Most companies publish financial reports at the end of each quarter and year. Analysts and investors eagerly await these reports to track the performance of the companies and assess their future potential. But, for most finance & accounting (F&A) teams it is a challenging period.
The F&A teams often have to stretch to get the financial reports ready on time. They also need to ensure that the reports are accurate and meet the latest regulatory guidelines and stakeholder expectations.
In this article, we will look at the key trends in financial reporting and how the process can be automated with autonomous solutions.
What is financial reporting?
Financial reporting is the process of documenting and publishing details of the company’s financial performance for a specific period of time. It is usually done on a quarterly or yearly basis. Some companies also publish monthly financial reports, generally for internal tracking.
Financial reports help companies organize their accounting data and report their financial status. The key types of financial reports include:
- Balance sheet
- Income statement
- Cash flow statement
- Statement of retained earnings
Financial reporting is also crucial from a regulatory standpoint. It is mandatory for all registered, public businesses to file their yearly and quarterly financial reports with the Securities and Exchange Commission (SEC).
The SEC also specifies certain formats that businesses need to follow when submitting their reports – 10-K and 10-Q for yearly and quarterly reports, respectively.
10-K report (Source)
Financial reporting guidelines as prescribed by the SEC may change over time and businesses need to remain up-to-date about them. Also, companies tend to add their own flavors to the financial reports to give a more holistic view of their business.
Keeping these in view, let’s look at some of the key financial reporting trends for 2022-23 and beyond.
Financial reporting trends 2022-23
Financial reporting has evolved over the years as stakeholders seek transparency and disclosure of non-financial information. This has changed the way companies present their annual reports, which have otherwise been largely seen as records that contain financial information such as revenues, costs, margins, dividend yields, etc.
Today, financial reports include these records and much more—financial statements, corporate social responsibility disclosures, business risk assessments, etc.
Here’s a look at some of the key trends in the financial reporting space.
-
The push for integrated reporting
Integrated reporting requires companies to disclose both financial and non-financial data in its annual reports. This enables stakeholders to get a comprehensive picture of the impact the business is creating.
In addition to the traditional financial information around assets, liabilities, and equity holding patterns, integrated financial reports also look at short-term and long-term business strategies to address newer market risks and opportunities. It helps outline the impact of issues such as climate change and supply chain disruptions on the business.
Integrated financial reporting discusses governance, performance, and future business prospects. It also clarifies interdependencies between the various types of capital—financial, social, human, natural, and produced.
Several frameworks are available to help companies build integrated reports. Businesses that follow integrated reporting best practices are able to differentiate themselves from competitors and provide detailed information to investors, customers, and partners.
Components of integrated reporting (Source)
-
Increased focus on business responsibility reporting and ESG performance
There is a growing pressure on CFOs to incorporate environment, social, and governance (ESG) data into their reports. Companies’ ESG data is increasingly used by investors and customers to evaluate corporate governance standards and understand the impact the business’s operations have on the environment and the society.
Annual financial reports have long been used by investors and analysts to evaluate business opportunities and risks. With stakeholder expectations and government regulations emphasizing sustainable business operations, companies need to go beyond financial disclosures and incorporate details about the initiatives they take to improve livelihoods, protect the environment, and create sustainable communities.
Business responsibility reporting aims to connect the financial results of a company with its ESG performance. Many businesses have added additional chapters such as sustainability reports, corporate social responsibility (CSR) reports, etc. to their annual reports to meet these expectations.
The 3P approach is often used by businesses to focus on their ESG goals
-
On-demand reporting using automation solutions
Financial reporting is no longer a one-off exercise to be completed only at the close of the year or the quarter. Finance leaders are expected to be able to pull out financial numbers and reports anytime the CEO or other key stakeholders ask them for it.
The use of software solutions to record and report financial transactions have made on-demand financial reporting easier. RPA and AI-based finance and accounting software solutions enable finance teams to build and share financial reports in real-time. They also help reduce inaccuracies and empower teams to create reports with minimal human effort and time.
On-demand reporting helps you stay up-to-date in tracking key metrics and KPIs, meeting regulatory demands, and conducting audits seamlessly.
| Check out HighRadius AI-based record-to-report solution – Autonomous Accounting – to meet your financial reporting needs |
-
Mitigate financial reporting risks with cross-functional team support
Accounting standards and regulations such as IFRS and GAAP increasingly require transparency and governance information from businesses. In order to be able to meet these standards, CFOs need a cross-functional team of accountants, production managers, IT experts, and HR professionals to monitor and mitigate financial reporting risks at business unit (BU) levels.
The use of automation tools to collect, store, and track finance and operational data enable CFOs to mitigate financial reporting risks such as inaccurate or incomplete reports. It also decentralizes the reporting process and enables different teams/finance executives to cross-check the reports.
Preparation of financial reports, thus, requires substantial inputs and efforts from multiple teams. For instance, IT teams help to automate the process and maintain the data while HR and CSR teams provide info on ESG activities.
Such cross-functional effort helps to reduce errors in the reports as well as provides an overall view of the business operations to all stakeholders.
Trends in financial reporting for private companies
Unlike publicly-traded companies, private companies do not have legal obligations to disclose financial reports. Still, creating quarterly and annual financial reports can help them get better insights to improve processes and operations.
While all the trends for public companies are applicable to the private ones as well, in recent years, some trends observed in the financial reports of private companies include:
- Risks and uncertainties disclosure-COVID-19: Private companies have also started adding a standard ‘risks and uncertainties’ disclosure in their reports regarding the pandemic.
- Revenue recognition (ASC 606): Private companies are fine-tuning their revenue recognition disclosures and incorporating resources such as comment letters issued to SEC registrants to comply with ASC 606 guidelines.
- Audit reports: Audit data on employee benefits plans, paycheck programs etc. are also being added to financial records.
Benefits of good financial reporting practices
While financial reporting is often a must, there are several other benefits to tracking your financial numbers periodically. Here’s a brief list of the benefits of financial reporting.
- Better financial insights: Financial reports provide insights into your cash flow, revenue, and expenses, and help you identify improvement areas. They help assess your financial position, the type of customers you acquire, and overall profitability. These insights also aid in building short and long-term business strategies and improving decision-making and debt management.
- Brand building: Robust financial reporting practices that enable disclosure of financial and non-financial information in a structured and timely manner helps to build your reputation with investors, customers, partners, and regulatory bodies. It improves transparency and trust with stakeholders and helps differentiate your business from competitors in both its primary business operations as well as CSR initiatives.
- Improved legal compliance: Regular reporting of financials help companies remain compliant with accounting statutes and other legal requirements. It also makes liquidation, revenue recognition, and exit plans easier.
Next steps: Evaluate financial reporting software solutions to stay ahead of the trends
Automated financial reporting is one of the biggest trends in financial reporting. This enables you to build and access error-free financial reports any time by setting the parameters such as date range, BU, etc. in the system.
It is crucial that you choose a financial reporting software that is built on the latest technologies and meets all financial reporting regulations and guidelines.
HighRadius offers AI-powered record-to-report solutions that enables faster and accurate financial close and account reconciliation. Some of the features that our Autonomous Accounting solution offers include AI-powered accounting anomaly traction detection, automated workflow and close task management, and data aggregation from multiple sources into pre-built templates.
We also offer invoice-to-cash automation and cash forecasting solutions to enable businesses to streamline cash flow and optimize working capital management.
Schedule a demo with us to know more about how we support the office of the CFO with AI-based solutions.
