automation in data capture and generation (53%). The main priority for investment is data infrastructure. This technology is the standout priority for Indian businesses, 48% vs 26% global.
  3. Technical accounting, regulatory knowledge and risk management are skills most needed to improve reporting. 38% say technical accounting skills are most needed to improve reporting (vs. 25% globally), followed by regulatory knowledge (35% vs.28%) and risk management (35% vs. 24%). Competition for talent is the top people challenge with 28% of Indian respondents seeing this as the main challenge, vs. 20% globally. External recruitment will be main way to solve these challenges in line with our global findings.

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