Thursday 28 Mar 2024
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KUALA LUMPUR (April 14): Amid the global Covid-19 pandemic crisis, the demand for wide-ranging insights has increased as companies aimed to seize an element of control in a volatile and fast-changing environment, according to a research report published by the Ernst & Young (EY). 

The global professional services firm highlighted that two-thirds of respondents (66%) said demand for “forward-looking financial analyses and forecasts” have increased over the last 12 months and stakeholders are now looking for new insights “beyond the numbers” of financial reporting, such as environmental, social and governance (ESG) data.

“Clearly, organizations and their finance functions will need to prioritize strategically and reimagine what the new normal will look like for their business, people and sector. It is important to explore opportunities to operate differently in the future, leveraging data and technology to build agility and flexibility to ensure future-fitness and the ability to create long-term value in a post-pandemic world,” said Lee Pei Yin, Ernst & Young PLT partner, financial accounting and advisory services.

“With the extreme increase in levels of uncertainty that we have seen this year, there’s suddenly been major demands on finding the information you need to really understand what’s happening.

“This is in terms of how our business is affected in terms of the numbers and how we can undertake multiple scenario analysis. Of course, it has to be done immediately and demand is also coming from multiple sources: investors, management leaders across the business, and also regulators,” said SKF, a Swedish-based manufacturer, chief financial officer (CFO) Niclas Rosenlew in the report. 

EY added that while demand may have accelerated as a result of the Covid-19 pandemic, it is unlikely to decline once the crisis is over.

“Senior leadership, such as CEOs, are likely to expect increased visibility and the development of advanced dashboards that provide dynamic analyses of financial performance, operating performance and changing market conditions,” it said. 

The research also pointed out that over the recent years, CFOs have had to contend with a wave of regulatory-driven changes to financial reporting requirements, investing significant time and effort into meeting new accounting standards.

“Now, demand for non-financial information, including ESG and sustainability reporting, is growing, as investors seek insight into the impact of social and environmental issues on business models.

“This increasing focus by investors on high-quality non-financial information is reinforced by the research, where 65% of respondents said there 'is significant value for our organization that is not measured or communicated using traditional financial KPIs, such as brand value and human capital'," it said.

Moving forward, EY said the success of non-financial reporting is likely to depend on how relevant it is to stakeholders, how trusted and credible it is. 

“Finance should look to play a central role in instilling discipline into non-financial reporting processes and controls to build confidence and trust. Establishing effective governance practices — and seeking independent assurance over non-financial processes, controls and data outputs — will likely help to build trust and transparency with stakeholders. 

“CFOs and financial controllers — whose teams have extensive experience in establishing processes, controls, and assurance of financial information — can bring their financial leading practices and experience to bear on sustainability and ESG reporting,” it said. 

The survey of more than 1,000 CFOs and financial controllers across 26 countries shows that finance leaders anticipate their function to look very different in the future, with a major shift to a smarter operating model. 

It found that 53% of respondents think it is likely that more than half of the finance and reporting tasks currently performed by people will be executed by artificial intelligence (AI) over the next three years. Similarly, 54% think it is likely that blockchain-based systems will underpin finance.

EY global financial accounting advisory services leader Tim Gordon pointed out that “the Covid-19 pandemic has accelerated the transformation of finance functions and made the use of smart technologies increasingly the norm”. 

“The challenge for finance leaders now is to map out how finance and reporting are to be delivered in this new reality. Building trust into smart technologies can unleash a tech-powered future for finance functions, where digitally savvy people work seamlessly with smart machines to provide the forward-looking insights that stakeholders require,” he added. 

Edited ByJoyce Goh
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