Alessan­dro Miolo

is part­ner at EY and the Assur­ance prac­tice lead­er for Switzer­land, which includes spon­sor­ing the EY Audit Trans­for­ma­tion. He reg­u­lar­ly dis­cuss­es with boards and man­age­ment on future of finan­cial report­ing and dig­i­tal­iza­tion.

Andreas M. Boden­mann

is Assur­ance Part­ner at EY. He is Audit Trans­for­ma­tion Lead­er for EY Switzer­land and in charge of EY’s Swiss Dig­i­tal Com­pe­tence and Inno­va­tion Cen­ter. Andreas has long-stand­ing expe­ri­ence in deploy­ing most advanced tech­nolo­gies and method­olo­gies in group audit envi­ron­ments.

Finan­cial Report­ing – Report­ing of the future

Satisfying stakeholder needs with innovative reporting

By Alessan­dro Miolo & Andreas M. Boden­mann

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