The financial analytics and reporting industry is rapidly expanding and valued at 9 billion USD in the year 2021. The growth in financial reporting and analytics is driven by the rapid digitization of most business processes in general and financial reporting in particular.
Financial reporting and analytics traditionally have been inherently cost and effort-intensive exercises, further bogged down by data businesses are generating daily. Additionally, regulatory compliance and financial reporting mandates are rapidly evolving; to accommodate the changing environmental, social, and market requirements.
Present-day financial reporting needs to meet the increasing focus on transparency and accuracy mandated by regulatory bodies through compliance mandates. It has moved beyond reporting numbers about revenue, cash flow, income statements, and balance sheets. While they remain an integral part of financial reporting even today, financial reports have become far more comprehensive. The financial report today provides granular information regarding the financial health of an organization as well as its environmental and social impacts. Companies have access to state-of-the-art financial reporting software that help them optimally meet their financial disclosure requirements.
But before we discuss financial reporting software and how to choose the right solution for your business, it makes sense to look at the recent trends in financial reporting.
Emergence of Integrated Reporting – Integrated reporting covers all material aspects of a company’s strategy, operations, and performance, including the non-tangible factors like trust, reputation, and business model viability. These intangible factors are material value drivers but remain discounted in traditional financial reporting. Integrated reporting provides accurate, comprehensive, diversely sourced, and contextual value-creation information to all stakeholders. Integrated financial reporting includes:
- Financial statements
- Management commentary
- Governance Reports
- Environmental and Social Impacts
- Corporate Communications
ESG Reporting – The number of countries making ESG Reporting mandatory is climbing every day. The regulatory authorities are making it mandatory for businesses to report their environmental, social, and governance impact. Investors have long used financial reports to make informed decisions; however, ESG reporting provides them with a deeper understanding of the risk and opportunities associated with a business. The UK’s Financial Conduct Authority (FCA), the European Securities and Markets Authority (ESMA), and the US Securities and Exchange Commission are progressively making ESG reporting a part of financial reporting and mandatory for listed companies.
Automated Solutions for On-demand Reporting – Financial reporting today has moved on from being a quarterly or annual fare. Businesses need to assess real-time financial information to make informed decisions every day. Financial reporting software automates collecting, storing, and analyzing data allowing businesses to focus on insightful decision-making.
Alleviating Financial Risks Through Cross-functional Collaboration – As we pointed out earlier that integrated approach is the future of financial reporting and is achievable only through cross-functional collaboration. Financial reporting risks mitigate when teams across functions can contribute and cross-check data through a decentralized system.
Financial reporting software offers a collaborative platform for data management by helping organizations achieve cross-functional collaboration and mitigate risks.
The aspects to consider before choosing financial reporting software.
1. Features Aligned To Business Needs
The changing business environment treats finance teams as more of strategic partners than mere number crunchers or report generators. Financial reporting software solutions should help finance and accounts teams collate pieces of information and paint a picture that can become a roadmap for financial planning. The software platform should also meet core business needs. While it seems an obvious consideration, businesses may overlook this in favor of features. Breaking business objectives into measurable analytical goals can help identify the right financial reporting solution. Financial data should add value and improve the decision-making process.
Some non-negotiable features a solution should offer are
- Cloud-based platform – The ideal solution must be device agnostic to ensure continuous accessibility
- Collaborative workflow – The solution must allow cross-functional teams to work together
- Live integration – Financial reporting teams must be able to accommodate frequent changes
- Automation tool – The solution must automate repetitive processes
- Data visualization – Teams must have access to instant insights, facilitating data consumption
2. Simple Learning Curve
Digitization is a matter of survival for businesses. However, like most organizational transformation initiatives, one of the key challenges is finding the competencies required to make the change. Additionally, for organizations that rely on trial and learn approach to processes, implementing any change, especially involving new technical platforms, is met with compromised productivity. Companies often spend close to 1000 USD approximately per employee on training costs, and additional training requirements for a new platform can add to that.
Born-digital companies have an advantage over traditional companies going digital, and the correct financial reporting software solution can help the latter level up. A simpler learning environment of a software platform can facilitate the process further.
A robust support system is an additional requirement that can determine the success quotient of any new tech stack solution. Seamless integration, lesser reliance on IT, and ready support to address user challenges are other yardsticks to measure any financial reporting platform. To help teams get on board sooner, the ideal financial reporting software must have an appealing user interface, easy-to-navigate dashboards, and should require minimal training intervention.
3. Flexible and Scalable
A financial reporting solution should be scalable to meet the needs of a growing business.
Financial data is often stored in multiple ledgers and databases, distributed across business functions, and need to be updated. It results in a lot of redundancy and a fragile reporting environment incapable of supporting the business with vital financial insights.
Financial reporting needs to leverage the data already possessed by the organization to respond to the rapidly evolving external business environment. The right financial reporting software platform aids businesses to react swiftly to changing business conditions by streamlining data, centralizing data storage, identifying redundancy, and offering superior query response in a time-sensitive manner.
The financial reporting software should not simply automate the manual processes but offer more. Streamlined data management and smooth consumption while offering a safe and scalable infrastructure is essential.
It should be flexible enough to provide scope for seamless future integrations while being compatible with current systems. But flexibility as a platform entails more than that. Financial Reporting software solutions should collate, compile, validate and report data for routine processes while having a scope of expansion. The expansion could be into areas like risk assessment, business performance reporting, and regulatory compliance requirements that empower businesses in multiple ways. Spotting daily trends, adjusting insights, and minimizing risks daily, can save costs and provide optimal utilization of the platform; for relevant results.
4. Integration and Implementation Timeline
A financial reporting software solution could be either stand-alone or integrated. The latter offers the benefit of familiarity as the users continue with their currently used applications while the platform can access those data and conduct detailed analyses.
Costs associated with financial analytics solutions may quickly appreciate if the implementation time frame gets extended. The size of the company and project, the maturity of financial planning and analysis practices, and the status of the existing ecosystem are the factors that determine the implementation time. These factors need proper evaluation before choosing a financial reporting software solution.
5. Data Collection Process
The potential of large volumes of financial data generated by digitized businesses can lie underutilized in the absence of a proper data management infrastructure. Extracting data from multiple sources, loading data, maintaining the repository, and data presentation, often involve several tools; in a traditional setup. One of the common challenges associated with multiple tools is redundancy and data latency. The latter often results in missed opportunities for businesses.
Financial Reporting software should have a data collection process that is:
- Integrated with multiple sources
- Performs data validation
- Analyzes complex data ( structured, semi-structured, and unstructured)
- Delivers relevant real-time insights
Software solution should be more on self -servicing side with no-coding or custom coding requirements and be ready to plug and play.
6. Data Presentation
The Australian Framework “Objective of General Purpose Financial Reporting” (SAC 2 2011, p.11) states that: “General purpose financial reporting focuses on providing information to meet the common information needs of users …”
Most people, are visual learners and understand pictures, better than numbers or texts. Financial data hidden in excel sheets may perform inadequately in aiding decision-making; if not presented well. Large volumes of data are practically impossible to analyze without a visual aid.
Accenture survey claims that 81% of finance professionals, including CFOs, believe that storytelling through financial data is a crucial skill. Strategic and tactical decision-making depends on understanding the big picture that financial data show. Therefore, financial reporting solutions need a versatile in-built data visualization feature.
Data visualization also makes it easier to evaluate individual processes in detail and optimize cost and identify best practices. A combination of explorative visualization that can help connect the dots within the data and explanatory visualization that helps present the data insight to the audience; can make financial analytics tangible.
7. Data Analytics Capabilities
Financial data analytics has its unique challenges, the primary being; the sheer volume of data synthesized from multiple control points. Combined with manual processes, semi-automated workflows, and errors in reporting, the process can jeopardize the financial health of the whole company.
Data analytics can support organizations in improving their existing processes and using their data for valuable business insights that are time critical. Continuous monitoring eliminates errors and risks and improves daily operations. Including non-financial data in financial reporting to emerge with diversified data insights and forecasts can facilitate impactful decision-making.
Financial reporting software solutions with an efficient data analysis feature empower your business with data and improve forecasting, budgeting, and long-term strategic financial planning. Peer group metrics analysis provides strategic data and validates financial results while mitigating risks like fraudulent reporting.
It should help your business to
- Monitor present KPIs and identify future ones
- Tailor data analytics to meet the specific needs of the business
- Deliver need-based forecasting
- Have flexible budgeting options
- Create flexible metrics
Another crucial consideration is the safety of the platform and its policies regarding data leaks and efficiency of the processes to prevent that. According to ‘statista’, the financial sector is the worst hit by data breaches and cyber-attacks, and one of the primary reasons cited is system errors. As per IBM, the average cost of a data breach; was USD 4.35 million in 2022.
Another aspect to consider is the cost or the pricing structure of the financial reporting software platform. Flexible subscription-based platforms that can scale up their services in response to growing business needs are great for small and medium-sized businesses. An organization with mature and standardized financial reporting frameworks and processes; can opt for cloud-based platforms that cater to the high volume and veracity of data.
Financial reporting across geographies is becoming comprehensive for increased transparency and accuracy. Financial disclosures should be insightful and informative for investors and regulatory authorities and meet compliance requirements. Traditionally, financial statements were paper-based, and when digital financial reporting came into existence, PDF and HTML were the preferred formats.
The introduction of XBRL or eXtensible Business Reporting Language brought a tectonic shift in financial reporting. XBRL has comprehensive definitions and unique tags; used in the preparation, validation, publication, exchange, and consumption of business data. More than 50 countries and 100 regulators use XBRL for financial reporting, including the US SEC, FERC, UKSEF, ESEF in Europe, ACRA Singapore, MCA in India, and many more.
XBRL is to become the standard format for recording, storing, and transmitting financial data.
A software solution with built-in XBRL tagging will be a perfect combination; of everything, a business needs to meet financial reporting requirements.
How IRIS CARBON ® Simplifies Structured Financial Reporting
IRIS CARBON ® is a cloud-based SaaS platform that allows users to prepare their AFRs in the XBRL and inline XBRL formats based on their compliance requirements. As an SAE 3000 and 3402 certified collaborative platform, IRIS CARBON ® can help users tag, review, validate and file their financial reports.
Pre-defined reports, block tagging features, and iXBRL preview links shareable on company websites; are some advanced features of the platform.