Embracing a new operating reality for corporate reporting

Aris C. Malantic

In the face of COVID-19, finance leaders find themselves having to strike a difficult balance in delivering corporate reporting. On one hand, they must respond to the pandemic with resilience and transparency; on the other hand, they must also generate long-term, sustainable value for stakeholders that focuses not only on financial outcomes but also on environmental and social impact.

With performance now measured across broader dimensions, pressure is mounting to meet the demands for non-financial information in addition to credible financial disclosures. Finance leaders need to rethink how finance and corporate reporting can play central roles to meet the changing expectations of stakeholders, such as investors and regulators, and ensure that reporting remains relevant.

It becomes imperative for corporate reporting to evolve and fully embrace optimizing value, with the goals of meeting the increasingly wide insight requirements of stakeholders and making corporate reporting central in realizing long-term value ambitions. The pandemic accelerated the demand for richer insights during this period of uncertainty, and such demand is unlikely to decline even when the pandemic is over. Stakeholders will very likely continue to search for organizations with a focus on long-term value creation.

For corporate reporting to play an important role, finance teams must transition to the new operating reality and virtual environment imposed by the pandemic and its ongoing implications.

Respondents to the 2020 EY Global Financial Accounting and Advisory Services (FAAS) corporate reporting survey, who are composed of a thousand Chief Financial Officers (CFOs), financial controllers and other senior finance leaders, say that they are satisfied with this new operating reality shift, though it is not without its challenges. While communication with existing colleagues is effective, building personal relationships with new colleagues gained through acquisition or investments can prove difficult. More than half the respondents (56%) have also shared resistance to some of the changes introduced in their transformation journey. Moreover, 51% shared that when they failed to adopt new processes, finance team members simply reverted to traditional methods.

Returning to previous ways of working could prove disadvantageous and failing to focus on the future of reporting could have significant consequences. It could result in cumbersome operating models and in finance teams being less relevant and agile, hindering their ability to provide the forward-looking insights stakeholders look for.

With the increasing demand for non-financial information such as environmental, social and governance (ESG) and sustainability reporting from both stakeholders and regulators, CFOs are tasked with growing value along with their previous mandate of protecting enterprise value.

Another challenge lies in the potential obstacles that can obstruct the means of measuring and communicating long-term value. One such obstacle identified by one in five respondents from the EY survey was the lack of formal reporting frameworks showing how the connection between intangible and tangible assets contributes to long-term value creation.

Finance leaders need to consider how best to challenge traditional ways of working while mapping out an innovative future for the function. They can step in the right direction by focusing on building trust in technology and transforming finance and corporate reporting operating models.

Trusting technology, artificial intelligence (AI) in particular, is difficult when controls, governance and ethical frameworks still need further development and refinement. From the EY survey, nearly half the respondents (47%) share that finance data produced by AI cannot be trusted in quality compared to the data produced by the usual finance systems. This lack of trust could be reflective of a lack of understanding in how these systems work. Both AI and machine learning arrive at conclusions based on a large number of data sets, instead of an individual examining a single set with the possibility of introducing their own biases. This is why smart machines can likely perform data-driven tasks with more consistency, accuracy and efficiency.

The future finance function looks very different in the eyes of the survey respondents, specifically due to a major shift to a more open and intelligent finance operating model. The survey shares that 53% of finance leaders anticipate that half of the finance and reporting tasks performed by a human workforce will be done by machines over the next three years. It becomes important to define a partner or managed services strategy to achieve the organization’s transformational goals, where many reporting activities could be handled by accredited providers of managed services instead of handled in-house. A cloud-based solution also becomes a major priority in tandem with advanced analytics and AI, providing infrastructure for AI processing as well as space for vast amounts of data.

With the evolution of the finance function, CFOs and financial controllers are likely to see their roles evolve as well. As much as 67% of survey respondents agree that CFOs will focus more on driving enterprise-wide digital transformation and growth than traditional finance responsibilities.

Finance leaders will need to reassess the skills of their teams, and ensure they have people with knowledge of both digital processes and digital accounting. Even though machine learning can perform certain tasks more efficiently, a finance team will always need people capable of reading and understanding International Financial Reporting Standards (IFRS) statements. Finance operations will need problem-solvers with holistic views, logic and critical thinking. Leaders must take an innovative approach to reskill their people and equip them with the capabilities required for the future finance function.

Though the pandemic continues to pose a significant challenge for finance leaders to deliver corporate reporting, the new operating reality and its implications invite CFOs and finance teams to approach the finance function with a fresh perspective. The New Normal dictates that finance leaders consider the reporting needs Now, anticipate the challenges to come Next and find ways to take the finance function Beyond.

Those with foresight will likely find opportunity in today’s uncertain environment to challenge traditional ways of reporting and reaffirm its relevance beyond the pandemic.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

Aris C. Malantic is the Financial Accounting Advisory Services (FAAS) Leader of SGV & Co. and EY ASEAN. He is also a Market Group Leader in SGV & Co.

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