It wasn’t all that long ago when accountants would labor over reams of paper, combing through them to prepare financial statements. Quarter end meant locking yourself in a room for weeks to compile and consolidate massive amounts of information into the final product. It was laborious.
Fast-forward a few short years, and we have sophisticated financial systems designed to reduce or ideally automate this burden. What once took weeks can now be done in days, if not hours. We live in an era of unprecedented access to data. However, most accountants have yet to realize the full potential of the digital revolution. This is beginning to change in a big way.
There have been two recent regulation changes transforming the way accountants think about business. The two governing bodies for accounting—the International Accounting Standards Board (IASB), and for the U.S., the Financial Accounting Standards Board (FASB)—have worked together on both of the regulation changes leading up to their issuance.
The first regulation change was announced in May 2014. The IASB and FASB spent years discussing revenue recognition and ultimately defined a new principle-based standard. The goal was to establish a method for entities to report useful information in their financial statements and to avoid different accounting treatment for economically similar transactions. This regulation change (IASB’s IFRS 15 and FASB’s ASC 606) has a huge impact on the process and timing of revenue recognition.
The second regulation change was announced in January 2016. Both the IASB and FASB discussed the topic of leasing and the current practice of reporting leases in the footnotes of financial statements. The decision was made to put leases on the balance sheet. This regulation change (IASB’s IFRS 16 and FASB’s ASC 842) has a major impact on financials as—according to the Big 4 accounting firms—it adds US$3.4 trillion globally to the balance sheet.
Both of these new regulations require accountants to reevaluate the way business processes are handled.
- They require huge amounts of data and analytical capabilities.
- There is little time to implement, as revenue recognition adoption is essentially January 1, 2018 and leasing is January 1, 2019.
- They typically result in a change to normal operating procedures.
These changes are disruptive, they touch foundational concepts and controls, and they can be overwhelming.
In an effort to tackle these challenges, CFOs have turned to technology like never before. They are embracing the role of change agent and leading their departments and organizations through a digital transformation. They are playing a more active role in business process definition and internal controls and are looking to technology to fuel the transformation engine. The Digital CFO is tackling these challenges through technology with real-time analytics, best-in-breed software solutions, and a centralized digital core. The new regulations are an impetus for the Digital CFO to play a more active role in the business and in the generation of real-time data.
Through predictive analytics, the timing of revenue schedules are better understood, and real-time what-if models can be derived. Through in-memory technology, massive amounts of data can be analyzed to produce real-time financials, millions of contracts can be processed for revenue recognition, and amortization and payment schedules can be calculated for thousands of previously obscured operational leases. All of this is driving a higher level of openness, collaboration, and transparency into financials where ultimately the CFO will be both responsible and accountable.
The Digital CFO is awakening, taking advantage of the technology that is all around us—for user experience, reporting, data mining, exception-based processing, and in-memory computing, just as a few examples. All of these advances enable the Digital CFO to empower the finance team by truly leveraging technology in ways previously unimaginable.
To find out more about the Digital CFO, please check out our website at www.bramasol.com.