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Reporting and compliance: why we need a data revolution

Commerce no longer adheres to national boundaries: the largest international organisations to the smallest businesses operate in a global market. However, rules for corporate reporting and compliance do adhere to borders, write IMA’s Jeff Thomson and Liv A Watson


As concern grows over climate change and corporate transparency, more governments have adopted regulatory compliance standards that require organisations to report multiple data points and metrics, in multiple reports, to multiple regulatory agencies and end users, in multiple jurisdictions.

For example, securities regulators and taxing authorities often have different definitions of the term ‘revenue’, and there is little overlap in the required data or the systems through which a company reports.

This disjointed regulatory environment has enormous costs for corporate reporters, users and policy makers. The International Federation of Accountants estimates that fragmented regulations cost the financial industry sector alone $780bn annually.

For the accounting and compliance professionals tasked with navigating this labyrinth of regulations, the ascendance of machine learning, artificial intelligence and automation provides the opportunity to aggregate and streamline data for reporting purposes with far-improved efficiency.

A new paper by the Institute of Management Accountants (IMA), A Digital Transformation Brief: Business Reporting in the Fourth Industrial Revolution, drawing on research by Workiva, provider of a cloud-based reporting and compliance platform, addresses this issue. It calls for a full data revolution in global reporting and compliance, the paper connects the ongoing digital transformation with the need for companies to better manage and automate the processing and reporting of data to multiple jurisdictions.

At the heart of this digital transformation for finance and accounting teams is the potential for information technology and open data standards to reduce lags and latencies in reporting and compliance processes. Today, corporate reporting teams, even at the largest global companies, use myriad basic spreadsheets and old technology to recompute, reformat and reconcile the same data for compliance and submission to different agencies and end users.

For example, the Workiva research found that UK banks report to at least 10 regulators via 14 submissions platforms, and information is spread across more than 300 forms using at least seven data formats and more than six modes of submission with differing periodicity and frequency. Keeping data for emerging forms of external reporting locked in static software platforms is no longer sustainable. It is a spectacularly wasteful use of the talents of highly skilled accounting and finance professionals.

The World Economic Forum asserts that we are entering the Fourth Industrial Revolution, with unprecedented connectivity through increasingly sophisticated technologies. Data standards, such as the XBRL (eXtensible Business Reporting Language) standard, and innovations such as blockchain, cloud computing and natural language processing can increase efficiency, underpin new competitive opportunities and, notably, ensure auditable data. AI will enable valuable improvements to an entity’s reporting process and transform regulatory monitoring systems. To do this, we need auditable and usable data – and lots of it.

Regulated entities, governments and regulatory authorities are increasingly recognising the need to discard the information-processing and reporting ways of the past. The benefits of such a move include streamlining regulatory reporting requirements not only to reduce the burden on preparers but also to ease the administrative and compliance oversight for regulators and ensure greater transparency. This modernised reporting is poised to disrupt information production from both an IT and a data-governance perspective. The shared commitment – and system-wide cost-sharing – for better data for statutory reporting and compliance calls for a collaborative revolution.

Global market participants can realise financial and non-monetary benefits by furthering the goal of building reporting systems that bring the right information from its source within an individual organisation seamlessly to investors, regulators, policy makers and other users. Each stakeholder along this information chain can further this digital transformation by:

  • Establishing a stakeholder task force committed to the digital transformation of regulatory reporting;
  • Ensuring that standard setters, framework developers and best practices are committed to an open, global repository as the authority of digital taxonomies for industry bodies of knowledge around reporting and compliance;
  • Preparing a high-level solution blueprint for implementing a global digital framework within products, and using a high-level understanding of the regulatory ecosystem and its scope with a view to assessing the value that digital transformation provides to policymakers and regulatory authorities, and
  • Ensuring software vendors and service providers develop a prototype to test mapping and lodging of the reporting requirements.

 

The data revolution is possible but not inevitable for every organisation. It requires cross-stakeholder cooperation – including regulated entities as well as investors, professional organisations, accounting and advisory firms, standards setters, software vendors, regulatory authorities, data aggregators, academics and policymakers.

Only this type of cooperation – as well as firm leadership and a willingness to play a role in the process – will ensure a new and highly efficient, cost-saving global compliance and reporting order takes shape. It will allow professionals to return to their traditional, honoured role of using their expertise and skills as part of quality decision-making.

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