BANK OF THE FUTURE

How Value-Driven Reporting is Transforming the CFO Function

 
June 28, 2018

Be it any enterprise, in any part of the world, its performance indicators are keenly watched and analyzed by both internal and external stakeholders. Investors not only gain a view of an organization’s short-term performance through financial reports and disclosures, but also expect a peek into the enterprise’s value creation vision and strategy for the longer term.

Among the various approaches and measurement metrics employed to arrive at a comprehensive indicator of an enterprise’s performance, many tend to be incapable of providing insights into the long-term value creation aspect. Hence, while long term value is unarguably of great interest to investors, traditional metrics fail to provide this information as they are more inclined towards regulatory information requirements and short-term performance assessment.

Integrated reporting: a holistic representation of an enterprise’s performance

A key role responsibility of the CFO of an enterprise is to ensure that the information relevant for decision-making – both for internal as well as external stakeholders – is made readily available. To this effect, enterprises are increasingly adopting the integrated performance and corporate sustainability reporting approach. In addition to the traditional performance metrics, such a report includes forward-looking information to provide insights into the organizational strategy and roadmap as well as long-term profitability and value creation philosophy.

Why value-driven reporting matters

Several banks and financial institutions the world over have initiated the process of integrated reporting, at least partially. However, it is not as easy as it may sound because organizations face quite a few challenges in this regard, for instance, the existence of information silos, significant manual effort involved,  and data quality issues. What is required is a holistic approach that takes into account non-financial factors as well, such as social and environment factors, and their impact on the business performance and long-term value creation. In addition to providing a view of the enterprise’s value and performance from economic, environmental, and social perspectives, it also enables an entity to enhance the accuracy of the planning and forecasting function.

Implementing an efficient integrated reporting framework, requires enterprises to rethink their approach to reporting. Key areas that merit consideration include data management and analysis strategy and the implementation of requisite systems and processes as well as internal controls and governance. This may create strain on existing systems and reporting processes, and could translate into additional investment if the desired reporting architecture is drastically different from what exists at an enterprise. Here is where the latest digital technologies such as analytics, robotics, and artificial intelligence have a strong play.

Technology to the rescue

It is only obvious that integrated reporting will involve analyzing voluminous data to identify the impact of various performance drivers. For example, the impact of a certain business decision on the society or the environment will need to be analyzed based on data – historical and current data as well as future forecast. With the help of Big Data analytics, enterprises can effectively mine the available data to depict the interrelations and interdependencies among the factors, and provide a comprehensive picture of the enterprise’s performance.

Further, as the process is quite complex and involves a large number of variables and forecasted outcomes, it is important to have the right validation checks in place so that errors and inaccuracies do not creep in. This is an area where machine learning technologies can be leveraged. The systems can be trained to apply the rules for calculations, depending on the intelligence gathered from the data mined using analytics.

With these digital technology solutions at our disposal,an enterprise can go ahead in full steam and achieve the benefits of implementing  an integrated reporting framework. What do you think?

Rekha George is Domain Consultant with the Finance and Reporting practice of the Banking and Financial Services (BFS) business unit at Tata Consultancy Services (TCS). Rekha has over 17 years of experience, and has worked with various organizations across areas like accounting, financial reporting and compliance, taxation, and auditing. In her current role, she anchors consulting engagements related to IFRS and other compliances for leading industry players. A chartered accountant by qualification, she has a certification in International Financial Reporting Standards (IFRS), issued by The Institute of Chartered Accountants of India (ICAI).