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SA firms aim to close financial gaps

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South African companies are following the global trend of investing in financial reporting systems intended to improve their close, reporting and filing processes – addressing the challenge of ineffective solutions and a lack of visibility, quality and confidence in their financial data.

A research report from Oracle and Accenture,  “Challenges of Corporate Financial Reporting,” highlights that South African businesses are closer to fully understanding the cost of their financial reporting, with only 21% of finance professionals unable to identify the total cost. This is remarkably lower than the global average of 60%

The report suggests that a lack of investment in proper software and an over-reliance on spreadsheets and e-mails increases costs and results in ineffectual financial reporting and missed key deadlines.

Conducted by Dynamic Markets, the report surveyed 1 123 finance professionals in large organizations in 12 countries, including South Africa, Nigeria, the UAE, UK, USA, Germany and Russia.

The research highlights the following trends:

* Seeking change: Businesses in South Africa recognise the need to invest in new financial reporting systems to address efficiency challenges, with 79 % of surveyed companies having made changes over the last three years to their close, filing and reporting processes. Meanwhile, only 29% have invested substantially in at least one of these three areas over the past 12 months, among the lowest in the survey.

* Insufficient, ineffective investments: While 20% of businesses in the survey have invested in just one of the three financial reporting phases (close, reporting and filings); only 5% have invested in two of the three, and only 4% have invested in all three. Unsurprisingly, spreadsheets (76%) are heavily used to track and manage reporting on a daily basis and emails slightly less at 26%, compared to the average of the overall findings being 68%.

* Increased costs and uncertainty: 19% of finance teams claim to have seen their costs rise across the financial close, reporting and filing processes. In contrast to the report showing that managers across the finance function are unable to fully understand the financial impact/cost implications of managing and publicizing their company’s financial results, with 60% of companies globally confessing that they were unable to put a figure to the cost, South Africa’s results showed only 21% facing this issue.

* Persistent challenges: Due to inadequate reporting systems, the majority of businesses reported that they still face significant problems with financial reporting. 78% of respondents admitted that they have inadequate visibility of reporting processes as compared with 68% globally, while 86% of finance managers reported that they find it difficult to control the quality of financial data across the course of their reporting, highlighting that additional attention should be paid to performance management.

* Decreased effectiveness: 79% of finance managers feel their effectiveness is limited in some way by data analysis-related issues, most admitting they did not have adequate visibility of reporting processes. Failure to meet formal reporting deadlines was relatively high in South Africa, with 18% of businesses indicating that they have missed statutory filings.

* Addressing the challenge: Encouragingly, businesses are intending to take steps to improve financial reporting methods, with 86% of companies likely to make a significant investment over the next five years, an approach which may address many of the challenges they currently face, and bring their reporting processes into line with their performance expectations. However, only 26% of businesses are due to overhaul all three phases of reporting, substantially lower than the global average (46%)

John O’Rourke, vice-president: EPM product marketing at Oracle, comments: “It is clear from the report that businesses are well aware that financial reporting needs to change. The good news is that many are doing something positive about this by investing in new reporting systems. It seems however, that these investments are currently too piecemeal and sporadic to have had the desired effect. With businesses still looking to invest, our advice is clear: Take the time to find a truly effective solution that can address data integrity issues and optimize processes. By doing so, finance organisations can be more efficient, while accuracy can improve and reports are more likely to be completed on time.”

Scott Brennan, executive director of the Accenture Finance & Enterprise Performance Consulting Group, says: “These results mirror what we see and experience, and they’re illustrative of why companies increasingly find it necessary in today’s age of volatility to invest in their performance management. Those that tend to be happiest with the results of their enterprise performance management are those that have a vision – they understand their company’s strategy; they have a clear view of the metrics they need to monitor and they know the importance of integrating an enterprise-wide EPM solution.”