Risk Management

Numbers Don’t Lie, Until They Do

A good number of controllers, financial analysts, accountants, and auditors don't completely trust the accuracy of their company's financial data.
Vincent RyanMarch 21, 2019
Numbers Don’t Lie, Until They Do

For many years, the U.S. Securities and Exchange Commission has required the CFO of a public company to certify the accuracy of the organization’s financial statement, providing confidence to investors in the report’s quality. This much-valued guarantee of corporate responsibility testifies to the robustness of the company’s internal control structure and systems.

However, recent research by BlackLine revealed a surprising lack of confidence within finance departments in the numbers being reported.

According to a survey we commissioned of more than 1,100 C-level executives and finance professionals, 71% of C-level executives completely trust the accuracy of their financial data. However, only 38% of finance professionals — the people preparing the statements and reports — share that opinion.

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The findings are evidence of a disconnect about the accuracy of the data. That’s dangerous at a time when many companies are transforming around data to make more informed business decisions. If the numbers are inaccurate to begin with, those decisions will suffer.

The finance professionals participating in the research — a mix of controllers, financial analysts, accountants, and auditors — ticked off reasons why they mistrusted the financial data. Most pointed to human error as the primary cause, given that some data is manually input. Others cited the vast increase in the volume of data flooding the business from a wide array of sources.

Additional factors included the competency and training of people inputting data, over-reliance on spreadsheets, outdated processes, and few automated checks and controls across the enterprise.

Why This Matters

If the finance professionals preparing the financial statements and reports are not completely confident that the source documents feeding the balance sheet are correct, not just the accounting suffers. The financial figures drive many operating decisions, fueling budgets as well as growth and cost initiatives. Obviously, inaccurate numbers may affect the expected outcomes of these plans.

Our research confirms this risk, with seven in ten respondents (69%) stating that they or their CEOs have made a significant business decision based on incorrect or outdated financial data. Many respondents said the problem is often hidden: over a quarter (26%) cited concerns over errors they knew existed but could not confirm due to lack of visibility into the data.

Mistakes that come to light after the financial statement is issued take a toll on everything from a company’s reputation to its ability to raise capital. Hidden financial data inaccuracies, according to respondents, also have the potential to increase debt levels and bring significant SEC fines (and possible criminal charges).

Nearly seven in ten respondents (69%) stated that a company they have worked for had to restate its earnings due to unidentified data inaccuracies. Meanwhile, only 17% said they trusted the CFO and finance team to identify all errors prior to issuing the financial statement.

Recently, the SEC released a new strategic plan outlining its work through 2019 and beyond. A key plank is to increase its use of technology, data analytics, and information-sharing to protect investors and other constituents.

While the SEC has long recognized the role that management uncertainty plays in financial reporting, acknowledging that measurements to a large extent “are based on estimates, judgments, and models,” the new strategic plan seems predicated in part on using technology to more closely scrutinize the numbers forming the basis of those estimates, judgments, and models. Nearly four in ten survey respondents (39%) acknowledged that the acceptable margin of error with accounts is decreasing in today’s technology-driven world.

Getting It Right

Getting the numbers as close to right as possible is critical to a company’s long-term financial performance. Now that real-time, automated financial and accounting software solutions are available to replace manual inputting of data, the ability to get the numbers right at the outset — and subsequently verify their accuracy — is vastly enhanced.

So, there’s just no excuse for not having full visibility into accurate numbers for reporting the financials and driving the business forward. Legacy technologies and outdated processes must be relinquished; otherwise, organizations risk joining the ranks of issuers going through painful restatements that tarnish their good names.

Therese Tucker is the founder and CEO of BlackLine, a publicly traded provider of financial and accounting software automation solutions.