Part 2 in the 3-part “Universal Journal” series
Financial reporting is one of the most crucial aspects of any company’s success. Done right, financial statements provide an accurate picture of your organization’s outlook and performance. If they go wrong, on the other hand, inaccurate financial statements can spell disaster, causing shareholders to lose confidence in your company or your company to inadvertently exceed its budget.
Bad financial data can take many forms: it may be out-of-date or inaccurate, may be in a non-standard format, or may simply not exist at all. Whatever the type of poor-quality data, the results are severe. According to a 2013 survey by IT research firm Gartner, bad data costs the average company more than $14 million a year. As the amount of data passing through a company’s servers continues to surge, this cost is only going to increase.
Finding discrepancies between your income statement and profitability reports can be a jarring experience that leaves you searching for answers and solutions. Here’s a look at three reasons why you might be encountering these errors—and three reasons why you need to take them very seriously.
1. You’re using different information
One of the biggest problems with financial reporting comes when you pull data from different sources that happen to disagree. In order to ensure that the data is based on the same information, you need to be able to aggregate the data. However, the inability to aggregate data in real time on any dimension on the “line items” table means that you can’t have true confidence in your results.
2. You’re analyzing the data incorrectly
The old maxim of “garbage in, garbage out” applies here to financial statements as well. If your employees doing the bookkeeping are untrained, inexperienced, overworked, or frustrated by performing repetitive manual tasks all day, they may be committing inadvertent mistakes in data collection, processing, or analysis that result in the discrepancy.
3. You’re running on different schedules
Lastly, differences between income statements and profitability reports may come as a result of different schedules for your cash inflows and outflows. To avoid these issues, standardize your processes and schedules as much as possible.
So why should you care?
Perhaps most obviously, companies use their financial information to make key business decisions. Accurate financial reporting is impossible without data you can trust. If profitability reports and income statements come from different sources, there will be efforts in reconciling both and ambiguity on the data.
When the data is accurate and coming from a single source, new technologies like predictive analytics and real-time simulation can be applied. This helps the finance professionals to move away from the “bean counter” approach towards becoming a strategic advisor to the business.
Errors in financial reporting can have a drastic impact on the company’s outlook. For example, an accidental overestimate of its half-year profit forecast as the result of an accounting error caused one company’s stock price to plunge by more than 10% in a single day.
Compliance and regulation
If you fail to produce accurate financial reports on a regular basis, you can incur problems with regulatory authorities and other institutions. Industries such as healthcare and finance have explicit regulatory requirements for accurate financial reporting–and tax authorities might have something to say about it too.
Why risk it?
Not only do discrepancies in financial reporting indicate an underlying issue with your data quality, they also expose your company to serious long-term market and regulatory repercussions. To avoid these issues, use a modern data management solution that is attuned to your business needs and objectives.
If you found this topic interesting and would like to know more, follow this link to discover how finance leaders are driving performance and transformation.
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