Emerging trends in Financial Consolidation: Non-Financial Data, AI and ESG Metrics

Learn what are the key challenges for the foreseeable future, and how can modern finance functions future-proof the financial close process.

The Evolving Landscape of Data Integration

One of the pronounced trends in recent times has been the increasing need to merge highly granular financial and operational data to drive business insight and decision-making. In turn, this has compelled organizations to look more broadly at unstructured financial and non-financial data sources, that are frequently more granular and varied. This shift away from strictly codified and familiar financial data puts strain on the financial close process in three key areas.

Firstly, the need for consolidation software  to provide data accessibility and collection tools that enable the finance function to quickly ingest a variety of data sources without heavy IT involvement. Secondly, the ability to automate data capture and validation controls to maintain a high level of data quality over these new data sources. Thirdly, the need for malleable and extensible consolidation models, that can readily accommodate more diverse and asynchronous dimensions that reflect the new reality of more complex and challenging data.

Opportunities for AI in Finance

Artificial intelligence (AI) and Generative AI – Chat GPT-like experience - has stormed to the top of the CFO agenda, even if it's only temporarily. But it opens up a broader discussion about how companies prepare for an era of AI in finance. It's still early days, but software vendors like Wolters Kluwer with its CCH Tagetik expert solution, are keen to build AI capabilities into their platform solutions.

Strong use-cases for AI include the automation of data capture that could accelerate the consolidation process. AI could be used to ensure consistency in the data gathering phase by accelerating the tedious process of mapping tables between source data and the consolidation system. It can be used to accelerate data validation by investigating data anomalies and outliers. It can be used to accelerate analysis by identifying the hidden drivers who impacted or contributed the most to your performance, so to enrich with consciousness the story of your results.

On the other hand, Generative AI, could be used to automatically generate, narrative and disclosures which could save a lot of time in the final stages of financial reporting. However, AI needs good data in order to provide rich insights, and FSN’s research² finds that only 53% of businesses have at least 5 years of historic data to work with.

Lastly, natural language processing (NLP), which allows for speech-based report generation, is clearly within reach. Also in this case CCH Tagetik expert solution from Wolters Kluwer is seeking to develop embedded proprietary AI capabilities which are relevant and easy to use.

Challenges and Opportunities for CFOs in the ESG Era

In the new era of ESG, CFOs will be thrust into an environment of unfamiliar environmental and other data, which is more forward looking, unaudited and frequently estimated. The breadth of ESG directives will add to the challenges. From diversity policy and recruitment, through to sustainability and social initiatives, ESG will be characterized by a cross-functional, multidisciplinary effort involving a large number of different stakeholders. Coalescing these different perspectives and providing unified reporting will require advanced consolidation capabilities in which all stakeholders can collaborate in a unified and consistent reporting environment.

The Role of Data Management and Extensible Consolidation Models

Weaving its way through all of the near-term challenges of financial consolidation and reporting is data management. Whether it's having the modern tools needed for the speedy acquisition of data, furnishing enough data to satisfy artificial intelligence or being able to accommodate the varied data requirements of ESG, astute finance leaders are aware that they will need to rely on extensible and scalable consolidation models – if not now, in the very near future.

To hear more about this topic watch our on-demand webinar “How Can CFOs Make Financial Consolidation Fit For The Future?”

Note¹ FSN’s 2021 research entitled, "Agility in Financial Reporting & Close."
Note² FSN Global Survey 2020/21 "The Future of Analytics In The Finance Function."