By Chris Chiriatti.
Consider this scenario: You’re a busy CFO whose private company, after a long quiet period, just completed an effective IPO. But as your team celebrates your collective progress, you find yourself in a difficult position. As a newly-minted public company, you now have a host of new, complicated SEC-mandated financial reporting requirements that are effective on “Day One.” Moreover, you and your staff may have little experience to draw on operating as a public company.
This alone can be a daunting challenge. Today’s CFOs, however, are dealing with a host of additional pain points, including a shortage of skilled accounting professionals. CFOs are also often expected to do more with fewer in-house resources and navigate the evolving regulatory complexity and compliance challenges that come with it. Scenarios like this are not unique to pre-IPO entities. In fact, these issues can impact all types of companies – private, pre-IPO, newly public, and established public.
Business life cycle accounting and reporting challenges
For private companies, these challenges can mean fewer staffers who understand accounting standards, internal systems that are either incomplete or not implemented properly, and potentially insufficient audit preparation when the company goes public. For pre-IPO companies, it could mean challenges in setting up strong governance structures or internal controls and difficulty in learning to be compliant with the SEC and other regulatory bodies.
New public companies might experience more difficulty following regulatory changes, which could potentially weaken financial reporting and complicate critical risk management functions. This can lead to brand damaging consequences for financial reporting, as recent high-profile earning restatements demonstrate. Furthermore, diverting management’s attention to granular financial reporting challenges could prevent them from focusing on other important, big-picture strategic priorities and could potentially put a company at a competitive disadvantage down the road.
Fortunately, there are external accounting resource options available to CFOs to adapt to the emerging issues facing the marketplace and to address their specific accounting and financial reporting needs. The choice comes down to choosing among a cosourcing, outsourcing, or managed services delivery model or deciding to hire in-house.
The business case for cosourcing
Cosourcing – a scalable, team-driven approach to accounting and reporting where CFOs and/or CAOs collaborate with professionals from an external accounting advisory firm – is emerging as a more commonly used delivery model. Unlike outsourcing, cosourcing involves collaborative teaming between internal resources and an external accounting adviser, giving CFOs access to experienced professionals and often freeing in-house professionals to prioritize strategic initiatives.
Cosourcing teams can provide strategic insights that can help clients work through critical challenges and seize opportunities. They can provide insights regarding technical accounting and financial reporting matters on a recurring and consistent basis—all tailored to a client’s needs. A sampling of projects commonly cosourced includes:
- Researching technical accounting issues.
- Analyzing complex transactions.
- Assisting with complex accounting matters on a periodic basis, such as impairment, stock-based compensation, earnings-per-share (EPS), foreign currency, derivatives, consolidations, and segment analyses.
- Assisting with ongoing quarterly and annual financial statements and disclosures.
Cosourcing can be a scalable approach to assurance where third-party professionals blend with a company’s internal team to share specialized knowledge and improve audit quality. By operating as a fully integrated team member, cosourcing groups are helping clients through talent shortages, knowledge gaps, and other financial reporting challenges, and preparing them to meet new challenges as they arise. And by managing these complex but specialized tasks, a company’s internal team is then often free to focus on more strategic, higher-value work.
Helping CFOs overcome challenges through collaboration
Even without these new challenges, CFO responsibilities are already substantial. Having insufficient financial accounting and reporting resources, may increase the risk of a having missteps, including needing to restate earnings – a potentially major embarrassment. Here are several ways that collaborative cosourcing can address critical company issues:
- Reducing the impact of employee turnover. A shortage of accounting knowledge is likely to be a reality for some time. Rather than operate at less than full strength, a cosourced team can help a company see important projects through to completion – even if employees leave or if there is a talent shortage.
- Adjusting to new reporting requirements after an IPO. Going public immediately changes a company’s reporting requirements, and bringing in external accounting advisors who understand the process can make the transition go much more smoothly.
- Working within tight budgets. In addition to talent shortages, CFOs often have budgetary restrictions that limit headcount. Cosourced teams can work within clients’ budgetary needs with the flexibility to scale up or down as needs change.
- Unearthing new business insights. By blending with external accounting advisors, CFO teams can get access to new insights about leading practices and important industry trends and apply them to the company’s own processes.
Within accounting and financial reporting, innovation is often associated with new technology. Cosourcing’s collaborative teaming approach and delivery model can cast innovation for accounting and financial reporting in a new light.
Chris Chiriatti, Audit & Assurance managing director in Deloitte’s National Office – Accounting and Reporting Services Group, is the audit leader for Deloitte & Touche LLP’s Accounting and Reporting Advisory services.
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Tags: Accounting, Auditing
