Financial Reporting – Reporting of the future
Satisfying stakeholder needs with innovative reporting
Financial reporting will look very different in the future – smarter, highly automated and digitalized, more streamlined, and increasingly forward-looking.
Financial reporting has moved from printed annual reports and press conferences to online-only published reporting, investor’s calls and webcasts. Yet, industry 4.0 is also disrupting the financial reporting models, beyond how we think them today.
How can reporting teams re-think their use of innovative technologies and operating models in order to satisfy new stakeholders’ requirements?
Digitalization and the smart use of data
In most 2016 annual reports currently published, CEOs name digitalization as one of their top priorities for the near future. From a reporting perspective, such digitalization translates into smart and automated analytics ensuring customizable and focused high-quality financial data at any time. Most group reporting teams currently perform their quality check on data from reporting entities applying some automated consistency checks on one hand but also by manually looking through the reporting and identifying follow-up questions based on experience of the reviewer on the other hand. Such follow-up questions are usually discussed via e-mail or phone calls.
What if quality checks now are performed directly and real-time in the source-ERP (enterprise resource planning) feeding the reporting? Innovative analytics tools like process mining are able to scan all transactions (per process) recorded in the ERP system and to identify the ones that have deviated from the process deemed standard. RPA (robot process automation) based follow-up questions can be implemented for figures exceeding predefined thresholds or relationship ratios. Available technology allows to harvest any information from data available. Therefore, reporting teams of the future will spend more time in designing meaningful big data analytics and efficient review processes than in actually performing the review.
Digitalization also helps increasing quality of data fed into ERP systems. Most entities use pre-scan as part of their accounting for invoices received. Today contract review tools allow to scan much more complex documents for financial information. Tools can be based on learning algorithms that cluster contracts and suggest accounting treatments. This is especially interesting with new revenue recognition and leasing reporting standards being implemented in the next years.
Companies are also to exploit further opportunities connected with upcoming technologies like artificial intelligence (AI) and blockchain.
Besides data recorded, processed and visualized within ERP systems, any unstructured as well as structured data avail- able inside or outside the reporting entity will be integrated into the financial reporting process. Geopolitical data like the world corruption index and other specific pre-defined criteria could be used for a ris assessment to concentrate extended review procedures on such areas of focus. Impairment considerations for goodwill or technology can be based on social media quotes and RSS feeds.
Financial institutes have been trying to predict interest and exchange rates based on historic yield curves. Lately also industry companies have started to develop algorithms based on which key figures like sales or EBIT can be predicted, some of them even resulting in more reliable estimates than implemented budgeting processes (see figure).
Integrated ERP systems, data cubes and reporting teams
The key prerequisite for retrieving and reporting real-time data to stakeholders is harmonized unique data cubes and data models comprising all reporting entities of the company combined with relevant external data. Currently, especially multinationals with a strong acquisition-driven growth track record are re-thinking their data models and ERP landscapes. Only a harmonization of IT systems and processes will allow them to streamline their reporting processes, speed up reporting and leverage standardized tasks to be executed by more centralized reporting teams also applying RPA. Especially RPA will allow execution of reconciliation and computation tasks in no time and at a high level of precision.
Therefore, the need for reporting teams will increase to revisit the skillset required to conduct real-time reporting of customizable information combining internal with external sources. The reporting team of the future will encompass new subject matter specializations far beyond accounting.
TRADITIONAL VS. DIGITALIZED FINANCIAL REPORTING