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.

Click here for more industry news.

accounting certifications

Which Accounting Certification is Right for You?

Obtaining an accounting certification is a testament to a person’s commitment to succeed professionally, and as such, it is often used as a tie-breaker between candidates for a job. Gaining a universally recognized accounting certification can help you to get and keep the job during economic downturns. It can also increase your skillset’s marketability and provide professional credibility for both yourself as well as your firm.

A professional accounting certification not only looks good on your résumé, but can also lead to increased salary and advancement opportunities. 

Certified Public Accountant (CPA)

A CPA certification can help to advance your accounting career. CPAs work in several different specializations including:

  • Audit
  • Compliance
  • Tax
  • Forensic Accounting
  • Fraud Examination
  • IT Systems
  • Risk Management
  • Appraisals
  • And more

CPAs help companies to comply with the bylaws and regulations set in place as well as reduce risks. Different states have different educational and experience related requirements that extend beyond the 150 hours earned in a BA. 

You will have to pass a CPA exam which includes 4 parts.

  1. Financial Accounting and Reporting (FAR)
  2. Auditing and Attestation (AUD)
  3. Regulation (REG)
  4. Business Environment and Concepts (BEC)

Each part of the exam is graded on a scale of 1-100, and you must receive a passing score of 75 or higher. While that may not appear strenuous, according to the AICPA, the overall passing rate is less than 50%.

Certified Management Accountant (CMA)

Another great certification that often has a few overlapping qualities as a CPA. While CPAs are better for compliance and controls, Certified Management Accountants are more about the financial analysis, budgeting, and ongoing stewardship of the company.

CMAs have 4 major components, including:

  • Business Analysis which includes global economics and business.
  • Management Accounting and Reporting, includes budget preparation, cost management, and external financial reporting.
  • Strategic Management which involves strategic planning, marketing, corporate finance, and investment decisions.
  • Business Application has the organization management, communication, behavioral issues and ethical considerations.

To receive a CMA you have to:

  • Become a registered member of IMA
  • Have a bachelors degree
  • Pass both parts of the CMA exam
  • Have 2 continuous years of professional experience in management accounting or financial management
  • You must also follow the IMA’s Statement of Ethical Professional Practice

The Right Accounting Certification For You

With many different accounting jobs out there, not all of them are created or treated equally. While a CPA will hold more value, there are still other certifications suited for jobs and industry-specific roles.

These include:

If you want to upgrade your position within the accounting and business community, investing time and effort in certification should be your first goal. Then, depending on what kind of accounting job you are looking for, you can add additional certifications like the ones above.

Other Accounting Certifications:

  • Fundamental Payroll Certificate (FPC)
  • Business Accountant
  • Financial Examiner (AFE)
  • Tax Preparer (ATP)
  • Certified Forensic Accountant (Cr.FA)
  • Certified Professional Environmental Auditor (CPEA)
  • Forensic Certified Public Accountant (FCPA)

To Summarize

Accounting and finance is a very competitive field, and most accountants will hit a career plateau if they do not seek further certification. Adding accounting certifications can help to improve your station within the industry.

If you are a CPA or CMA looking for a new position, click here to view DLC’s available accounting and finance opportunities.

CECL December deadline

Non-Financial Institutions Are Being Impacted by The CECL Deadline

With the credit loss accounting standard update deadline coming up this December, non-financial institutions are now trying to catch up and understand the impact of how the Current Expected Credit Losses or CECL change will affect their profits.

The CECL is mainly focused on how the details of contracts and transactions are assembled.

For example, in trade receivables, there doesn’t appear to be a significant change to the allowance for noncollectable trade receivables. While usually, the Financial Accounting Standards Board (FASB) suggests using the aging schedules to determine an allowance, the CECL is broadening that method as well as others.

All receivables now need to be considered

This means that as soon as a receivable has been recorded, an allowance calculated and designated to it.

This change also reflects the notable transformation by the CECL in the financial services industry where a new loan must receive an allowance from the initiation point. A comparable requirement is set for the trade receivables as well.

Considering the future economic conditions

Another noticeable change that comes with the CECL’s new standard is the requirement that you must consider the future economic conditions when determining an allowance. Not only that, but other future implications could be impactful if not properly considered.

Contracts set up with customers may be initially set up as short term and low risk for CECL but if not structured to consider the contract’s off-balance sheet exposure a company could unintentionally offer credit terms to customers that require attention beyond the short-term receivable.

Examples include: 

  • Deals with terms to extend the receivable in combination with other purchases.
  • Guaranteed delivery of future purchases despite the customer not meeting a threshold with their other receivables.
  • Establishing a future purchase well in advance and extending the credit terms for those purchases before recognizing the receivable.

These situations don’t typically fall under the scope of the CECL but with the details of the contracts, they could. As such, the risks of these possible impacts should be considered on a contract-level review.

Other impacts

Stemming from the subsidiary transactions of third parties is the off-balance-sheet exposures that could be causing an impact on the non-financial institutions. The CECL doesn’t directly pertain to intercompany transactions, but it could apply to exposures that exist for those subsidiaries.

The structural and contractual obligations

With non-financial companies, there is much more uncertainty in the corporate line items.

Corporations utilize their time before the implementation date to review the deal structures that they have in place and consider how they will be held accountable. Being prepared before the date arrives is a great way to understand how calculations will be performed.

august jobs report

The August 2019 Jobs Report: Steady Rates

The U.S. Department of Labor, Bureau of Labor Statistics released its State Unemployment and Unemployment Summary for August 2019 toward the end of September. The jobs report states that there has been a steady 3.7% unemployment rate, and less than predicted job growth for this period.

Unemployment Continues to Hover Near 50-Year Low

The 3.7% unemployment rate has remained steady throughout this quarter. The U.S. hit the 50-year low of 3.6% in April 2019.

According to the jobs report, unemployment generally remained stable in 42 states. Five states had decreased rates, and just two had increased rates.

Job creation has been the highest in:

  • Professional and business services
  • Government
  • Education and health services
  • Financial Activities
  • Construction

Government jobs increased significantly as they have hired 25,000 new temporary workers to prepare for the 2020 census.

Medium and High-Wage Industries See the Most Growth

Twenty-six states have seen job opportunity increases, with the largest in California, Texas, and Florida. Five states increased employment in August 2019 alone.

Many of the job growth opportunities are in sectors that provide medium to high wage opportunities. Jobs like accountants, auditors, marketing and sales, and software developers are in high demand, and the unemployment rate is much lower than the national level in those industries. Unemployment for those with college degrees has also dropped to 2.1% as well.

What Employers Need to Know About the Jobs Report

As employers engage in planning for Q4 and beyond, keeping the jobs report in mind will be critical. Because companies are creating new jobs at steady rates, there is an increased likelihood that your top-performers will look elsewhere for work if they are unhappy.

Hiring may also need to change slightly. You may not be hiring someone who is unemployed—your next employee may be employed already and looking for a change. Hiring tactics may need to adjust to account for this reality.

Taking steps to ensure that your current talent is happy can be a good way to keep them long-term. Read more about being an Inspirational C-Suite Executive or Employee Health and Wellness for ideas on what you can do to keep your team happy and healthy.

For more finance and accounting employment trends and insights, click here to download your copy of the DLC Group 2020 Salary Guide.

If you are an accounting and finance professional seeking a new position, click here to view DLC’s available job openings.

budget

Treat Your Budget Like a Strategic Asset

For some companies, budgets are soley completed for the sake of keeping the Board happy and for departments to justify or gain funding. After compiling a budget, it is often set aside and not referred to until the following year.

However, budgets are much more than spreadsheets, static numbers, and hopeful projections. For companies seeking to grow, budgets are a strategic tool used to set short and long-term goals. To fulfill its potential, a budget must be easy to create, change, revise, approve, and update. It should also promote collaboration with all of the company’s stakeholders.

A Reliable Root of Insight

Using the general ledger, you can combine the budget with the financial classifications needed, including the ongoing budget vs. the actuals and the transactional level.

Budgets are Valuable Tools

A properly utilized budget will:

  • Look through historical data
  • Gather input from the stakeholders
  • Theorize what will happen over the next 12 months
  • Calculate how those theories will affect the company’s finances

Budgets are Strategic

By regularly updating the budget and adjusting the numbers as they come in, it becomes a strategic tool for measuring the success of the company. Not only that, but it can help to avoid issues by indicating warning signs early enough that the company can pivot to a new direction and create a better strategic plan.

Another Form of Budgeting

Driver-based budgeting is when resources and activities are tied together with the financials in the budgeting process. What this means is that if a company is looking for a 20% increase in profits, the driver-based budget will identify the actual resources needed to deliver that boost in sales.

The big difference between driver-based budgeting and the traditional budget methods is that this budget method links to the actual physical resources needed to make the goals a reality.

Spreadsheets vs Intelligent Planning

Spreadsheets are an outdated form of budgeting. With the constant change of numbers and updates, any small change could through off the entire mathematical equation and result in a lot of wasted valuable time troubleshooting the issues.

Intelligent Planning platforms are much more efficient because they can handle these changes and make the necessary updates without disrupting everything. Saving you a lot of time, resources, and money. With it being activity-based, the flow of input through the financials are based on the logic and rules already established.

You may also enjoy, Driving EBITDA Quickly, Post Acquisition

boosting cybersecurity

How CFO’s Are Boosting Cybersecurity on a Budget

Today, cybersecurity is no longer considered solely a technology risk. In recent years, CFOs have become more involved in the discussions because boosting cybersecurity has become an important finance department battle, too.

A CFO’s job is to ensure that their company can protect the data-centric drivers of business value. This includes intellectual property as well as financial statements and reporting.

CFOs must find the proper resources to support cybersecurity and ensure that the security investments made by the company deliver measurable risk reduction and safety value. 

To do this, a CFO should treat their cybersecurity research the same as they do their company’s financial performance reporting. Using their expertise in making risk-based decisions regarding cybersecurity spending.

Risk management and security control

When a cybersecurity incident happens, the company, their employees, vendors and customers are all at risk.

Technology advances mean that there will need to be further advances in cybersecurity. This means that the budget for proper security and remediation will need to be increased. A CFO should identify the restrictions and procedures necessary to control the new financial spending.

Hiring cybersecurity talent on a budget

Currently, there is a deficit in cybersecurity talent. With a workplace gap of almost 1.5 million job openings, and growing, it’s hard to find and afford good talent. Meanwhile, CFOs are well aware that they need to hire talent with their limited financial constraints on the security budget.  

Many CFOs are employing managed security services as a way of easing through the talent squeeze. It also allows them to have access to highly trained cybersecurity talent at a reduced cost. 

Why you should purchase cybersecurity insurance

The costs associated with a data breach can be astronomical. Having cybersecurity insurance will help to lessen the financial costs to the data, physical property, individuals, as well as the company’s branding.

For more tips about boosting cybersecurity, check out Combating Data Breaches.