By Soumya Sehgal, Principal Correspondent, BW Businessworld
While caution and precaution remain paramount, experts approve of a predictive model for all organisations
Out of the many things, financial reporting has become a crucial area for all companies- from the medium-sized ones to the multinationals- to steer their business activity on key indicators. Given that communication today is fragmented in most companies, it is very easy for investors, finance staff and other stakeholders to fall for the complexities or get lost. The majority of the financial boards are thus looking to create unified reporting systems and make financial reporting the principal tool for decision making.
An effective financial reporting enables better understanding of how well a company is performing from a financial standpoint. Not only are financial reports crucial for management or investors to assess a business’s financial stability, but they are required by law for taxes and standard accounting practices. Hence, experts maintain the incessant need for an effective financial reporting system, owing to the many benefits it offers.
The Face Of Contemporary Financial Reporting
With digitisation in play, volume and scale have become two pressing challenges. But this also means an opportunity for a more granular analysis and risk mitigation. Talking of the key characteristics of modern-day finance reporting, Ankush Jain, CFO, Dabur suggests on a forward-looking forecast stimulation, “The business environment is changing rapidly and hence, needs an effective reporting system. It has become important more than ever before. While modern ERPs are capable of delivering, I want to know what my financials will be at the beginning of month, rather than at the end of the month. So that I can drive change proactively, not reactively. I want my team to be informed in advance.”
Sameer Madan, Director of Finance, Aligent Technologies also witnesses the changed role of the finance community. Pushing forward the idea of ‘trend is friend’, he urges companies to create a predictive model. “Finance heads have a birds-eye of the entire functions of the company. We are trained to watch the economic environment and the competition. The aim is to build a predictive model that helps and enables departments through real-time, on-demand & and end-to-end business reporting. Integration and availability here will be the essence.”
Kaustav Sil, CFO and Director, Sandvik Mining & Rock Technology India observes finance as a business partner and not just a support function. For him, providing real-time information adds value to an organisation. He advises finance experts to not be limited to good ERPs but also explore tech tools like Power VI (that can be linked to any database), bot tech (for automation) & OCR tech (to reduce time).
Vijaykumar M P, CFO, Sify Technologies paints a bigger picture of the trends floating in the current day financial reporting space. “From an external reporting perspective, whether engaging with a bank or an investor or general stakeholder, I see a directional shift where there is an indication that predictive information should be made available. Historical is good and is expected as the bare minimum any company is supposed to add but it is not seen as value addition. Many organisations are still hesitant on giving financial reporting that may be helpful to predict the future of the organisation. What will help a shareholder or a banker is this predictive insight. The financial team must take the bet and give out predictive information.
Second, a lot of integration is seen between finance and non-finance data. This ability to give insights transforms non-finance data to finance numbers. This is another prominent shift.”
All experts are of a unanimous decision that organisations must share information with external stakeholders, however, be careful on how much to share. They all agree on a predictive model that bears many benefits internally and externally. They also throw light on the growing focus on sustainable reporting and how even the smaller companies are voluntarily participating. They see it as another paradigm shift.
Vijay concludes on a thought-proving note where he suggests the middle managers, the future leaders of the organisations, not deviate focus from the intangibles. “In all organisations, there are a lot of intangibles that have a value. Those are not accounted for in books. The logic is ‘what is measured gets monitored’. There are assets whose book value is small but the value of the organisation is 4-5 times the book value. This delta which is so huge is not appearing in the balance sheets or during internal reporting.
As leaders, we must manage that intangible. We must find models where we can value intangibles periodically and run them in a board meeting. Its value must be measured with the future in focus. Leaders must bring it to the centre table for discussion.”
*The speakers were present at the 5th edition of BW CFO Awards & Summit 2021