future of financial reporting

The Future of Financial Reporting

Armies of accounting and finance professionals put together and deliver reports and presentations every month, only to do it over again the following month. While it would be perfect if the reports aligned with the changing needs of the business, that seldom happens with financial reporting.

48 percent of companies spend their time creating and updating reports vs. 18 percent of the time is spent communicating the results to the company. Companies know that there is room for improvement and a majority of companies use standardization for a fast and efficient way to gain more insights.

This begs the question- how would standardization react to automation? If standardization can be such a great and powerful performance tool now, how would it react to adding artificial intelligence (AI) into the mix?

Progress is Already Happening

Today, companies are applying point solutions to traditional reporting processes while others are using AI to write narratives about financial data. There are also companies moving towards a continuous close and get rid of latency.

As of yet, no company has cracked the code or joined together different technologies across the entire end-to-end reporting process in a way that is dynamic and contains real-time insights.

As more demands for change are made, considerations should be taken to include the overall costs and savings of a company. Companies can release more efficient reports and significantly reduce human labor. Customer demand will also drive a reporting overhaul that influences self-service persona-based reporting that generates important information in a short amount of time.

Future Changes to Financial Reporting

We know that the nature of this work will change in the future and that the laborious grind of financial reporting and management will likely not exist in the future. People will be seen as insight generators and not report builders, and the talent pool will extend to business people with finance backgrounds and others that collectively- can enhance the financial ability to support the company’s strategy.

Upcoming Transformations to Financial Reporting:

  • Financial reporting will be intelligent. 
  • Interactive. 
  • Real-time. 

CFOs can jumpstart this revolution by applying digital technology to financial reporting now using the best practices and technologies available.

  • Design data platforms that can evolve to support both structured and unstructured data. 
  • Focus on your customers by requesting feedback and watching what they do, allowing you to build the perfect user experience accurately.
  • Make small steps with changes and updates before implementing them on a larger scale. 
  • Work with employees to reassure them of their human skills as they adjust to the adoption of automation.
  • A CFO should bring new ideas to the C-suite, helping the other leaders to adopt technological innovations can help the business without jeopardizing further progress.

Most CFOs are well aware that changes are coming for financial reporting. In 2018, CFO Signals reports that 63% of CFOs projected the changes in the financial workplace would likely shift in three years towards analysis, prediction, and decision support. About 66% agreed that technology advance would help to gain significant productivity in accounting, reporting, and compliance processes.

Remember that reporting isn’t about technology and that it is about understanding and leveraging information companywide. While new tools might make the workflow easier, human intelligence is still an indispensable resource. As such, CFOs should be required to rethink how they strategically deploy their own tools and talents to incorporate data and analytics into decision making.

You may also enjoy, Evaluating Financial Management Systems.

Networking Event Introductions

Networking Event Introductions Made Easy

Although social media is making connections with strangers online easier, there is still a need to make personal connections out in the real world. Attending a business networking event is the perfect way to become skilled at introducing yourself to other people face-to-face. Effective networking is about establishing, mutually beneficial relationships with other people. When it’s done well, networking will give you a competitive edge throughout every stage of your career. Below we have compiled some strategies to help your networking event introductions work smoothly.

When you choose to approach new people, it helps to have a subtle icebreaker beyond the typical elevator pitch. Subtle icebreakers allow you the right moment to introduce yourself and engage in a flowing conversation without being too forceful or overbearing.

Before approaching someone, double-check that you aren’t interrupting them if they are conversing with someone else, this helps to engage with them effectively. It helps when the first words out of your mouth are about how you and the person are connected. Unfortunately, that is not always possible, so here are some other icebreaker ideas on what to say.

Networking Event Introductions Part 1:

Use a recent event 

With different meetings and events happening, you’ll likely see familiar faces. Use the functions as a chance of becoming a conversation. 

Example: “Didn’t I see you at (name of the event)?” and then follow it up with something that you liked about that event and ask for the person’s opinion. 

This works well because it points out something that you have in common and allows them to share their thoughts.

Networking Event Introductions Part 2:

Using food can be a great icebreaker

Events often include food, and if you ever find yourself in a buffet line with someone that you’d like to meet, you can use the food to your advantage. Stating something such as “this food looks great, I don’t know which to choose” can be a very subtle and efficient way to get a conversation flowing.

This kind of comment allows the other person to give suggestions and advice.

Networking Event Introductions Part 3:

Have Stories Ready

When you’re in a group of people, it’s helpful to have a few real-life stories to pull from when an opportunity presents itself. For instance, if something happens with the group that reminds you of something else you can state, “That reminds me of ….” and then fill in with a similar story that relates to the context.

This allows you to chime in without being out of place. It also allows you to slip in information about yourself that can lead to further questions and conversations.

Networking Event Introductions Part 4:

Make Personal Connections

If you and the person that you would like to meet are both at an event hosted by a mutual party, you can use that connection to help you to engage in conversation. Introduce yourself by explaining how you know the host and how long you have known them, and then asking them how they met the host. 

Now you’ll both be talking about social connections with the host and be able to engage in further conversation by asking questions to help keep the conversation flowing.

At your next networking event, try one of these icebreakers to see which one works best for you and the different situations.

planning

Long Term Planning for Companies

With all public companies having a 75% decline since 1965 on their return of assets, we can see that the current approaches are not working. While most companies have until this point remained loyal to a 5-year plan, others have chosen a 3-year program. Some daring companies have gone so far as to have no long-term plan at all and simply respond to events as they happen, minus any long term planning.

Unfortunately, the results have shown that these companies are spreading themselves too thin and even the largest of companies are realizing that the number of new programs is far more numerous than the available resources. They also recognize that the initiatives are happening in small strides due to limited resources and responses to short-term events.

Fortunately, however, there is another process based on a very successful planning approach. It’s called zoom-in/zoom-out and CFOs, as well as other executives, should embrace it to make a strategic impact that can prepare for the long term. 

Zoom-Out/Zoom-In Focus:

  • Zoom-Out 10-20 years
    • Helps with a long-term projection from which you can work backward to identify steps to take to reach the long-term goals.
  • Zoom-In 6-12 months
    • Identify current or short-term goals that can help to achieve long term ones. Identify things to cut and ways to free up and maximize existing resources. 

This is not your typical 5-year approach. Companies using this planning method believe that staying the course and looking at these two time-points is the best way and that everything will work out if they stay focused.

A theoretical exercise becomes real and sets steps for companies to work differently to build a vital path to reaching their long-term projection. The goal is to focus on the top 2 or 3 highest-impact assessments for the next 6-12 months while giving the proper amount of resources.

This method closely aligns the idea that if both long-term and short-term goals are closely aligned, the middle will fall into place. This allows executives to have focus and to keep from spreading resources too thin for things that may not work out. It also reduces the risks of being blindsided and could radically change the market.

Common objections:

That the future is too uncertain

This approach focuses on predictable factors to avoid uncertainty.

Investors only want short term results

Be persuasive in explaining that future opportunities and short-term goals aimed at attaining future earnings can be better for their stock.

It takes too long to receive the payback

This strategy has the potential to improve near-term economic performance and reduce short-term disruptions while giving a more unobstructed view of the future. 

The zoom in zoom out process combines and amplifies the two competing goals and prepares the future while making an achievable impact in the meantime.

For more long-term planning tips, check out Forecasting: Optimizing Business Planning

risk accounting

Risk Accounting Can Improve Your Profits

Within a generation, the advances in technology have undergone dramatic changes. The world is growing more interconnected thanks to electronic data and information networks. Meanwhile, globalization and new technologies have lead to supply chain vulnerabilities and unexpected losses.

A CFO’s worst nightmare is having to explain to their CEO or board members, why they were not able to identify and stop excessive risk exposures before they turned into losses.

Exposure to risk is generally associated with failures related to defective or incorrectly priced products and services. As was the case with the losses experienced by financial institutions through 2007-2008. Those unexpected losses were attributed to the incorrect pricing of subprime mortgages.

With that worry in mind, astute accountants should ensure that their accounting standards and reporting practices are keeping pace with the latest changes occurring in the risk landscape.

In recent years, supply chain, cyber, financial, and other risks have grown monumentally, driven by advances in technology; increases in the complexity of financial products; greater operating dependencies on globally interconnected data and information networks.

A Misalignment Between Finance and Risk

With accounting standards such as IFRS and GAAP aiming to ensure that enterprises maintain an objective view of their financial situation, there is a misalignment in that there are no equivalent standards to apply towards risks.

This is precisely what academics have been trying to resolve with their codification of the new accounting technique that they are calling “risk accounting.”

How Can Risk Accounting Help?

Risk accounting begins with enterprise risk management (ERM) operating within a standard system and using a shared risk metric to express all forms of risk.

One of the first steps with risk accounting is identifying the exposure; this sets up the proper equations for classification and analyzing data. 

In management reporting, codes are assigned to transactions that uniquely classify the customer, product or location. In risk reporting, additional codes are given to be used for calculating the risk-weighted value of each transaction.

The 3 Standard Factor Tables of Used to Calculate Risks:

  1. The product risk table which provides risk-weights based on product characteristics such as complexity, toxicity, and decomposition.
  2. The value table which converts profited amounts based on the accounting records and scaled value band weightings.
  3. Scoring templates to calculate the risk mitigation index based on the key risk indicators.

After the risk-weighted factors have been determined and calculated, they are then calculated in the 3 core metrics for each risk type.

  1. Inherent Risk
  2. Risk Mitigation Index
  3. Residual Risk

By combining account and risk values at the transaction level, the fabrication of finance and risk reports is enabled. This gives managers the most present information needed for risk mitigation initiatives with the calculated improvements in RMIs and reduced residual RUs.

The RMI is the standard measure of risk cultures blending risk properties from across the company. With risk accounting being an extension of management accounting, risk appetite can be gauged in RMIs and residual RUs. They could then become an essential part of a firm’s budgeting and planning cycles, which, in turn, would constitute an actual ERM system.

For more information regarding financial risk controls, check out The Increased Demand for Financial Controls

forensic accountants

Forensic Accountants Aid in Disaster Recovery

Unfortunately, disasters do not follow a predictable course. Businesses are continually being affected by floods, earthquakes, hurricanes and fires. The recovery for a company after such disastrous events can be a tremendous challenge as they sort through complex issues including suppliers, employees, inventory, and more. Forensic accountants offer vital help in the recovery process for both companies as well as the insurers who cover them.

Experienced forensic accountants can make the disaster recovery process much easier for all parties involved. After a claim has been filed, an insurer will need specialized assistance to analyze and measure the costs of the damages. 

Insurance policies vary, but they usually cover a range of categories for damage, each with its own list of requirements. A forensic accountant will analyze the data in conjunction with the coverage that the business has. 

As an example: If the property is damaged, it will require one type of analysis while business interruption will require something entirely different. With most companies having a combination of applicable policies available, the forensic accountant’s job is to sort through the various losses and determine which falls into the correct claiming category. 

The Challenges

Using widely accepted methods for analyzing business and calculating their projected losses, forensic accountants use historical data as a solid starting point. The older the company, the better the records are for planning a reasonable estimate. Unfortunately, even with a long and well-documented history, a projection cannot be made merely on old data alone. The forensic accountant must also take into consideration the trends, industry, and market conditions.

The forensic accountant must create a model of the business as well as prepare a business interruption calculation to estimate the proper amount of lost earnings. 

This calculation is created with a combination of different components, including:

  • Lost revenue
  • Historical trends
  • Unperformed contracts created from the disaster
  • Actual results from other (unaffected) business locations 
  • Costs associated with the loss including extra staffing and resuming operations
  • Costs to resume activities
  • Emergency measures that were taken to avoid critical agreement breaches
  • All of the expenses caused by being shutdown

Together all of these factors help to determine the estimated loss during the period.

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