For example, as companies grow through mergers and acquisitions, a key challenge is aggregating data from multiple enterprise resource planning (ERP) systems to build a full picture of the business. At EY, we created a new centralized group named the 10x Accelerator to build experience in data capture among our audit teams and to enable the audit with a “single source of truth.” The 10x team’s ability to establish a repeatable process for data capture can serve as a leading practice that CFOs can learn from as they look to tap into the power of data system-wide.
CFOs often ask me about another new technology with exceptional promise for streamlining financial processes: blockchain. As new businesses sprang up around cryptocurrencies over the last decade, we were faced with the challenge of auditing blockchain transactions. We initially developed the Blockchain Analyzer, part of our analytics suite, for this cryptocurrency sphere, allowing audit teams to analyze 100% of a client’s transactions on the major cryptocurrency blockchains, to reconcile those transactions with the company’s internal financial systems, to perform risk assessments and to red flag questionable transactions.
However, as blockchain becomes a useful tool for nonfinancial businesses — whether securing complex supply chains or allowing for digital contracts that speed up payments and increase working capital — we are ready to apply the Blockchain Analyzer to new kinds of audit tests and to help CFOs create trust in the soundness of their blockchain approaches.
And our use of artificial intelligence in the digital audit can help inform our clients about the possibilities of intelligent automation for their own processes. For example, a client was substantially impacted by the new lease accounting standard ASC 842. To determine the value of its leases, it had been employing a commercial software package with known logic errors and executing other steps manually, and it engaged another firm to cleanse and aggregate its data and perform calculations as it transitioned to the new standard. However, in the course of its independent audit, a multidisciplinary EY team automated the reperformance of lease calculations. Using AI tools able to interpret text-heavy data from large numbers of lease contracts, human errors were identified, which meant that the client’s numbers had to be edited.
3. How can I get my team ready for expanding responsibilities and new technologies?
CFOs often tell me that it is a struggle to get their teams to accept change and to build new capabilities. Today, more than ever, they need their people, at every level of the organizational chart, to recognize risks, to make better decisions and to generate new ideas for growth in a landscape altered by COVID-19.
At EY, we have found that data is a great democratizer of insight. One of our early career auditors, for example, volunteered to prepare the work steps for the application of analytics to a client’s sales, accounts receivable, and property, plants and equipment. The reports generated by the Helix Analyzer helped her to perceive aspects of the client’s business she would not have seen in a traditional testing environment. She was asked to present some of those insights to the client’s credit department, and her work led to a discussion about credit limits and other significant issues.
The early career auditor not only provided useful information but also served as a role model for the open and inquisitive mindset that the CFO was seeking to inspire throughout the finance organization. This is important because as investors increasingly expect more forward-looking reporting on a range of measures, CFOs need to create a team culture based on transparency, objectivity and critical thinking.
At the same time, many CFOs are working to provide investors with reliable insights into the company-wide culture, which is key to long-term value creation — using the organization’s data to identify the KPIs of a healthy corporate culture, as well as controls that allow those measures to be trusted.
4. What about all of the nonfinancial questions that investors are asking today?
One of the challenges CFOs face is that investors increasingly want reliable information outside the audited financial statement — about culture but also about talent, innovation, environmental and social impact, governance and other factors. The COVID-19 pandemic, for example, has put a new spotlight on business continuity planning, supply chain resilience and employee benefits, such as health insurance and sick leave.
Such nonfinancial factors often represent the majority of a business’s value or its greatest risks in the long term, yet they are not always measured and communicated effectively.
On climate change, for example, the Financial Stability Board’s Task Force on Climate-related Disclosures has found that despite increasing reporting in recent years, investors are still being given insufficient information.
And the EY Global Climate Risk Disclosure Barometer has found that the quality of that information is often lacking: the most common disclosures relate to a business’s own emissions and then to the transition risks it faces as the world moves toward lower emissions. The physical risks of climate change — clearly considerable in a time of wildfires, sea level rises, inland flooding and extreme weather events of all kinds — are generally overlooked, both in valuation models and in forward-looking strategic and risk management disclosures.
If businesses intend to reassure investors of their resilience to climate risks, better reporting is required. At EY, we believe that CFOs should be able to convey successes in this and many other areas to their stakeholders, and that it’s time to start a broader conversation about new measures of performance and long-term value creation.
Alongside 31 companies and asset managers representing US$30 trillion of assets under management and almost 2 million employees, EY has helped launch the Embankment Project for Inclusive Capitalism, which is identifying the most important alternative assets that affect business value, as well as potential standard metrics for them that could be used around the world to inform investors and other stakeholders.
5. How can our auditor help us unlock value in the next year, and beyond?
Today, the CFOs I speak with are balancing short-term priorities with a need to create value over the long term. As each industry — and each company within it — sets a timeline for recovery and a return to growth, CFOs are not just accountable for strategy and results; they serve as stewards of the organization’s integrity as well.