Posted by Charlotte Taylor on 25/04/19 10:04

According to a survey commissioned by Blackline more than 1,100 C-level executives and finance professionals:  

71% of C-level executives completely trust the accuracy of their financial data. However, only 38% of finance professionals — the people preparing the statements and reports — share that opinion.

There's is clearly a mismatch between the level of accuracy C suite perceives in the reports they read against that of finance. So we ask does this mean Finance have become expectant of error. Or are there other issues at play?

The disparity of views between board and those producing the numbers reflects the level of trust and credibility afforded to finance professionals, alongside a possible lack of real understanding or engagement by C suite in how the numbers and reports are compiled. The danger here is that inaccuracy will erode the 'professionalism' by which finance is perceived which could damage our reputation.


However the other side of the story is that the CFO knows and is under pressure to report 'good' news to satisfy investors and stakeholders. A pivotal decision could be at stake if results don't communicate the right news. This isn't to suggest that reports are fudged or fraudulent in content - but merely that there are many different ways of presenting information and allocating assets, revenue and costs. Finance have to play a careful game of reporting both good and bad news in the right place and time to mitigate negative impact.

 

Can you spot the errors?

The Blackline survey  highlighted  how prevalent inaccuracies were. Which can be embarrassing and obviously detrimental to reputation, suggesting a certain sloppiness in the execution of reports. But the real story behind error is likely to be in the data itself,  as well as the reliance on outdated tools which demand manipulation of large chunks of information, leading to handling error and adding time pressure. 

"About two thirds (65%) of respondents said that a company they've worked for had to restate their earnings due to inaccuracies in financial data that weren't identified prior to close."

  • Only 17% of respondents agreed that they could trust that their finance team/CFO had identified all errors to ensure they are reporting accurately.

There is clearly an awareness that inaccuracy is present in reports as only 17% of survey respondents felt they could trust ALL errors had been identified by their Finance team / CFO. Clearly there is a level of error allowance, which we all have to live with. Some tolerate more than others, but zero error could be far too onerous to achieve and at a cost. As with all businesses we have to make a choice on the cost and return.

Contributing to inaccuracy factors were cited as:

  • Human error (41%)
  • Multiple data sources (40%)
  • Lack of automated controls (28%)
  • Clunky technology (28%)

 

What is the impact of errors

Given  some of the feedback on how seriously inaccuracies can impact not only a company but the reputation of CFO's personally you'd have thought there would be a much higher drive towards tackling them. The Blackline respondents are probably less reflective of EU views, with more onerous personal repercussions for non-compliance built into the US system.

 

The results from the survey gave the following insights into how the respondents rated 

  • 96% said Inaccuracies in reporting has a negative impact
  • 42%  said error would impact reputation
  • 41% believed it would impact their ability to secure additional investment
  • 40% believed this could result in increasing debt levels
  • 32% - personal serious repercussions such as jail or fines

 

Wasting time

In any month are you one of the 20% surveyed who spend nearly half of it identifying and adjusting errors? Over a year that adds up - and the hidden cost is employee frustrations as well as a dis-enchanted team spending potentially over 100 days per defending and reconciling rather than thinking and analysing.

What level of error is acceptable

There is no doubt that what is acceptable today in terms of margins of error. The Blackline report cites 65% of organisation accept $2 billion of accounting errors as immaterial - a reflection of the size of the audience surveyed maybe! As PE funding and other external investment becomes more common, the need for transparency and accuracy is expected.

With that expectation is high given that the tech tools available to finance today are far more sophisticated than in the past. Yet this expectation isn't matched by the investment made and the move to adopt automation which could 'fix' a lot of the errors by identifying them early on.

If error is written into the finance psyche, then how are we ever going to move to a place where accuracy is a given. It starts with a less tolerant approach to error, and the will to fix it.

Time is always going to be a constraint, so there is inevitably a need to tool up your finance and business to automate the manual stuff. Rather than just add another head to the team, which is so often the go to solution and won't solve inaccuracy long term, make the business of reporting results a more comfortable place and process for everyone invest in a solution which will add certainty. 

 

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Tags: Reporting, Excel