The corporate ecosystem today needs transparency to thrive. This is a mandatory requisite for building trust and revealing how long-term value is being created. Organizations should leverage the data available on hand and transform it into a vital asset. In an EY global corporate reporting survey, only 58% of finance leaders said they felt the public has sufficient trust in business.
This demonstrates the expanding chasm between what stakeholders require and what accounting firms render. Corporate reporting today often neglects to acquire and share pertinent information on intangible assets. This, in turn, makes it challenging for stakeholders to recognize the firm’s ability to create and sustain long-term value.
Achieving sustainable, long-term growth, while maintaining accountability requires changing the metrics and tools to measure growth. This means redefining the initial approach in measuring and analyzing mission-critical business data.
This is where nonfinancial data can help as balance sheets don’t reveal the potential for sustained growth. Non-financial data sans technical jargon can bridge the growing trust gap between financial reporting and stakeholders’ expectations of reporting. An organization’s work culture, intellectual assets, technology, and infrastructure are nonfinancial assets, all of which are capable of measuring long-term growth. If this value isn’t directly visible to stakeholders, strategic decision making will be less smooth than anticipated. Similarly, this value should also be communicated to customers for better or worse to build trust.
Organizations should start off by using all the data available to them, beyond financial data. This means determining which nonfinancial data sets to calibrate, how to obtain them, and how to interpret them.
What nonfinancial data should your firm look at?
The Embankment Project for Inclusive Capitalism has identified four key nonfinancial growth drivers:
Acquiring the right talent
Creating a sense of satisfaction and fostering good morale in employees is of the utmost importance. This includes compensation and benefits, diversity and inclusion, wellbeing, and creating a purpose-driven culture of engagement.
The innovation process must be scaled to meet evolving demands while maintaining focus on the end-user for the entire duration, and fostering trust.
Society and environment
Contributing to social and environmental goals connects external stakeholders and communities to the heart of the business.
Management should be capable of steering the firm through optimal oversight to maintain board quality and independence. In addition, they should be able to develop and assess long-term strategy.
If accounting firms are to get a holistic understanding of how they operate and where future sources of value and/or risk are, these aspects should be factored into reporting.
Incorporating these into reporting practices allows a great variety of stakeholders to achieve visibility over an organization’s operations. This transparency builds the foundation of trust. This serves as the base for a growth strategy that addresses long-term value.
Leveraging Emerging Technology
Traditional financial data is structured and reporting paradigms are built around it. However, in comparison, nonfinancial data is more complex to analyze using traditional means and models. This requires factoring customer loyalty and corporate diversity into earnings projections while communicating this information to shareholders.
With the current trend, more time is spent on gathering and processing data than in analyzing it. To incorporate nonfinancial data in reporting, smart technologies need to be leveraged.
Technology plays a pivotal role in helping organizations understand and deal with their data both financial and nonfinancial. This creates a robust framework for stakeholders to interface with the firm. These include Robotic Process Automation (RPA), Artificial intelligence (AI), and Blockchain.
RPA frees up human labor for more value-added tasks enabling strategic decision making. AI-enabled systems are capable of detecting patterns, delving into complex data sets and providing valuable insight. Biometrics and natural language processing software expands an organization’s repertoire to collect and leverage distinct sources of nonfinancial data.
Blockchain increases data transparency and improves the speed and efficiency with which information can be communicated between functions and to external stakeholders.
Overcoming workforce and cultural barriers
With AI growing astronomically, research shows that 72% of financial leaders believe that AI alone will have a significant impact on how their function produces data-led insights, and 64% said that it had the ability to fundamentally disrupt the way finance and reporting are conducted. Technology brings with it challenges around data security when implementing technology solutions in reporting and finance.
Workforce and cultural issues include top-level leadership. Another major issue is the lack of relevant skills within the purview of finance. This isn’t limited to just traditional accountants but extends to data scientists, analysts, and statisticians. With how the world of accounting is transforming, analytic capabilities will be the most important skill for prospective finance hires in the future.
This will further change the way talent is acquired. Third-party managed services will play a central role in providing finance managers convenient, cost-efficient access to critical technical capabilities.
The final word
Lack of nonfinancial data limits the ability of internal stakeholders to make strategic decisions reducing the trust of external stakeholders. Resolving this by incorporating smart technology into the reporting process and changing approaches to talent and culture is necessary.