The Financial Reporting Strain on CFOs is Telling

Henry Umney, CEO at ClusterSeven

19.10.2017 12:45 pm

Financial reporting is putting a major strain on the office of the CFO. This function is keeping 97% of CFOs awake at night, primarily for two reasons – fear of not meeting deadlines in a timely manner and a lack of confidence that their internal controls for financial processes are working properly. Complexity of business structures and a lack of transparency around the creation of critical reports are further exacerbating the pressure. Additionally, the worry that they won’t be able to answer immediately when faced with questions on accounts by the Board is also profound.

In addition to internal reporting, regulatory compliance demands such as Sarbanes Oxley is growing. For instance, the Public Company Accounting Oversight Board (PCAOB) is demanding that organisations institute tighter reporting controls and demonstrate evidence of those business-critical processes.

Spreadsheet a double-edged sword

Spreadsheets are a major underlying cause of the strain. Due to the volatile economic environment and evolving regulatory landscape, finance departments often need to develop new or change existing business models. Most businesses deploy sophisticated enterprise systems, but these technologies aren’t able to deliver against the agility demands of the finance department due to their complexity. Many finance departments today are dependent on the IT function to make amends to their reporting structures in these enterprise systems. This causes delays, leaving CFOs with no option, but to resort to spreadsheets to fill the functionality gap. Spreadsheets are therefore widely used for final mile reporting for example as well as for financial modelling, data aggregation and manipulation and regulatory compliance processes.

The problem is that the use of these spreadsheets is unfettered; and minimal, if any, usage controls are applied to these business-critical applications. As the spreadsheet landscape grows, finance teams lose visibility of key data and business-critical files. Anyone can create a new business-critical financial process, with no checks and balances to ensure accurate data usage in the model. With the reporting inventory out of the control, finance departments then struggle to determine the convoluted data lineages among the various spreadsheets.

Due to the intricacy and multiplicity of data sources and a lack of transparency, it becomes difficult to ensure that only current and accurate data is being fed into the spreadsheet models – and that the model outputs are accurate. This is perhaps why a large percentage of CFOs today, produce redundant reports. This lack of clarity on data coupled with fear of losing the right data often results in finance teams’ reluctance to remove the superfluous information from their reporting packs.

A technology led approach to spreadsheet management

These challenges that CFOs face today aren’t insurmountable. Technology can help institute best practice-led processes for monitoring and end-to-end control of the use of spreadsheets across their lifecycle, based on internal polices and external regulatory requirements. This also ensures transparency around data lineages across the spreadsheet model environment.

A cloud-based approach to technology-led spreadsheet management can take it further, facilitating complete, on-demand and non-invasive control of the spreadsheet environment to support everything from financial reporting through to audit and compliance and governance – whenever and from where ever the finance department needs to.

For instance, finance teams can securely maintain an inventory of critical spreadsheets, that is supported by an automatic audit trail. They can also understand the complexity of spreadsheets and identify where there might be potential for error so that the issue can be proactively remediated by amending the spreadsheet design or implementing stronger controls and usage policies.

Similarly, where multiple versions of a spreadsheet exist, the technology can enable users to compare the different versions to quickly identify how it has changed, enabling the department to reduce the risk of errors in business-critical applications and models. This can greatly increase the team’s confidence in the accuracy of data used for financial reporting.

Given the internal business reporting and ever-growing regulatory and compliance demands on finance departments, CFOs must get their house in order. A technology-led, automated approach presents the best possible opportunity to achieve it. Adopting this approach in the cloud can deliver unprecedented convenience as a result of real-time access to and management of critical spreadsheet – in parallel to enterprise systems.

The risks that unmonitored and uncontrolled use of spreadsheets present to not just the organisations CFOs represent, but also to themselves are real. Regulations like the Senior Managers & Certification Regime and Solvency II aim to hold the executives personally responsible for non-compliance, regardless of whether it is intentional or genuinely inadvertent.