In today’s hyper-connected world, businesses face new risks. The trust and confidence that corporate reporting builds can be undermined by scandals such as data breaches and revelations of unethical conduct.
EY’s fourth global corporate reporting survey, Can innovative corporate reporting build trust in a volatile world? , explores what finance leaders can do to manage these risks and build trust in their businesses. The survey involved more than 1,000 CFOs or financial controllers of large organizations.
The report has a lot to say about the collection and management of data – something that can simultaneously be a strategic asset and a significant source of risk.
1. An opportunity and a challenge
The world is changing rapidly as the fourth industrial revolution, or Industry 4.0, gathers pace. Innovative technologies and sophisticated analytics are becoming key to managing growing risk and volatility.
However, many organizations are struggling. They are held back by legacy systems that cannot talk to each other and are worried about the complex risks that come with increasing volumes of data. While data analytics creates a significant opportunity, it also raises challenges and risks for finance leaders.
2. Real-time analytics
The ability to analyze accurate data at high speeds and act on it in close to real time can help finance leaders to respond rapidly to market challenges and better manage today’s volatile risk environment. It is now possible to turn vast amounts of structured and unstructured data into insights that can redefine finance and reporting.
So it’s not surprising that the survey found that “upgrading IT and financial data analytics tools to professionalize finance management” is today’s top corporate reporting priority, and 87% of the respondents plan to increase their investment in these technologies over the next two years.
3. A question of governance
Effective governance of finance data in terms of protection, privacy and compliance is often a major headache for finance leaders. While issues such as data quality are a concern for only 30% of the survey respondents, 56% are worried about managing data security and privacy.
For example, 85% of finance leaders find it “very challenging” or “somewhat challenging” to actively manage data flows on the basis of different jurisdictions’ privacy laws. Even if we focus only on those who find the issues “very challenging,” there are a significant number of finance and reporting teams who see data governance as a significant barrier.
4. A legacy of inadequate technology
Many finance functions inhabit a world of batch-based legacy systems, often with complex processes and deeply embedded, disparate sources of data.
These systems have become efficient and stable over a number of years, but this very stability presents a key obstacle in the evolution to a digitally integrated business. When asked what they consider to be the main systems challenges of today’s corporate reporting environment, 53% of the respondents named lack of integration between IT systems, 46% cited dated IT architecture and 45% referred to multiple reporting systems. The perennial challenge of systems integration continues to stand between finance teams and their ability to innovate through technology.
5. The importance of collaboration
One way in which finance leaders can overcome these roadblocks is by collaborating with teams across the business to develop an information governance approach. If the finance function tackles its risks and challenges in isolation, it will miss out on relevant knowledge and experience from previously completed work, and on the resources and technology available in other functions, such as legal and IT.
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 and dealing with increasing global flows of data.
6. Cloud compliance issues
Organizations face other barriers in implementing innovative new systems. In particular, 50% of the respondents named “concern over data security and compliance risks with cloud computing technologies” as the biggest overall barrier to their organization implementing new finance or reporting technologies and tools.
While cloud computing is largely borderless, compliance is not, and organizations should be aware of where their cloud provider’s servers are physically located. Furthermore, many organizations have to comply with laws that restrict trans-border information flow. For example, for many publicly listed US companies, cloud storage may not be an option if the servers are based overseas.
7. New competencies for audit committees...
With an increasing focus on technology and data challenges, audit committee members will need new competencies to fulfill their oversight role effectively. This includes the need to build their understanding of data analytics as both an opportunity (e.g., in supporting risk management) and a challenge (e.g., in ensuring there are compliant legal frameworks for data hosting).