Politicians, economists and the investor community argue that there is a fundamental injustice in the way that information is provided to capital markets. On the one hand, companies have sight of crucial trading information on demand yet the investor community has to wait for quarterly or half-yearly reporting to get an update on trading conditions. Put simply it is not a level playing field. The perception is made even worse by the widening gap between peoples' expectations of information technology - particularly the internet - to retrieve the information they need when they want it, and the relatively inferior access to critical financial information. But can CFOs close the gap?
A new report by ACCA (The Association of Chartered Certified Accountants) "Understanding investors: the changing corporate perspective" points to continuing dissatisfaction among investors concerning the speed of production of the Annual Report and accounts (just 51% of investors said that they are satisfied with the timeliness of company information) yet 70% of investors said that companies reporting in real-time would have an advantage in attracting investment.
But what is real-time reporting? There seems to be little consensus surrounding the definition of the term but it is generally accepted to mean "on-demand" rather than episodic reporting and that "on-demand" envisages anything from a few seconds to a few hours delay. CFOs are surprisingly supportive of the move towards real-time reporting. According to the ACCA report, two thirds say they would welcome a move to greater adoption of real-time reporting but worry that this could compromise competition-sensitive information and lead to misstatements. Forty-five % said that the difficulty of instituting effective controls to ensure accuracy is a major obstacle.
There is also the troubling question of whether companies can actually produce information "on demand". After all, it is one thing to produce statutory results at break-neck speed as a once-a-year exercise, but an entirely different matter to do this on a repeatable basis. And where better to look for the potential achievability of real-time reporting to investors than a company's internal reporting processes?
A brand new piece of research, Empowering Modern Finance: The CFO as Technology Evangelist, commissioned by Oracle and Accenture in collaboration with Longitude Research, sheds some encouraging light on how well CFOs measure up to the challenge of more frequent reporting. Efforts by finance functions to invest in a common finance 'language' that is embedded in standardized global business processes is beginning to bear fruit. For example, half of all companies own five or fewer finance systems for their core financial transaction systems and 19% have just one. As a result of these combined efforts, close to one in three companies (28%) now provide data that is never more than one day old, with a further 30% having data that is never more than seven days old. Despite a sizeable minority (42%) delivering data that is a month old or more, the research illustrates that technologically speaking real-time reporting is certainly within the CFO's grasp. Eleven % claim to be able to provide an up-to-the-minute view of finance data to the rest of the business.
Despite progress towards real-time reporting, the good news has to be tempered with other findings in the study which suggest that perceptions of reporting performance differ between finance and non-finance executives. For instance, 35% of finance executives rate their ability to provide timely and relevant finance data as "excellent", compared to only 29% of non-finance executives. There is clearly some way to go before most companies are in a position to offer investors information on demand.
Indeed, 43% of the ACCA survey's respondents say that technology infrastructure prevents further acceleration. A point made more forcibly in a May 2012 report commissioned by Accenture and Oracle, "The Challenges of Corporate Financial Reporting", highlights that although 47 percent of companies have made substantial investments in their financial close, filing and reporting, 68% of respondents admit that they have inadequate visibility into reporting processes, 84% of finance managers say they find it difficult to control the quality of financial data, and 15% of global businesses have missed statutory deadlines.
Notably absent in the ACCA report is any discussion around XBRL. This technology held out the promise of accelerating reporting by driving standardization through core financial processes, while at the same time satisfying investors' needs by enabling direct enquiry on financial data. But so far it is regulators such as the SEC and tax authorities rather than investors that appear to have benefited the most.
There is no doubt that with the right technology CFOs can deliver "real-time" reporting. However, the deeper question is whether this is a priority when judged against competing priorities such as improving the speed and accuracy of existing statutory reporting processes and improving the speed and availability of internal reporting. Given these pressures and the ever present danger of inaccuracies in live on-demand reports what is really needed is "right-time" reporting to improve the speed and accuracy of existing statutory reports, and accelerate the speed and context of internal reports for decision making.