5 minute read 10 Apr 2019
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How to prepare for the digital transformation of reporting

By

Peter Wollmert

EY Global and EY EMEIA Financial Accounting Advisory Leader

Senior Assurance leader. Promoting quality and effectiveness in corporate reporting and the audit. Advocate for the future of the accounting profession. Passionate runner and scuba diver.

5 minute read 10 Apr 2019

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Technology can enable finance teams to focus on value-driven reporting, but not all organizations have the systems and people in place to do so.

Technology is transforming finance, particularly in the area of data. Today, organizations and their finance teams have more data than ever before, thanks to increases in computer processing power, ever-growing connectivity, and the cloud and its massive storage capacity.

However, many finance and reporting teams are overwhelmed by the volume and variety of that data. Almost half of the finance leaders (49%) interviewed for the 2018 EY corporate reporting survey, How can the digital transformation of reporting build the bridge between trust and long-term value?, say they “spend more time gathering and processing data than they do in analyzing it”.

The time finance teams spend on gathering and validating financial data means that they have been focused on producing compliant financial information rather than making progress on nonfinancial reporting. To turn data into truly value-driven reporting, finance teams should focus on utilizing technological advances in areas such as automation, artificial intelligence (AI) and blockchain, and on building trust in data analytics. This digital transformation also requires them to think differently about the people they recruit.

Automation: giving finance teams freedom to focus on insight generation

The most agile finance and reporting teams are advanced in using robotic process automation (RPA) to drive new levels of efficiency and are using rules-based robotics technologies to automate high-volume transactional finance processes.

They are also exploring the next frontier in automation – intelligent process automation, which combines RPA with AI such as machine learning. These technologies learn over time as they are exposed to more data. Lease accounting changes are one example; pilots have shown that AI tools can review about 70% to 80% of the content of simple lease contracts. As these tools improve, they will move on to reading, managing and analyzing complex contracts and data.

Automation is crucial for giving busy finance teams the space to develop the reporting insights that create transparency and trust. Automating key elements of delivery – both transactional tasks and more complex ones – can free them up to focus on data-driven reporting insight, turning data into a strategic asset.

AI: harnessing insight from data

Finance leaders can use AI to look for underlying patterns in data, and machine learning to predict scenarios and improve outcomes. Almost three-quarters of finance leaders in the EY research (72%) say that AI will have a significant impact on the way finance drives data-driven insight, and that it will be the critical technology for the finance function in the future.

Artificial intelligence

72%

of finance leaders say that AI will have a significant impact on how finance drives data-driven insight over the next two years.

They should also think about how stakeholders are using AI. For example, the technology allows investors to analyze corporate financial information in ways that were previously unthinkable.

Blockchain: disrupting the future of reporting as we know it

Blockchain records transactions using a distributed ledger, which gives every network participant a secure audit trail of all transactions ever made, in near real time. Some commentators expect the technology to become the industry standard for reporting and accounting, replacing existing back-end IT and traditional reporting practices. If blockchain is used to automatically consolidate accounting records, then reporting teams can spend less time on cross-checking and aggregation and more time on analyzing data that can be trusted.

In the EY research, 24% of finance leaders say that blockchain will be finance’s most important technology in five years’ time. But a number of challenges will need to be overcome for that to happen. For example, key stakeholders, from regulators to boards, would need to agree on and implement the required regulatory environment.

Building trust in your data analytics

While finance leaders are focusing on turning data into reporting insight, they have to negotiate a difficult balancing act: driving innovation in how they use data without compromising standards and undermining trust.

The EY survey shows that concerns about data risk are at the top of finance leaders’ minds: they name “heightened data protection and privacy risk” as the number one challenge facing corporate reporting today. And concerns about data security are one of the most critical barriers to implementing new reporting technologies.

But these concerns shouldn’t hold organizations back. To get to true value-driven reporting, finance teams should be able to embrace their data with confidence. This will likely require changes not only to technology and processes, but also to mindset, skills and governance.

This includes thinking about the ethical dimensions of the advanced technologies that are involved in data analytics, and then communicating the company’s stance and approach.  It’s important that the companies that are embedding AI start talking about how they are controlling it.

Automation is crucial for giving busy finance teams the space to develop the reporting insights that create transparency and trust.

Transforming the finance workforce

Adopting new technology also means thinking differently about the make-up of finance teams; 79% of the CFO respondents to the EY research say there is an urgent need for finance to recruit new skills.

In particular, the finance function will benefit from team members with new capabilities beyond traditional finance and accounting skills, including strategic awareness of new technologies such as AI and knowledge in disciplines such as data science and advanced statistics. AI is a particular priority; in the research, 72% of all finance leader respondents say that AI experts will be critical to driving innovation in finance and reporting over the next two years.

As a result, leading finance functions are auditing the existing capabilities of their teams to understand where the gaps are. This should include both the “hard” skills required to utilize new technologies and data, and “soft” interpersonal and strategic skills.

In addition to looking at the competencies required, finance leaders should also consider their future operating model. As their organization’s strategic priorities will likely change rapidly – finance and reporting should have the agility to change with them. Flexible models, such as managed services, are one way to address this.  Tools and data allow finance teams to work collaboratively with external vendors more closely to deal with these challenges. About three-quarters of respondents say that managed services arrangements will be critical to meeting strategic priorities, with access to technology skills being a key driver for this approach.

However, driving a new approach can be difficult, with entrenched cultures and resistance to change acting as brakes on progress. To overcome this resistance and accelerate the changes that are expected in the finance workforce, organizations should become more creative about the people and skills they need, and to approach hiring, talent development and resourcing more innovatively. For example, 76% of respondents to the survey say that finance should widen its recruitment net to find people with nontraditional backgrounds.

2018 EY corporate reporting survey

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A continuous process

Above all, creativity and innovation will be key as the digital transformation of finance continues over the coming years. New technology gives organizations a golden opportunity to use data to drive value-driven reporting, but they must be prepared to evolve and innovate if they are to achieve that goal.

In order to exploit the power of new technologies, finance leaders will strike a balance between improving existing reporting teams and recruiting for in-demand capabilities such as data science. And they should establish a continuous, dynamic approach to learning – in the digital world, skill sets have a shorter shelf-life. It’s important to recognize that digital transformation is not a finite process, but a continuum.

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Summary

Finance teams today have access to more data than ever before. In order to harness the power of that data to create value-driven reporting, they should utilize the power of the latest technological advances and build trust in their data analytics. This digital transformation of reporting also necessitates finance leaders to think differently about the talent profiles and skill sets of the people they recruit for their teams.

About this article

By

Peter Wollmert

EY Global and EY EMEIA Financial Accounting Advisory Leader

Senior Assurance leader. Promoting quality and effectiveness in corporate reporting and the audit. Advocate for the future of the accounting profession. Passionate runner and scuba diver.