Financial Reporting

Forward-looking KPIs and other attempts at generating deep insight could become part of an emerging trend in supplemental financial disclosure packages. Sometimes, after watching a particularly long PowerPoint presentation, you might see the “Appendix” slide come up and say to yourself, “Please, let’s just stop now.” Or if you’ve slogged through a long and difficult book, you might skip the afterward the author wrote. In financial reporting, however, more is decidedly not less. In fact, more experts are beginning to suggest that the best way to really master the art of using key performance indicators (KPIs) is to go beyond what’s already accepted as the basic level of information. “The CFO must be prepared, though, to accept the good with the bad. For instance, certain metrics that present the company in a good light one day could later paint it in a bad light — that’s what comes with being transparent.” Mike Ricco, CFO at Panasonic North America, made reference to this in a group Q&A with some of his peers on Forbes: We’re now exploring ‘forward looking KPIs’. We’re pretty good at backward looking KPIs. So now we’ve picked a couple of our business groups and we’re working closely with them on some of the important business indicators either internal or external, that can help us be more predictive in terms of where their business is headed and what some of the gaps are, and we’re seeing financial results. If you’re already a data-driven finance department, then, the next step is weaving in additional data — not just for analysis but in what you can present to other stakeholders. Phillip Joseph, CFO at Spirit Realty Capital, recently published a helpful and comprehensive post about the concept of a supplementary financial disclosure package that would offer that level of detail. He argues these packages will help investors and others get the answers they really need about KPIs, though he acknowledges the practice does require a particular kind of leadership: “The CFO must be prepared, though, to accept the good with the bad. For instance, certain metrics that present the company in a good light one day could later paint it in a bad light — that’s what comes with being transparent,” he writes. “Even when the information provided isn’t flattering, if the company can back it up and explain the numbers, it’s going to get applause from the investment community for simply making the information available.” You’ll still need to look “back” to understand what happened, even as you work to develop your own “forward-looking” KPIs. Just bear in mind how all that insight will be conveyed. CFOs and CEOs may be best served with dashboards that let them see the most critical changes in KPIs in real-time. Shareholders and others may need more than that. In time, what may seem supplemental today could be essential tomorrow. The post What Seems Like A Financial Reporting Add-On May Soon Become Essential appeared first on Blog | Vena Voice | Vena Solutions.

Everyone agrees there has to be a better way for CFOs and their teams to share data. But does that better way have to feel so unsettling? The symptoms of “change fatigue” may be subtle, but trained managers learn to recognize them. It could be marked by employees who slump a little lower in their chairs when a new tool or process is introduced. Others may show it with a slightly deadened expression in their eyes, as if they can’t believe they’re going to have to re-learn the way to get certain things done. And of course there will always be a few who have no problems being pretty vocal about their displeasure over yet another change. Even if you’ve never personally used the term “change fatigue,” it will probably be familiar when you see it among the list of top issues cited by more than a thousand CFOs as part of an EY report called ‘How Can Reporting Accelerate In A Changing World?’ Over the course of 30 pages, the answer is clear: with great difficulty. While overall change fatigue within the finance function was a problem among 27% of those surveyed, 50% specifically said the complexity and cost of tackling legacy IT environments are the biggest barrier to better financial reporting. This didn’t surprise the experts at EY: CFOs worldwide are struggling to make the most of the increased volume and speed of data available to them. Many are encumbered by legacy systems that do not allow reporting teams to extract forward-looking insight from large, fast-changing data sets. The result is an increasing expectation gap between what boards now look for from corporate reporting, and what CFOs can deliver. Until reporting catches up with technological advancements it will continue to be compromised. Is that true? Maybe the problem is that technology, in some cases, isn’t catching up with the current realities of financial reporting. For example, some of those legacy IT issues are not simply based around a need for a new database or other infrastructure, but a user interface that looks like gobbledygook compared to, say Microsoft Excel. People tend to adapt to change more easily when it’s not quite so abrupt and unfamiliar. Similarly, those trying to transform financial reporting may need to work harder as leaders to show the team that no matter the technology involved, the end goals remain the same. This was one of the takeaways in a piece on FinancierWorldwide that was reported on the EY research: “Whatever model is eventually established, CFOs hope that the new reporting arrangements will increase the accuracy and effectiveness of reporting, improve data analytics in reporting to drive forward-looking strategic insight, and provide a more flexible and agile reporting function,” it said. The antidote to change fatigue is not sticking with the same old way of doing things. It’s changing while providing a sense of continuity.

Research shows innovation in financial reporting is a top CFO concern. Now it’s just a matter of thinking through how content consumption patterns are changing. Ten years ago, if you asked the average person to draw a phone, they would probably have sketched something with a base, a handset and a cord running towards a wall. Today, they’d probably draw an iPhone. What about “annual report?” Probably many of us would draw a thick binder or something that looked even more refined, like a coffee table book. Unfortunately, most people can’t imagine what the iPhone equivalent of an annual report looks like yet. An executive from Deloitte wrote a piece for FEI Day that did a fantastic job of pointing out some of the ways annual reports could be reconceived by finance departments. Some of the ideas included basic things like hyperlinks, but also tags to let other members of the organizations toggle through specific topics and access to extra files that add context to the report. It comes to a word that sounds ugly but is essential: Usability: Many users don’t read a financial report like a book, from cover to cover in linear fashion; instead, they bounce from topic to topic looking for related information. Moreover, users don’t just read information – they use information — so they want easy access to advanced features such as search and extraction. They also want the ability to lay pieces of different reports side by side to make comparisons and identify trends.  Therefore, users increasingly favor electronic documents over paper reports. It’s not as though finance departments don’t realize the need to innovate in how they manage financial reporting and producing annual reports. In fact, consulting firm Kaufman Hall just published the results of its 2016 Performance Management Survey, which touched on this area. Among the stats you need to know: More than 70% of over 380 finance executives polled say supporting decision-making is their number-one goal for 2017 Over 90% say they need to do more with the financial and operations data at hand to help top management make critical decisions. Less than 23% of respondents are very confident in their company’s ability to maneuver past unforeseen business obstacles, due in part to outdated financial planning and analysis (FP&A) tools and processes. Thirty-eight percent of respondents say their company now uses rolling forecasts, up from 33%   The commitment to giving annual reports an extreme makeover is there. The ideas on how to reimagine it are starting to percolate. The tools to make it happen are already available. Now we just need a few pioneering finance departments to show the world the newer, better, big picture. The post The Annual Report, Reimagined appeared first on Blog | Vena Voice | Vena Solutions.

Financial reporting might seem irrelevant to those steering an organization. It’s the finance team’s job to convince them otherwise. This is a variation on the old if-a-tree-falls question: If a report comparing budget to actuals is sent out and nobody reads it, does it make an impact? It may sound like heresy to seasoned finance professionals, but that’s one of the controversial pieces of advice from Kate Sayer, an auditor who recently wrote some reflections on a site called Third Sector. Sayer not only recognizes the challenges CFOs and their teams are under – she’s pretty direct in suggesting that some things may need to be reprioritized, or least approached a lot differently: Look at the data you already have in the finance department – could you analyze this and present it a different way in order to provide some useful information for managers? This does not have to be complicated – a recent example is the new finance manager who analyzed the level of take-up needed for a particular type of project to break even. The managers were astounded – they had been asking for similar information for years and had always been told it was too difficult. Now they could look at their decision-making process afresh and develop clear financial criteria for closing projects and opening new ones. That finance manager now has credibility with the other managers. Consider Sayer’s advice step one in a long-term approach to repositioning the role of the CFO. Once that credibility has been built up, the next step is how to leverage it and bring greater value. For that, you could turn to “Skills Worthy Of A CFO,” which was published in CGMA Magazine and talks to several experts about where finance leaders should be spending their time. The short answer is, everywhere, but one of the interesting aspects was what the author described as external forces. “These include capitalizing on global opportunities, managing risks of political instability, making the organization more attractive to young job candidates amid a talent drought, taking advantage of capital markets to secure capital at low costs, navigating regulation, and mastering digital challenges and opportunities,” the article said. This is not to suggest that the CFO necessarily have a specific action plan around each of these items, but they should be prepared to come to the senior leadership table with at least an awareness and some thoughts on how those issues align with areas where they have access to information and insight. Yes, you should want to be working on reports that everyone wants to read, but you should want them to provoke a meaningful discussion afterward. The post Financial Reporting: The Path From CFO Credibility To Collaboration appeared first on Blog | Vena Voice | Vena Solutions.

CFOs and their teams may not consider themselves “evangelists” today, but now is the time to demonstrate the power of analytics.  It may be hard in some cases to think of the word “evangelist” and not mentally modify it to “televangelist” – those people you see on TV preaching and, occasionally, asking for financial donations. That’s definitely not a role that aligns well with CFOs or others in the finance department, but being an evangelist for BI and analytics might not seem much better.  The idea of evangelists as a job title is not new to the IT industry, of course. Software companies have employed them for years, usually to help developers appreciate the merits of a particular operating system or programming language. Finance professionals, on the other hand, are better known for evangelizing sound practices in managing costs, reducing risks and ensuring capital resources are used appropriately. A recent blog post from an Oracle executive called “Evangelizing Analytics: The New Calling For Finance Professionals” may, therefore, come as a bit of a surprise. According to the author of the piece, though, there may be no better function in a modern enterprise better suited to the job: Finance teams need to take the lead in promoting an analytic culture within their business. There aren’t many department leads who doubt the benefits of insightful analytics. Marketing departments are improving their performance by analyzing how their campaigns perform. Human resources teams are taking deeper dives into data to recruit the best talent, and more importantly, retain them. But as finance departments demonstrate how an integrated approach to data analytics enables better decision-making across the enterprise, more business units are likely to take notice. Even if finance teams agree, there may be some question about how exactly to get started. To answer that, it may be worth looking at a column on Credit Union Management which, though obviously aimed at a particular niche within financial services, offers a helpful breakdown of how to think about BI and analytics in general: Descriptive analytics—historical information depicting “what happened?” Diagnostic analytics—demonstration of cause and effect to assess “why did it happen?” Predictive analytics—monitoring and tracking trends and behavior to predict “what will happen?” Prescriptive analytics—allowing an organization to turn insights into strategy and tactical planning to supply answers to the question “how can we make it happen?” Over the long term, most organizations will want a BI strategy that spans all four of these areas, but perhaps finance departments can get the ball rolling by choosing the one that will provide the quickest buy-in from other departments. You can always build a more holistic analytics culture from there. After all, as even experienced evangelists know, it may take a few minor miracles before you can turn a skeptic into a true believer.

“If I Had A Million Dollars” was once the title of a popular song and, most likely, the kind of fantasy many of us have entertained at one time or another. It becomes quite a different exercise in imagination, however, when you’re asked to think of what you would do with a less grandiose amount — say, half a million dollars — and you’re tasked with thinking about where you might allocate it towards a specific department in your company.  This was the scenario presented at a recent survey conducted by the CFO Alliance, which gathered responses from more than 600 financial leaders across the U.S. More specifically, they were given the choice of offering a $500K budget to the sales department and the marketing department. In both cases, CFOs said they wanted their counterparts in other business units to better understand the addressable market for their firms’ products and services. For example, 34% said Marketing would be responsible for researching this area, while 26% said Sales should be trained on the results of such research. The study concluded that those running finance departments aren’t only interested in becoming more customer-centric, but empowering the rest of the organization to do the same thing:  As CFOs embrace an ever-increasing role of leading across the enterprise, and recognize the value of truly understanding their markets & customers, their confidence and ability to impact top to bottom organizational performance increases. Confidence in their own ability to execute and embrace the role of Chief Trusted Advisor within and outside the walls of Finance may explain their optimism to deliver both top and bottom line growth in 2016. The CFO-CMO Connection You could argue that, as CFOs and their teams begin to offer greater insight to companies through cloud-based financial reporting tools, marketing departments in particular will become a key area for collaboration. A report last year called CFO and the CMO: A Winning Team In A Digital World from EY (formerly Ernst & Young), suggested as much. Although 54% said partnerships were improving, however, they cited changing marketing strategies as one of the main drivers. “Business model complexity has increased, and competitors can emerge from unexpected places,” the report said. “A strong finance-marketing relationship can spell the difference between high-growth organizations, and those that stagnate or are left behind.” CFOs may never be in a position to give hundreds of thousands to their colleagues so they can get a better sense of their firm’s growth potential. As their use of data becomes more sophisticated, however, what they do offer might turn out to be even more valuable. The post Why Financial Reporting Should Benefit Marketing And Sales Teams, Too appeared first on Blog | Vena Voice | Vena Solutions.

A KPMG study suggests reporting could be a lot better than it is – particularly if more firms look at operational KPIs. We are getting to that time of year when kids are coming home with report cards, and smart parents know it’s not just the As and Bs that matter. It’s how teachers describe students’ performance with phrases like “shows progress” or “has mastered.” What you don’t want to see is the phrase consulting firm KPMG used as the title of its recent assessment of the way finance department handle reporting: “Room For Improvement.” The 32-page document is well worth reading in full, but the best parts get the heart of what’s probably causing a lot of internal pain within finance departments: whether or not to start factoring in non-financial KPIs into their reporting, and the pressure to provide short-term forecasts. As the authors note, there’s probably no such thing as a perfect short-term forecast that factors in everything that could happen around the world. They argue, however, that the effort is worth it: “Carefully explained forecast information can play a deeper role. It can provide a ‘clean’ base from which investors can project performance. And it can act as a catalyst for a more forward-looking discussion of historical performance that connects with the forecast and its underlying assumptions. An alternative to providing forecast information is to align the presentation of historical information more closely with future performance.” This is clearly not happening a lot today, based on KPMG’s numbers. For example, only 11% of those surveyed report on six key areas that the firm believes is key to financial health. Operational performance is one of those areas, and only 9% look at that over a historical period stretching back five years. Perhaps worst of all, KPMG said only 14% of firms include reports or forecasts that go beyond financial statements and speak to strategy. This is where “room for improvement” gets real. It’s also where it might be helpful to think less like a large enterprise reporting to shareholders for a moment and more like a small business sitting down with their accountant. For example, David Worrell wrote a book called The Entrepreneur’s Guide to Financial Statements, and as he recently wrote in a guest post for AllBusiness.com, a big area is simply making them readable. “I’m willing to bet that at least one of your products or services is not profitable. Do you know which one it is?” he asked. “You spend a lot of time establishing a pricing strategy, but if your books aren’t organized so you can easily see your profitability by product line—and make sound pricing decisions—you may be losing money without even knowing it. (There are some good reasons for selling a product at a loss—you can probably name at least three—but you should do so knowingly.)” Finance departments in large companies need to do something similar by making better use of the applications available to them to add not only more detail into their reporting, but guidance that looks beyond the numbers. It may take a while before most CFOs and their teams get a positive report card on such work from the CEO or their shareholders, but now’s the time to earn an “A” for effort. The post A Great Way to Get Good Marks on Your Financial Statements appeared first on Blog | Vena Voice | Vena Solutions.

Every day online and on social media, you’re likely to come across articles and blog posts with titles like, “What Successful People Do Differently,” or “The Morning Routines of Insanely Successful People.” It would be a stretch to call these kinds of pieces benchmarks, but the idea is similar: Only by looking at the differences between yourself and your successful peers can your self-improvement process begin. At the organizational level – namely for CFOs and their teams – one of the best resources might be consulting firm PricewaterhouseCoopers (PwC)’s 2015 Global Finance Benchmarks report, which combines survey research with in-person executive interviews and other sources. The title is PwC’s own take on the “successful people” meme — it’s called Breaking Away: How leading finance functions are redefining excellence.   If you don’t have time to wade through the entire 70-page document, just keep the following stats in mind: According to PwC, top performing finance departments run at 40 percent lower cost than their peers, and spend 20 percent more time on analysis vs. data gathering. Cheaper AND Smarter While there are a number of factors that can contribute to those differences, let’s hone in on how PwC views the role of IT: “There have been great strides in the areas of enterprise performance management (EPM) and data warehousing. Organizations are making connections between financial planning, operational planning and sales planning to create better integrated processes and are considering how new tools can assist in that endeavor. The resulting finance system simplification should mean a more integrated finance systems roadmap. But the leaders are now doing far more.” Specifically, PwC suggested that the best finance departments choose the tools they use carefully, leaning towards those that are cloud-based with “quick implementation and low skill requirements allow for easy implementation by finance professionals.” If your team has spent years investing in carefully built Excel templates, models, and reports, for instance, then adopting an Excel-based enterprise or corporate performance management solution might make better sense than a more complicated and expensive system that requires extensive training and IT involvement. Manual Override Staffing firm Robert Half has released a finance department benchmark report of its own, which captured not only the increased workload imposed on today’s finance teams, but an increasing difficulty in getting it all done. Much of these dual challenges stems from the number of financial processes that still rely on manual-intensive tasks, perhaps most notably in the area of financial close management and consolidations: “The high volume of reconciliations has an impact on accounting and finance departments because the process remains labor-intensive and is often manual,” the Robert Half report said. “More than half (54 percent) of U.S. executives said their reconciliation process is manual, but that percentage has steadily declined over the past two years, from 59 percent last year and 65 percent in 2013.” Much like the PwC report, Robert Half includes interviews with finance staff who say they are introducing IT to help speed up financial close and other tasks while moving towards more forecasting and data-driven decision making. That’s the thing that good benchmarks do. It’s one thing to show you where your gaps are vis-à-vis your peers. It’s another to help you see how you might close them.   The post Global Finance Benchmarks: These Are the Numbers to Watch appeared first on Blog | Vena Voice | Vena Solutions.

According to benchmark research from PwC, corporate accountants are finally spending less time on data gathering and more time on insightful analysis. The business world has always had a need for skilled accounting professionals but until recently, an inordinate part of their role has been a matter of manual data collection – essentially copying and pasting – from different source systems, departments or other entities. After four years in school and countless hours of professional accreditation and development, it’s easy to see how frustrating it must be when half your job involves clicking CTRL-C and CTRL-V. Fortunately, times are changing and the role of corporate accountant is shifting. The shift, according to a recent article in Financial Director, is that accountants now focus less on simply gathering data and more on performing advanced analytical tasks with that data. The article cited findings from the PricewaterhouseCooper 2015 Finance Effectiveness Benchmark, which showed that the average finance professional now spends about 50 percent of their time on analysis versus data gathering, up from 36 percent three years ago (see figure). Brian Furness, finance partner at PwC, told Financial Director that “traditional” bookkeeping activities are in decline as companies begin to place more of a premium on automation and real-time analytics. We now have the capability to automate the basic data-gathering functions and put a larger proportion of our manpower into more advanced thinking. “The best finance professionals today are producing actionable information, not circulating numbers that are likely to be out of date as soon as they’re released,” Furness said. “In business today, internal data is being spliced with data scraped from the Internet or pulled from specialized external sources, and not always by the finance department.” This shift in labor has led to a concurrent change in finance technology. While you obviously still need skilled accountants on your staff, it’s now equally vital to also have the right finance software to help you do more than simply collect information. Analytics have become a key differentiator in business – if you have better tools for crunching the numbers than your competitors today, you’ll be well positioned to get ahead tomorrow.