Navigating the Perfect CFO Storm
IMGCAP(1)]Today’s CFOs face a perfect storm of pressures.
There is the pressure to increase transparency in financial reporting while streamlining processes. They face disruption to the role of the CFO, who must play a significantly expanded role in organizations. They must deal with the impact of new technologies such as new digital business models. And there is a growing proliferation of data, along with the challenges of making sense of it all.
Within most large companies, financial reporting environments are complex and highly demanding, in part because organizational complexity has increased the number of reporting systems they need to use. At the same time, despite harmonization efforts, CFOs face major new standards for revenue recognition and lease accounting, ongoing changes to local statutory reporting and regulatory requirements, and new reporting requirements, such as corporate social responsibility.
As a result, report complexity and volume has skyrocketed. In a recent EY survey of 1,000 finance leaders, 48 percent of respondents reported having to comply with more than 10 sets of reporting standards, and a third work with 16 or more reporting systems. These are huge burdens at a time when budgets are tight and cost control remains a focus.
In another survey of more than 769 CFOs around the world, we identified four forces disrupting the CFO role:
• Stakeholder scrutiny and regulation: 71 percent will increasingly be responsible for the ethics of decision-making in support of their organization’s purpose.
• Digitization: 58 percent need to build their understanding of digital, smart technologies and sophisticated data analytics.
• Data: 57 percent stated that the delivery of data and advanced analytics will be critical for tomorrow’s finance function.
• Risk and uncertainty: 57 percent noted that risk management will be a critical capability going forward.
Internal and external stakeholders are looking to the CFO to play a broader role—a shift that creates significant challenges. Of the finance leaders surveyed:
• 56 percent cannot focus on strategic priorities because of time spent on compliance, controls and costs.
• 51 percent cannot focus on strategic priorities because of increasing operational responsibilities.
• 47 percent said their current finance function does not have the right mix of capabilities to meet future demands.
At the same time, confidence in financial reporting appears to be falling—even among finance executives—due to issues of reporting accuracy, effectiveness and timeliness. Our survey revealed declines in confidence year-over-year across all dimensions of reporting. As noted by the survey respondents, this drop in confidence is due to increased reporting complexity, growing demand and pressure on finance to do more with less.
Moving Out of the Storm to Blue Skies
These stumbling blocks in corporate reporting must be addressed before finance departments can handle the increased complexity and scope of financial reporting. To overcome them—and deliver the strategic insight stakeholders demand—finance functions must strengthen key areas of their operations.
Harness Innovation and Technology
Leveraging their extensive experience with enterprise resource planning (ERP) solutions, many finance leaders understand how technology can improve the performance and value of their finance department. They can also identify departmental weaknesses that limit their organization’s ability to take advantage of technologies such as advanced data analytics, which has enormous potential to transform financial reporting. The top three barriers to more effective use of technology, according to the finance leaders we surveyed, are:
• Lack of integration between IT systems
• Difficulties accessing data
• Poor-quality data
These barriers must be overcome, as data analytics can greatly increase forecasting accuracy, eliminate time lags and close data gaps in critical business information requests. But finance departments will need to:
• Identify the data needed to support their reporting objectives
• Clean up existing data and improve reporting processes
• Access more data to generate new insights
• Uncover the “hidden gems” that are revealed when patterns are revealed
Finance organizations can also use smart technology and data analysis to increase confidence in finance and reporting processes. For example, they can control methods and data analytics to monitor key processes (such as the length of customer service queues or billing accuracy) and improve reporting (for example, by identifying issues such as uncertainty about year-end findings). The goal is to move from isolated and manual control monitoring to a more comprehensive approach that increases reporting speed, accuracy, flexibility and confidence.
Develop Stakeholder Relationships
To increase confidence in data and reports, finance functions need to build strong and trusted relationships with stakeholders. But to do this, they need to:
• Prioritize stakeholder relationships and understand the needs of the most important stakeholders
• Develop focused, high-quality data-driven insights rather than large quantities of information
• Communicate proactively and create trust by telling a consistent story about what drives value for the business
• Support reporting needs with data, processes and systems that are flexible and have a high degree of credibility
To achieve this, the finance function needs a clear framework for reporting that clearly defines how to:
• Adapt business information for the specific needs of stakeholders
• Align internal processes to generate the right information
• Ensure IT systems are streamlined and structured to provide consistent information
• Make sure that the different teams involved are working toward the common goals and meeting the needs of stakeholders
This approach will enable CFOs to have the insights needed to respond to the competing demands being placed upon them and to help their organizations reach better decisions.
Expand Finance Skill Sets
CFOs also need to build and extend the skills and experiences of their team to include:
• IT skills, including data and analytics, which have emerged as the most in-demand expertise in today’s connected, digital economy
• Relationship development skills to build trusted relationships with important internal and external stakeholders
• The ability to understand the information needs of different stakeholders and communicate clear insights grounded in robust analysis
At the same time, finance functions should take advantage of their existing skill sets and grow them through tailored employee training, focusing on individuals with the aptitude, interest and ability to synthesize reporting information. Finance executives should map their current people and organizational approach for reporting against benchmarks for future finance operating models, as this will help them identify gaps to fill.
It’s time for CFOs to evolve their approach, focus and resources to meet modern business demands on financial reporting. By focusing on expanding technological capabilities, building relationships with stakeholders and developing the talent within their organizations, CFOs can mature their financial reporting processes and protocols to deliver timely, trusted reporting and insights. In doing so, they can secure financial reporting’s future as a key component of enterprise value creation.
Myles Corson is the markets leader of EY Americas Financial Accounting Advisory Services. The views expressed are those of the author and not necessarily those of the EY organization or of its member firms.