Financial Governance – Big Brother is watching!

Financial governance is a highly controversial matter in many boardrooms, but after recent accounting scandals and the effect that the financial crisis continues to have on the global business community, it is now an integral aspect of modern corporate life, altering the role of the Chief Finance Officer dramatically. As finance teams come under growing internal and external pressure to prevent financial irregularities, there is an ever-increasing demand on transparency and the reliability of financial processes.

Creating conflicting pressures

The impact of governance on the role of the finance function has focused on delivery of verifiable financial information; development and maintenance of efficient, reliable business planning and reporting processes; management of regulatory compliance, and deployment/regulation of comprehensive financial control processes. In many cases this creates two potentially conflicting pressures - on the one hand, financial reporting and planning must be streamlined to allow a rapid financial close plus creation of efficient, accurate budgets and forecasts. By contrast, there is a need for a financial infrastructure that ensures accuracy and auditability, incorporating multiple checks and balances to trace the source and history of each number. Inevitably, deployment of such processes has the potential to increase corporate bureaucracy and slow the business decision-making cycle.

Sarbanes-Oxley creates a domino effect

When the US Congress passed the Sarbanes-Oxley Act (SOX) in 2002, a primary objective was to rebuild public confidence after a series of major corporate accounting scandals. Since then, however, this controversial law has sparked a global revolution in corporate management of financial and IT processes - increasing pressure on CIOs and CFOs by making greater demands on IT systems as well as finance and control processes. Although many still view compliance as a necessary evil, companies also know that merely obeying a series of requirements will not help them sell products, pay employees or enhance value - so many companies are now seeking more cost-effective and sustainable alternatives for second-generation compliance solutions. Yet despite extensive time and money having been invested in compliance policies, major problems still occur:

  • Current compliance policies are often too time-consuming, too error-prone and too expensive
  • General lack of control and poor traceability
  • Long closing cycles
  • High risk of error
  • Lack of accuracy in financial reports and communications
  • Inability to properly document user roles and responsibilities organisation-wide
  • Important information or changes in data are lost
  • Not enough flexibility to fully comply with changing regulations and new governance requirements

France and Germany have their own Corporate Governance Codes; South Africa has the King Report and Italy has L262. In the UK, one such implication of compliance is for company’s to adhere to the demands of the annual Finance Bill, the legislation for changes in the tax law. Senior accounting officers of large U.K. corporate taxpayers are now required to certify that their accounting systems are adequate for the purposes of accurate tax reporting. They face personal liability for any “careless or deliberate” failure.

CPM - delivering the solution

The burden placed upon international businesses is no less demanding, though pressure can be alleviated by using the right software to manage and control corporate financial processes. CPM solutions provide the extensive functionality necessary to ensure that high-quality financial information flows through all business processes. Moreover, there are many aspects to CPM that overlap with the streamlining and audit requirements of financial governance initiatives. As a consequence, CPM applications provide one of the few software platforms that can use compliance measures as a method for delivering increased stakeholder value.