UK CFOs keen to combat data uncertainty but lag on tech spending

20 November 2017 Consultancy.uk

Data security, data ownership and the use of cloud technology are stirring uncertainty among global Chief Financial Officers, according to a new study. While UK respondents are more proactive in combating these data concerns, with 93% saying that they were providing automated alerts to audit committees and boards, above the average of 85% of CFOs globally – British CFOs lagged behind on their planned investment in technology for the next two years.

A new survey from EY has explored the key concerns of global CFOs, as the way in which data is handled is causing the executives sleepless nights. The research for the ‘Can innovative corporate reporting build trust in a volatile world?’ whitepaper was conducted by Longitude on behalf of the EY Global Financial Accounting Advisory Services (FAAS) group, who polled more than 1,000 CFOs or financial controllers of large organisations to understand the challenges they face in corporate reporting. 46% of the organisations involved in the study had revenues in excess of US$5 billion a year, while 8% have in excess of US$20 billion. On top of extensive quantitative data, the study was supplemented by in-depth interviews with the following CFOs, along with EY subject-matter professionals to provide qualitative insights.

With approaching regulatory changes such as the GDPR on the horizon in 2018, many business leaders, especially banks, are concerned that the new legislation may add significant strain to their operations. When asked, “To what extent are the following challenges impacting on your corporate reporting effectiveness?”, 71% of respondents stated that compliance challenges were of “Very significant” and “Significant” impact levels. This was closely followed by legal challenges at 70%, and regulatory challenges at 69%. 64% of CFOs suggested that a lack of clarity over data ownership was a key concern.

To remain effective

The Big Four firm’s analysis thereby shows that finance leaders currently feel that addressing the risks and challenges of the changing corporate reporting environment is essential. According to the study, CFOs believe that corporate reporting must adapt rapidly to evolving compliance, legal, regulatory and technology risks in order to remain effective.

Rising to the challenge

Responding to these challenges meanwhile poses significant questions to finance and reporting teams. EY’s report shows that finance teams face a reporting environment that is both complex and highly demanding, and a growing number are subsequently turning to technology to lighten the burden on their departments. The ability to analyse accurate data at high speeds and act on it in close to real-time can help finance and reporting leaders to respond rapidly to market challenges and better manage today’s volatile risk environment – with solutions such as cloud-based ERP systems being leveraged to significantly streamline processes.

Meanwhile FinTech innovations, including Blockchain, are coming to change how finance functions operate in general, requiring the incorporation of new skills and providing a view of trust and long-term value. To this end, EY’s analysis asserts that CFOs are particularly driven in adapting to Finance 4.0.

Finance leaders’ ambitions for Finance 4.0 face significant challenges

Respondents listed their number one priority as “Upgrading IT and financial data analytics tools to professionalise finance management.” However, this presents notable challenges, including the need to up-skill staff and recruit technological specialists into companies, so 87% of CFOs also noted that they plan to increase their investment in corporate reporting technologies over the next two years. UK respondents notably flagged behind in this regard, with the number of those planning to increase spending on new tech by more than 6% over the next two years falling to 65%.

Key concerns for finance leaders regarding the challenges of Finance 4.0 heavily featured issues surrounding “managing data security and privacy” at 56%, while implementing governance for different locales was also noted as very challenging in the light of the GDPR and mounting privacy legislation. However, the number one cause for anxiety voiced was the “concern over data security and compliance risks” with cloud computing listed as the number one barrier to implementing new finance technologies.

Following the major breach of top cybersecurity consultancy Deloitte, followed by a near-miss of a similar nature for Accenture – both of which revolved around cloud-based storage solutions – CFOs remain extremely wary of the technology, despite its reported benefits. As a result, 85% of CFOs polled said that assessing the different security standards for data-centres versus cloud computing was a key challenge to data protection, privacy and compliance, either rating it very challenging, or somewhat challenging. In the UK, 68% of CFOs currently believe that uncertain­ty about the risk of using new technologies, such as cloud computing, is affecting the reporting of effectiveness.

Complexity of the data governance environment is a significant challenge

According to Karsten Füser, EY Global and EMEIA FAAS Markets Leader, CFOs will need to find ways of working around their concerns, as data will be key to finance building trust and confidence with key stakeholders, and will drive the next level of efficiency and effectiveness in reporting. Addressing the concerns raised in the report, Füser said, “Data and technology innovation should allow finance to become the trust-giver to a wider group of stakeholders around nonfinancial information, much in the same way as it provides trust and confidence for investors around financial data. This should be in real-time, at a greatly reduced cost, with greater automated control and lower risk.”

Technological, social, political pressures

The survey also revealed that CFOs are under increasing pressure to rethink traditional approaches to corporate governance amid shifting technological, social and political currents. 38% of respondents said a key requirement in their role was managing the impact of political developments – such as the Presidency of Donald Trump or the tumultuous Brexit process – on data storage and the location of data centers. A great deal of uncertainty surrounding both UK and US borders, alongside the two nations’ future proclivity to exclude themselves from international cooperation, both make this task additionally difficult. Brexit is particularly unnerving financial leaders at present, with 72% of UK CFOs recently telling Deloitte that they expect the UK’s separation from the European Union to make economic conditions in Britain worse.

Globally, however, Brexit is not the chief concern of Financial Officers. 42% of those polled said “Implementing a data governance model to actively manage data flows based upon differing privacy laws in the jurisdictions where we operate” was a key challenge for their company, leading to audit committees and boards needing greater insights and information from corporate reporting on data protection and privacy. To combat these changes, 85% of respondents globally say they are providing automated alerts to audit committees and boards about governance, risk and compliance issues, with this increasing to 95% of US respondents and 93% of UK respondents.

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