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Accountability in Finance: maintaining investor confidence in the numbers

 

By Andy Bottrill, VP EMEA, Blackline

The first half of this year has been nothing if not eventful. In the first few months of 2020 alone, changing global political tensions, the upending of historic trade alliances, and the as yet unknown economic impact of the coronavirus pandemic, have added a new dimension to the challenges facing the international business community.

These new complexities follow several years during which public and shareholder scrutiny of large corporations has increased. In the ten or so years since the 2008 financial crisis, irresponsible corporate behaviour and unnecessary risk taking have become less and less acceptable – particularly in the eyes of investors, who need oversight of anything that could influence long-term financial performance.

It’s no surprise then that investors are analysing how companies finance their operations in more minute detail than ever before. At BlackLine, we recently published the second phase of research we conducted amongst institutional investors around the world. The findings, which are outlined in full in Accountability in Finance: The Buck Stops at the Top, highlight that many investors remain seriously concerned about a lack of control, transparency and accountability when it comes to financial data.

So, with the increasing uncertainty and pressures created by unprecedented global events, what can Finance & Accounting (F&A) do to shore up investor confidence in the numbers?

Past experience is fuelling investor caution

There are a number of factors that make investors wary of accepting financial data at face value. While previous misreporting scandals and unpredictable markets undoubtedly add fuel to the fire, it turns out that many investors have been burned by a bad experience previously.

Of those who do not completely trust the financial data of their portfolio companies, almost two thirds (64%) said they knew from past experience that the financial data presented by their portfolio companies is not always accurate. This was particularly prevalent in the UK, where 79% suggested that companies in their portfolio had previously presented them with incorrect financial data.

Additionally, over a third (38%) of investors globally said a lack of visibility over how financial data is gathered, checked or analysed makes them doubt its accuracy.

Accountability matters

Accountability in Finance: maintaining investor confidence in the numbers 2
Andy Bottrill

Although clear evidence of transparency and accuracy in financial reporting helps to reassure investors, understanding the roles and responsibilities of those involved is equally as vital. Essentially, when it comes to increasing investor confidence in financial data, it isn’t all down to the numbers; who signs them off is also important.

Unsurprisingly, the vast majority of investors admit to being troubled when reporting errors do occur, however responses suggest that accountability goes a long way to assuaging investor fears.

Just 2% of investors said they would not be affected if a company misreported its finances, indicating that surprise disclosures or restated financial statements are not welcomed by the majority of investors. And almost two thirds (63%) also said that if a company in their portfolio misreported its finances they would demand to know who was being held accountable for the errors.

The buck stops at the top

When we asked investors who they think bears ultimate responsibility for ensuring that financial data and reports are accurate, the answer was unanimous: the buck stops at the top. Investors in every market overwhelmingly agree that the CEO and CFO should be held accountable for any errors in the financial reporting process.

Globally, 79% of investors indicated that the CEO should be held accountable for a company’s financial reporting errors, while nearly four in ten (38%) thought the CFO should also be held to account.

Being held directly accountable for something that so clearly impacts investor confidence may seem like a daunting prospect. However, in reality, many of the factors that impact investor trust – such as poor financial controls or real-time visibility over the numbers – can be easily managed with the right technology.

Using technology to create better control and transparency

Much like the wider business community, many investors are optimistic about the role technology will play in improving the way financial data is used and handled. For example, over two thirds (69%) believe artificial intelligence (AI) and machine learning (ML) will one day lead to better accuracy and transparency in finance and reporting. Investors in the UK (76%) are particularly enthusiastic about the potential of these technologies.

To stay ahead of the competition, businesses must move toward modern financial processes that provide up-to-date, accurate financial information in near real-time.  In fact, the majority (92%) of investors agree that real-time visibility over the finances will be crucial if companies want to stay competitive in the next 12-18 months.

Implementing cloud-based, automation technology will not only allow teams to collaborate remotely, it will mean that data and transactions can be processed and reconciled at any time. Analysis of data can be performed continuously, enabling finance to play a key role in the business decisions that need to be made.

Creating a fundamental business shift such as this may seem challenging. Nevertheless, the right technology can make this incredibly simple, modernizing the entire accounting and finance lifecycle. Finally, one of the unexpected positives that may come from the coronavirus pandemic is the increasing willingness of companies to invest in bank end processes – it’s never been easier to make a business case for technology that will improve the way your F&A department operates.