When you buy any property, be it a piece of land, a vehicle, an apartment, a refrigerator, a television etc., you always do a thorough check on all the documents pertaining to the property. 

Why? It is because you want to ensure the land is legal, the vehicle is in perfect working condition, the apartment is sturdy and complies to the regulation of the local governing body, etc. Basically, you don't want to get into trouble in the future and loose your money. 

Similarly, an investor, who buys a piece of ownership in the company, wants to be fully aware of the health and financial soundness of the company they have invested in or planning to invest in. 

This applies not just to shareholders but all the stakeholders. Therefore, the regulatory body mandates that companies create reports that provide all the information that impacts the investors' ownership position. These reports are called statutory reports.

While this is a very crude way of looking at it, let us now dive into the details and the best practices of statutory reporting.

What is statutory reporting?

Financial reporting is a significant aspect of a company's operations, that involves communicating it's financial soundness and other key relevant information to its stakeholders. This process provides transparency regarding the company's financial health and performance.

Various types of financial reports, such as balance sheets, income statements, cash flow statements, statements of shareholders' equity, notes to financial statements, and internal reports, play a critical role in this endeavour.  Read more on financial reporting

Statutory reporting, also referred to as corporate reporting, is a legal mandatory, requirement for companies. 

Statutory reporting involves preparing and disseminating specific financial reports to stakeholders such as shareholders, potential investors, regulatory bodies, and tax authorities. Unlike other financial reports, statutory reports must strictly adhere to accounting standards and guidelines as set by regulatory bodies.

The importance of statutory reporting extends beyond legal compliance. It ensures all companies are held to the same standard of financial disclosure, enabling comparability across organisations and promoting fair competition within the market. Statutory reporting builds trust among stakeholders and contributes to a more transparent business environment by providing a reliable and accurate account of a company's financial status.

Statutory reporting, one of the most critical aspects in the financial landscape, carries a host of challenges due to its complexity and regulatory requirements. Therefore, it's pivotal that we delve into best practices to streamline this process and effectively mitigate these challenges. But first let us look at what these challenges could be.
 

Common challenges in statutory reporting

Statutory reporting, while essential, can be a complex and challenging task for many organisations.

Data inaccuracy: Inaccurate financial statements can pose significant risks, affecting decision-making and shaking investor confidence. Manually handling large amounts of data from different subsidiaries, different geographies, can allow inaccuracies to creep in. It is critical for companies to overcome this challenge by embracing automation.

Ever-changing regulations: Operating in a dynamic business environment, requires regulatory bodies to keep adjusting the legal requirements to ensure fair practices. This is a challenge for companies as they need to frequently adapt to the ever-changing regulations.

This makes the process time-consuming due to constant changes in reporting requirements and the need for reconciliation across multiple jurisdictions. It becomes worse, if done manually. It is therefore, critical for companies to adopt intelligent solutions with inbuilt reporting templates that are always compliant with the law. 

Apart from the above, there are many other challenges that companies face such as, lack of resources to access reliable data sources, insufficient internal controls over financial processes and systems that could expose them to fraud and errors, etc. Thus, it becomes critical to have robust systems and follow best practices, that ensure accuracy and compliance with regulation at all times.

The implications of not adhering to best practices in statutory reporting can be dire. Non-compliance can lead to fines, penalties, and potential legal action. Furthermore, inaccurate or incomplete financial statements can harm a company's reputation and result in stakeholder mistrust. Hence, organisations must prioritise statutory reporting and adopt best practices to ensure accuracy, consistency, and compliance.

Below are some best practices to overcome these challenges and pave the way for accurate and timely statutory reporting.
 

Best Practices: Statutory Reporting

#1 Reliable & timely data is a must

The bedrock of any effective statutory reporting process is the availability of reliable and trustworthy data sources and accurate data. A centralised source of the consolidation data that can be accessed, transformed and updated in real time is paramount. 

However, 54% of finance professionals cited "non-integrated systems" as the second biggest challenge anticipated for their organisations' finance function, as per the APQC survey. The manual approach of collecting data over emails using spreadsheets is highly error-prone and makes data accuracy elusive. 

An integrated financial close system that collates data from all entities, ERPs and accounting systems can provide a single source of truth for close, eliminating the time-consuming process and manual errors.

#2 Automate mundane & repetitive tasks

As statutory reporting requirements grow increasingly complex, automation and standardisation become critical. Manual activities in consolidation and reporting can be costly. In an era where precision is paramount, relying solely on manual methods can lead to errors and inconsistencies, potentially resulting in significant financial implications and reputational damage.

Automation can dramatically cut down the time and effort dedicated to manual tasks such as data entry, aggregation, transformation and reconciliation, freeing up resources for analysis and review. This has been observed by a McKinsey study, where finance teams are spending more time on value-added activities as compared to the previous decade, thanks to automation of all the mundane and manual tasks.  

Today’s finance leaders spend 19 percent more of total finance-staff bandwidth on value-added activities than the average company did ten years ago, as per McKinsey

#3 Standardise key tasks

Moreover, standardisation can ensure consistency across reports and maintain compliance with regulations. By introducing standard templates for data inputs, disclosures, notes and reports, the reporting process can be simplified and the likelihood of errors reduced.

Hence, investing in automation & standardisation not only streamlines operations but also serves as a risk mitigation strategy, underscoring their vital role in statutory reporting.

#4 Regularly validate data

Continual data verification is a critical practice that aids in maintaining the accuracy and integrity of financial data. Given organisations' vast volumes of data, establishing processes that perpetually verify and validate data becomes an absolute necessity.

Validations at every stage of the consolidation and reporting process, from data collection to reporting, are vital for maintaining data integrity. For example, stringent validation protocols can be implemented during the data collection and input stage to ensure that only accurate data is entered into the system. 

Furthermore, during the data transformation phase, validations grounded in fundamental financial principles like balancing act, cashflow validations, and non-negative checks can be used to verify the correctness of the data. 

Conducting regular account reconciliations is another crucial practice. This process compares records from two sources to confirm they match, adjusting any discrepancies to ensure financial statements accurately reflect the organisation's financial status. Regular reconciliation helps catch errors, inconsistencies, or fraud early, minimising the risk of financial misstatements. 

#5 Implement robust internal controls

Establishing robust internal controls in consolidation and statutory reporting processes is critical for accuracy, reliability, and legal compliance. Checks and balances should be implemented to prevent errors or to detect them post-occurrence. Key controls include authorisation controls, segregation of duties and regular audits. 

Authorisation controls restrict access and modifications to financial data, while segregation of duties reduces risk by dividing responsibilities among different personnel.

Regular audits identify process weaknesses and provide opportunities for improvement. All these measures collectively improve statutory reporting and minimise risks of financial misstatements, fraud, and non-compliance penalties.

#6 Keep finance teams updated with changing requirements 

Compliance with ever-changing regulations is paramount to avoid costly penalties and potential reputational damage. It's crucial for organisations to continually review and adapt to evolving statutory requirements, maintaining a robust operational framework. 

Well-trained and educated personnel are significant assets in this dynamic landscape. Trained personnel are key to continuous compliance. Regular training sessions help keep your team updated on the latest reporting standards, enhancing their knowledge and expertise. 

Well-informed finance teams help in seamless statutory reporting, ensuring they can confidently and precisely navigate the complexities of reporting requirements.

How to implement these best practices?

We have seen the best practices for statutory reporting in the above sections. The next big question is how do we implement these best practices.

Implementing these best practices using traditional spreadsheets or legacy close and reporting tools can take time and effort. Even post-adoption, there is no guarantee that these legacy tools can meet your future growing consolidation requirements.

The most efficient way to implement these best practices is to leverage new-age cloud technologies. These advanced platforms have capabilities that can significantly streamline your statutory reporting process. Cloud technology offers scalability, flexibility, and real-time data access, making it easier to improve data accuracy, establish robust controls, and quickly adapt to regulatory changes with empowered finance teams.
 

Furthermore, they provide automated features that can reduce manual errors and improve the efficiency of your reporting process. JustPerform is a highly rated financial consolidation platform with a 4.74 out of 5 rating in the 2023 BPM Pulse Research Study. Learn more about how it can help you overcome your consolidation challenges.