Half of Public Company Execs Remediated Financial Processes Last Year

Despite more than one half (59.1%) of public company C-suite and other executives saying their organizations significantly revised or remediated financial processes during the past 12 months, nearly as many (51.6%) expect to do so again in next 12 months, according to a new Deloitte poll.

“It’s surprising that more than half of the executives we polled have dealt with financial process remediation recently or expect to soon. We’d love to see organizations approaching financial process improvement proactively,” said Sean Torr, Deloitte Risk & Financial Advisory managing director and controllership – accounting and reporting leader, Deloitte & Touche LLP. “For those organizations and executives prioritizing financial process improvement, a competitive advantage could be realized through efficient and strengthened financial reporting processes.”

New technology implementation named top driver of financial process remediations for coming year

Largely driven by the need to contend with COVID-19 pandemic business disruptions, many organizations rapidly accelerated their digital transformations in recent months. In fact, nearly one-half of all executives polled (48%) say that technology implementations — including ERP implementation, automation, cloud migration and controls related to remote work and related risks — will be most likely to drive their organizations to remediate financial processes in the year ahead.

“Many companies are grappling with rapid changes and in some instances may be trying to retrofit new technologies into complex legacy system environments,” said Torr. “Whether digital transformation, new accounting standards and changes or other forces are the cause, the relatively high incidence of remediation activities is likely to continue if risks aren’t managed proactively.”

Accounting standards changes may also drive financial process remediations in year ahead

As compliance with new and updated accounting standards changes can have unintended consequences, 23.8% of polled public company executives expect related adoption work to necessitate financial process remediations.

“Since 2019, we have seen three significant, new accounting standards go into effect for U.S. public companies — lease accounting, revenue recognition and current expected credit loss (CECL) — alongside a number of other smaller rules and updates,” said Matt Burley, an Audit & Assurance partner, Deloitte & Touche LLP. “The net effect of new accounting standards and technology changes cannot be underestimated, and the fact that the executives we polled see them as forcing financial process remediations further underscores the need for companies to have a solid grasp on their internal controls, especially those over financial reporting.”

Minimizing remediations and revisions must be a priority

According to Burley, “There’s a lot on the line for companies that must remediate or revise financial processes, especially for the rare occasions when financial restatements are needed. Everything from regulatory inquiries and fines to remediation costs — including labor, legal and other fees — to corporate reputation is at stake.”

To help reduce the need for financial remediation or revisions, public companies should consider:

Reviewing internal controls regularly – Especially during periods of extended uncertainty and change, internal controls for finance and accounting operations may require review more than once a year — sometimes as often as monthly — to ensure that all processes are operating and feeding into reporting mechanisms as they should.
Keeping data in top shape – Any data used for financial reporting must be accurate, and for best results should be structured. For unstructured data to be most useful, it must be in a format that is readable for input and analysis such that advanced technologies (e.g., machine learning, advanced automation) are able to perform as well as finance and accounting teams need them to.
Evaluating solutions used for accounting standard implementation and monitoring – Advanced technology implementations can help accounting and finance teams stay ahead of the need for future financial process remediation. However, just as some solutions can be great enablers, others can introduce unexpected challenges. Compliance on “day one” of an accounting standard’s effective date is one thing but building processes that are effective and sustainable long-term is another matter.
Identifying and addressing talent gaps – Just as accounting and finance professionals are upskilling in various technology areas, data scientists are quickly joining their teams — and for good reason. As increasingly more organizations digitally transform, talent skill-sets and technologies need to keep pace to manage risk organizationally and as it pertains to financial reporting.