Data and legacy IT are mounting pressure on reporting effectiveness

CFOs globally are increasingly struggling to deliver effective corporate reporting in the face of the increasing volume of data, the limitations of legacy IT and the growing expectations from executives to provide meaningful insights at speed with no errors. A bold strategy for advancing the reporting process, innovative and agile technologies and striking the right talent mix are key elements for staying on top of the game.

According to a new study, conducted by EY, based on a survey of 1,000+ CFOs and heads of reporting of large organisations (>$500 million revenues) across 25 countries, the effectiveness of reporting is coming under increasing pressure. 66% of respondents worldwide say the increasing volume and pace of big data is having a significant impact on effectiveness, while 68% highlight that the complexity of the regulatory environment is also being felt. Both aspects are up more than 10% compared to last year’s study.

Organisational factors are also adding to reporting complexity. Organisations today have more legal entities, business units, and reporting systems than was the case last year, according to the study, and 64% of the CFOs highlight that the demand for financial reports has increased. At the same time, the fast changing world as well as the fears to be disrupted out of the market means that many executives are upping their corporate reporting expectations, expecting to receive advanced and granular reporting information more quickly, with more insight and with less room for error. CFOs too are expected to protect and secure their company’s data, amidst the regulatory and reputational costs that follow from cybercrime and data breaches.

EY’s report finds that CFOs are wrestling to keep pace. “CFOs worldwide are struggling to make the most of the increased volume and speed of data available to them. Many are encumbered by legacy systems that do not allow reporting teams to extract forward-looking insight from large, fast-changing data sets. The result is an increasing expectation gap between what boards now look for from corporate reporting and what CFOs can deliver”, explains Peter Wollmert, EY’s Global and EMEIA leader for its Financial Accounting Advisory Services (FAAS) arm.

Operating model change

As it stands, a third (32%) of CFOs surveyed rank their reporting operating model as “average”, therefore, it is not surprising that 56% say transforming their model is a major focus of their role. Realising the ambition however does not come easy, a feat which is widely acknowledged by the CFOs and heads of reporting. Half of them say that the complexity and cost of tackling their legacy IT environment is a major bottleneck on the route to successful change. This is, according to Nadeem Shafi, EY FAAS Leader for the MENA region, mainly due to regulatory requirements (“the changing regulatory environment has contributed to systems complexity”) and the fact that firms have introduced manual workarounds in a bid to quickly pave the way for new functionalities. However, the effect of ageing is kicking in: “On average, systems have been implemented some years ago,” Shafi says.

Just under half (42%) highlight the difficulties they have with striking the balance between central control versus the need for tailored reports for local operations. 36% believe that there is a lack of resources – in terms of money and resources – while 27% note that change fatigue within the finance function is slowing, or even blocking, change for the better.

Three investment areas

To address the operating model transition, respondents highlight three key investment areas: process and tool transformation, more focus on agile technologies and investment in reporting skills.

According to respondents, updating IT and financial data analytics tools is the stand-out priority in corporate reporting, with 84% of organisations worldwide expecting to increase investment in reporting technologies over the next two years. Close to a third (29%) expect significant investment increases of more than 10%. Other factors that rank highly as corporate reporting priorities are driving process efficiency (33%) and harnessing the power of data analytics to create forward-looking insights.

From a technology perspective, going agile is the new paradigm. The study shows that the largest share of investments freed up for technology will flow to big data technologies, cloud computing and data infrastructure, with data visualisation and data mining closing the top five – all investments which, according to Karsten Füser, a leader within EY’s FAAS service line, mirror the growing need to quickly and effectively deal with data. Although artificial intelligence (AI) was ‘only’ mentioned by 16% of the participants, Füser says AI will gain terrain on the back of the value it can add to data analysis techniques.

Advancements should be made with caution, Füser adds, taking the migration to cloud as an example, he says: “While cloud technologies are an attractive proposition for driving agility, reporting leaders should be mindful of the key risks that need to be managed, including the need to check that cloud-based systems provide data security and are compliant with different regulatory regimes.”

The struggle for top talent

With improved operating models and technologies in place, reporting leaders highlight that they need to have people with the requisite skills within their ranks. When asked for which skills are top of the agenda for improving reporting processes, IT infrastructure and financial data analytics lead the pack, followed by business analysis and risk management.

The key constraint in this respect is that there is intense competition for the best people. Organisations across the globe are struggling to find the right technology talent – a report by A.T. Kearney for instance found that 72% of leading companies are finding it difficult to find the analytics talent they need. Looking ahead the struggle is set to deepen: CEOs globally have earmarked data analytics (together with the likes of innovation and cybersecurity) as a key investment priority for the coming three years, a development which will only add more heat to the talent marketplace.

At the same time as competition for the best people intensifies, the talent pipeline into finance and corporate reporting is being disrupted by the increased use of arrangements such as shared services centres (SSCs) and outsourcing, say 52% of respondents in EY’s research. In the coming years this pressure is forecasted to rise. Today 45% of the organisations surveyed use shared services centres, onshore or near-shore, but looking ahead 67% CFOs say that the use of outsourcing arrangements will increase in the next two years and 61% say that the use of shared services centres will increase.

Wollmert concludes by saying: “Corporate reporting is a foundational capability of the finance function. And, in our view, reporting will look very different in the future – smarter, highly automated and digitised, more streamlined, and increasingly forward-looking. By focusing on a bold strategy and vision for advancing the reporting process, innovative technologies, and a more flexible and nimble operating model, CFOs and reporting leaders can design and deliver the responsive reporting capability required for a world that will continue to accelerate.”

Another recent by EY, released in the summer, found that organisations are not reaping full benefits of forensic data analytics, while a deeper dive into the use of operational analytics, conducted by Capgemini Consulting, found that the maturity in the field is relatively low, leaving billions of optimisation potential in operations untapped.