Technology ExpertSpeak: Robust financial reporting essential to raise company profile
Theuns Holtshousen, Managing Director and Business leader of CaseWare Africa, spoke to AfricaMoney on how businesses must compete in a rapidly changing environment today, and how, having the right technology support for certain business functions can significantly improve their efficiency.
Edited excerpts from an exclusive interview with AfricaMoney:
With changes in regulation, what are the key challenges facing companies on the compliance front?
The business world continuously undergoes changes and companies need to grapple with how they will manage these complexities and compete in a rapidly changing environment. Additionally, with the growing business landscape, companies today are being inundated with new regulatory requirements, which is not only putting pressure on chief compliance officers and staff, but is adding considerable cost to a company’s compliance budget, and, of course, increased complexity to internal structures and information needs.
From a compliance perspective, I would say that regulatory fatigue is definitely a key challenge for businesses – particularly as there are continuous updates required in regulation which can challenge the businesses as they might not have the necessary resources or skills in-house to ensure that they are up to date with amendments. Signature liability is also becoming far more significant in business, as CFOs are required to sign off on all financials, making them responsible and liable for whether the annual financial statements, which are presented, are in fact compliant and in line with the applicable financial reporting framework.
Are firms under pressure to keep up with changes in regulation? Would it be true to say that larger size firms are often able to manage this process while the smaller size firms simply don’t have the resources?
Yes, all businesses are under pressure to meet the relentless changes in regulation. However, big business is often better equipped to manage this, purely because smaller businesses don’t necessarily have the financial or skilled human resources to take on, train and develop more staff who would be responsible for ensuring the company is kept abreast with the latest updates.
Added to this, the challenges and opportunities for financial compliance has never been greater than they are today; where structures, processes, client expectations and technology developments continue to drive change and transformation. While these influencing factors can very easily become threats, they should also be seen as opportunities – as it allows businesses to evolve their traditional models of doing business. For instance, by adopting technology that is intuitive, efficient and compliant with the changing legislations and standards, financial managers, auditors and accountants alike will now be empowered to work smarter – regardless of the size of their business. This is the kind of evolution that is required.
What is the importance of utilising software as an enabler for firms to keep updated with applicable changes in regulation/compliance?
Change seems to be the only real constant in business environments today and, having the right technology backing for certain business functions, can significantly improve the proficiency of these functions – which makes business sense.
Financial reporting software can also minimise the cost of compliance as it eliminates the risk of errors and inconsistencies associated with using massive spreadsheets. Therefore, a built-in validation process immediately brings any discrepancies to the fore. It also drastically reduces the time and effort on the drafting and preparation of Annual Financial Statements, and allows an organization to provide their auditors with the information they require, in the correct format – which has direct cost benefits for the company.
Additionally, while leading financial reporting software solutions will continue to evolve and adapt with demanding legislation, reporting standards and practices, but audit and accounting firms; and financial compilers in corporate – still need to understand what software is available to them, so that the software can ‘act’ as an enabler for firms to ensure they not only meet standard requirements, but also adhere to regulators that impose stricter reviews on financial reporting.
Can you please provide a break-down of the cost of compliance?
There is a view that companies will not only need to hire additional compliance officers, but high-quality skilled compliance officers with experience. As a result, while there are compliance officers available across Africa, there is still a shortfall of highly skilled officers – meaning that investment will be needed to either upskill or appoint these individuals, which will become a direct cost to most organisations.
Moreover, what savings can firms expect to accrue to them by automating the practice?
For any business, profitability is important, and when it comes to processes and procedures, businesses need to find new ways to improve efficiencies and automate processes. The same can be said for the preparation of financial statements and reporting. If they haven’t already, businesses should consider automating these critical financial processes not only for efficiency, but for accuracy, completeness and for compliance with the relevant standards that ensure peace of mind. Automating financial processes reduces potential risks as monthly management reports and annual financial statements run off the same data through these automated systems, making the entire process easier as there is also an audit trail to follow.
Often, what happens in companies is that their monthly financial reporting does not tie in with the annual financial reporting – as such this is not a true reflection of the business. Automation also allows financial statements to be done more frequently – though only required once a year – which enables businesses to have a real view of their business health and this information. Having constantly updated and readily available financial information allows an organisation to respond much quicker to any possible business opportunities.
How can CaseWare Africa help companies in this area?
Essentially, our software driven solutions enable corporate, audit and accounting firms and, small-to-medium sized firms, to drive their business strategy while adhering to the required compliance standards. Businesses require financial solutions that provide detailed real time analysis and forecasts on financial information that can be integrated with any accounting software and can easily produce a compliant statutory financial statements as well as a complete management pack.
We are currently seeing that those early adopters/practices that embraced new technology software, such as CaseWare for example, are reaping the benefits. As technology becomes more intuitive, the cloud strategy addresses even more pain points and becomes an enabler for better client/customer collaboration, which we believe will change the way firms operate, giving them hybrid capabilities and driving a stronger competitive edge.
In your opinion, how mature is the Mauritian economy in the compliance arena?
Despite the slower economic growth in recent years, Mauritius remains one of the best business environments in Africa. In fact, in 2013, Mauritius overtook South Africa to become the most competitive economy in Sub-Saharan Africa. Though there have been a few setbacks in terms of rising governance challenges and complying with standards/regulations, however, in Africa and Mauritius, meeting IFRS standards is not deemed crucial by companies. However, Mauritius is certainly developing further in terms of meeting compliance requirements.
Finally, at the level of the African continent, how can automation and software contribute to growth of the economy as a whole?
Regulatory compliance in a competitive market can be challenging. Compliance with laws and regulations and general management and control is imperative – and this becomes more apparent when decision-makers have to balance fulfilling regulatory requirements with the need to drive business growth.
However, when foreign entities look at investing in Africa, a company’s financial conditions are a major concern to investors as they rely on this data both for security and, benchmarking profitability on their investment. As such, having solid financial reporting helps to ensure shareholder confidence, which in itself can also have positive repercussions in terms of drawing in additional funding and investment and, this can spill into raising the company’s profile and transparency.
The importance of financial compliance and corporate governance cannot and must not be underestimated. Rather, it should form the basis of sound financial reporting, especially as African companies are increasingly competing in the global market, and given that local and foreign businesses alike are looking to expand across the continent. Therefore, automating the financial reporting process not only affords the business to allow their client’s a real view of their business growth potential, but will also highlight any discrepancies, so that these can be addressed accordingly.