Business reporting is a critical function and can be a significant, time-intensive process. Delivering accurate and compliant reporting for key stakeholders has become an increasingly complex ask.
Regulated entities across the globe have been subject to a growing number of fragmented regulatory regime changes, legislation, reviews and queries. The ramifications of failing to satisfy such critical reporting demands of regulators are costly: from penalties, to reputational damage and, even, in some cases, suspension of operating licenses.
This is why the Institute of Management Accountants (IMA) launched an 18 month-long study to better understand the challenges faced by regulated organizations in the areas of risk, cost and resource management, efficiency, compliance, and reporting-yielded results relevant to all industries. I was lucky enough to contribute to the findings in the report – in which we call for a data revolution in order to maneuver these obstacles.
The report - A digital transformation brief: business reporting in the fourth industrial revolution - considers how we work, how we report, what this means for businesses, and where tech like AI, machine learning, and cloud software can ease the drain on workers, freeing them up to work on more strategic tasks.
Today’s state of play
Let’s just take a moment to set the scene in terms of where we’re at today. The cost of compliance is on the rise, and government agencies and regulatory authorities are under growing pressure to reduce associated costs. The benefits of this are two-fold: more capital allocation elsewhere to drive economic growth alongside reduced outlay from treasuries typically being asked to do more with less.
Yet while they’re on the efficiency drive, local regulators around the world are requesting more information and toughening compliance requirements for filing entities. The IMA report states, as an example, that UK banks are required to report to at least 10 regulators via 14 submissions platforms, and information is spread across more than 300 forms using at least seven data formats and more than six modes of submission with differing periodicity and frequency. This only begins to shed light on the level of complexity and the variables involved with the regulatory and compliance framework.
Such corporate compliance and reporting mechanisms are therefore required to transform in order to meet changing requirements, as well as facing new challenges like Covid-19 and its impact on global markets and ways of working.
Yet the technology isn’t agile or intuitive enough to manage this shift. Indeed, IBM estimated annual costs incurred from low-quality data in the United States alone in 2016 reached $3.1 trillion – and that was four years ago! These staggering numbers highlight the critical need for accounting and compliance professionals and processes to transform in order to overcome these challenges - and do so fast.
ESEF mandate changing the game
One such example of a recent regulatory shift is the European Single Electronic Format (ESEF). Specified by the European Securities and Markets Authority (ESMA) - whose mandate covers all issuers on EU regulated markets - responding companies have to file their report in XHTML, which means no PDF or scanned documents.
The key driver for the ESEF is greater transparency. The EU transparency directive requires standardized reporting, consistently structured and accessible across different storage mechanisms. This isn’t a simple ask for many organizations. Such digital reporting requirements demand a tech-and data-driven approach for monitoring activities, with machine-readable data and the power of computer algorithms to run checks, keep records, and systemize processes.
The potential for cloud-based IT, open data standards and applications for streamlining and automation to reduce lags and delays is now at the core of digital transformation requirements for finance, compliance, and account teams.
Children of the (data) revolution!
There is a critical need to revolutionize data in order to meet these requirements - particularly in addressing key changes in infrastructure, like creating a global taxonomy registry and an open taxonomy innovation platform. Organizations and their wider stakeholders depend on reliable, auditable, clear and machine-readable information, using open data standards in order to automate simple and routine tasks - a large chunk of which is reporting - freeing up employees to focus on more strategic activity for the business.
To add to the challenge of reaching this goal, we also have a fragmented regulatory data (RegData) ecosystem at various levels – from data formats, modes of submission, data definitions for certain common elements to business rules, access controls, and validations for similar reporting elements across different forms and regulators.
Technology such as AI, machine learning, and other cloud-based platforms offer a clear solution for addressing these challenges in order to create an open, integrated, and holistic compliance model. Such frameworks will enable automated and streamlined processes for reporting globally, irrespective of local regulatory frameworks or demand – providing access to real-time, actionable data to inform decision-making.
Over the last decade, we’ve seen a multitude of new financial and non-financial reporting requirements, renewed demand for data controls, more agile approaches to data, big data and business transformation. Leaders want access to data wherever they are, when they need it, and in the format they’re most comfortable so they can better analyze it and make informed decisions.
A connected future
As business and tech leaders, we should now be in a position to link the past with the future. We have the opportunity to take the robust and meaningful dialogue occurring across stakeholder groups and better underpin digital uptake across compliance and business reporting. Digital reporting is a requirement for regulators but it should be seen as an opportunity to ultimately improve organizational resiliency and ways of working.
It’s clear that those finance, accounting and compliance professionals who embrace, foster and subsequently master the use of tech such as AI when delivering internal and external reporting, will become a priceless resource within their organizations. Taking the mundane and repetitive - and then automating it and standardizing it - will free up those individuals to focus on data strategy, building more connected ways of working and ultimately harnessing data to enable sustainable business growth and development.
Liv Watson, Senior Director of Strategic Customer Initiatives, Workiva