According to a recent survey by Blackline, although CFOs believe that it is essential to have the ability to access and analyze the firm’s data in real-time:
– 37% of them admitted to not having complete trust in their data.
– 50% of the senior accounting professionals mention that they do not completely trust the financial data they are working with.
This lack of confidence is largely due to the cash flow invisibility, which, in turn, challenges the business responsiveness. The market fluctuations and the out-of-date inaccurate information are what leads to this issue.
If you are a CFO who faces issues in global consolidation, you probably need to dig deeper. Understanding the causes will give you the means and enable you to avoid them. The questions you need to ask yourself are:
– Will you be able to assess risks and opportunities without accurate data across all entities?
– What if an investor is unable to get a clear picture of the company’s finances?
– How will you showcase compliance?
Financial consolidation is not just another function, it feeds into different actions that percolate into and define a company’s growth. It also lets investors understand the opportunities available and gives the leaders, management, and auditors an understanding of the company’s finances.
To achieve accuracy in data and become an expert in project management across all entities, an effective financial consolidation is needed. As businesses scale, the complexities scale too.
In this article, Finsmart Accounting – globally trusted for outsourced accounting solutions – will share everything about the consolidation of financial statements for CFOs.
Let us delve deeper into the common challenges that CFOs face in global consolidation and ways to tackle them:
1. Inaccurate data caused by manual entry:
The Problem:
Businesses continue to have a persistent problem of unreliable data. The field of accounting is vast and deals with an enormous amount of data, most of which, to date, continues to be processed manually. Consolidating multiple sources and judging their accuracy is a long-drawn process.
Once an error has been committed, it can take months for the CFOs to have it rectified. Data keeps getting added to the pile and so do the errors and inconsistencies. Making decisions using this data can prove detrimental to the business.
The Solution:
Introducing standard processes and solutions right from the input of data can help throughout the data journey. Effective data management practices will also help the CFOs in making decisions that make a difference.
With the volume of data that accounting firms deal with daily, it is only expected that a human error will occur. Choosing automation tools for consolidation is progress in the right direction. It helps save time, effort, errors, and money.
All data should be centralized, so the chances of a piece of information going amiss are low. To ensure consistent results, it is important to have a quality check in place. This helps the CFOs flag an inconsistency early on and make amends as soon as possible.
2. Unable to automate the consolidation process:
The Problem:
Although automation is the way to go, automating the lengthy financial statements consolidation process might not be as easy as it might seem. However, the failure to do so results in further loss of money and becomes an expensive neglect. Indeed a major challenge related to consolidation of financial statements.
The Solution:
Begin by understanding the gaps in your financial statement consolidation process. When you know what it is that your business needs, it becomes fairly easy to spot the automation tool you need.
Make an informed decision and invest in software that is equipped to handle financial consolidation and that can integrate seamlessly with the current systems and processes. Look for solutions that can easily streamline transactions with other companies. Make sure to avoid losing data and time in transferring.
3. Currency Fluctuations:
The Problem:
When we talk about global consolidation, it involves financial data from businesses and entities from different countries. The problem is that each of them has their currency. As exchange rates fluctuate, it can have a significant impact on the financial performance, and position of the consolidated entry and make the businesses susceptible to risks.
The Solution:
To mitigate risks related to currencies, the CFOs can implement hedging strategies that can protect against adverse exchange rate movements. The use of sophisticated financial modeling techniques and scenario analysis helps in the forecast of the suspected impact of currency fluctuations. Its impact on the consolidated financial statements helps businesses in proactive risk management.
Recommended reading: Collaborative approaches for MNCs entering the Indian market.
4. Changing Reporting Requirements
The Problem:
Guidelines for reporting and compliance regulations are constantly evolving. As companies continue to scale, it can get difficult to stay on top of it all. Maintaining compliance is an ongoing challenge for most businesses and it is equally important for global financial consolidation.
The Solution:
In such a situation, you need an ERP system to handle global accounting standards and compliance. For a CFO managing so many different tasks at different levels, it is extremely difficult to stay on top of compliance, along with other things.
It might be wise to appoint a junior member who can keep an eye on the regulatory standards. As you continue to scale, be mindful of the standards and update data as required.
5. Risk of fraud through data manipulation:
Firms deal with a lot of data daily and most often they use spreadsheets. It is one of the most alarming concerns when it comes to data security. On a spreadsheet, changing and manipulating data is a matter of just a few digits. It is essential to make security a priority, especially for firms and roles that deal with this kind of information. Data manipulation often leads to the risk of fraud. In short, a major consolidation of financial statements challenge.
The Solution:
To begin with, using spreadsheets for critical information is one of the worst moves that businesses can take. Invest in advanced security tools with features that can control functionality across all levels. Automate the data to be input to reduce the information that humans can manipulate.
Perform regular checks on manual data entry and statements to get rid of any inconsistencies. Clearly define data management policies and train the teams on data integrity. Sensitive data should not remain accessible to everyone, thus controlling the ability to manipulate.
Recommended: Learn about the cost of outsourcing accounting services in India!
6. Cultural and organizational challenges
The Problem:
While technical complexities and the implications of the global consolidation of finances are enormous, they also present cultural and organizational challenges for the CFOs. Managing teams with diverse backgrounds, time zones, and communication norms requires strong leadership and interpersonal skills.
The Solution:
Building a culture of empathy, inclusion, collaboration, and transparency is needed within the finance function. As businesses aim to overcome cultural barriers, promoting effective communication across geographies is important. Collaboration tools to foster the culture and virtual meetings to keep the essence of togetherness intact are the need of the hour.
Making Global Consolidation Easy for CFOs: Endnote
Times have changed and so have the needs of the businesses. CFOs are no longer treated as an alien entity within an organization. A lot of power is vested in this role and a CFO is trusted with many important decisions. Global consolidation of financial statements is a complex and nuanced process, of course. But some ways can push the CFOs to make the right decisions. Technological adaptations, implementation of robust processes, and fostering a culture of growth and collaboration are some of the aspects that can help.
Still struggling with the proper consolidation process? It might be a sign to outsource.
To know more, write to us at connect@finsmartaccounting.com
Also, don’t forget to check out:
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Director Growth Strategy & Alliance
Maanoj Shah is a finance and outsourcing expert with strong Business Strategy and Scaling-up experience. Over the last 20 years, he has incubated multiple businesses and helped build global enterprises in verticals as diversified as hospitality, technology, and healthcare.
