4 Reasons To Outsource Financial Reporting

For many companies, outsourcing this activity provides the ideal solution and offers the following key benefits.

Utilize Automation

Many companies still use very manual processes for analysis and reporting during the financial close process. The use of technology can help reduce errors, add a layer of visibility to key executives, add scale to the process and enable companies to use a best-of-breed approach developed by Fortune 500 companies.

By employing financial reporting tools and software, such as Workiva and Active Disclosure, users can simplify the development of required forms like 10-Qs, 10-Ks, 8-Ks, Section 16, proxy statements, tax disclosures and many more. Automating the development of required forms can take the complexity out of this process and can significantly reduce (or even eliminate) the amount of manual work necessary for financial statement reporting and analysis.

Public companies are required to use XBRL format with tagging and specific details. Automation tools can quickly pull specific data from one document into other documents and easily format them. Automating these activities is much easier than manually updating multiple documents with the same information. In addition, automation allows you to track edits in real time and manage version control when multiple people are accessing documents and making changes.

Automating the financial reporting process gives companies confidence in the accuracy of their financial reporting and alleviates audit and reporting risks.

Gain Expertise & Reduce Costs

Ever-evolving legislation and reporting requirements for public companies make it challenging to keep up with current standards and maintain compliance. The financial reporting process itself is complicated and time-consuming.

Outsourcing allows your accounting department to focus on its core responsibilities and relieves the unnecessary burden on your staff while the complexities of financial reporting are handled by focused experts with in-depth technical knowledge and resources. An experienced team of people with established skills and expertise can help ensure that your company’s financial reporting is done accurately, on time and potentially at a lower cost than if you hired one or more full-time employees.

Reduce Turnover

The number of newly public companies has increased significantly over the past few years, primarily due to a surge in the number of SPACs that went public. In 2021, there were 1,035 IPOs in the U.S., more than twice as many as in 2020. This increase has made it significantly more challenging to find (and keep!) qualified employees to fill financial reporting roles.

In addition, public companies must adhere to a variety of complex requirements. Newly public companies that have entered the market through SPACs often lack an understanding of the complex requirements, creating opportunities for errors and missed filings.

For a public company, financial reporting typically requires hiring a full-time employee. This position has times of high productivity coupled with extensive downtime between projects, creating an erratic workload. Outsourcing can help company employees to focus on higher value drivers for the business instead of compliance.

The financial reporting job can also be isolating for many people because the role doesn’t require participation in the day-to-day accounting activities. Often after a short stint in the position, employees choose to move to a more integrated role, such as controller. There is no straightforward career path for this position. People often transition from this role into other, more attractive positions with a clear career trajectory within the company or different roles externally.

Outsourcing financial reporting responsibilities can also potentially eliminate the need to navigate the current job market in search of qualified candidates.

Independence

In the past, a company’s audit firm was also permitted to assist them with their financial statements. Changes in independence rules prohibit audit firms from supporting financial statement preparation for public companies and private companies that may become public in the future. Once a company goes public, any accounting firm that provided financial reporting services prior to this event cannot provide them with auditing services. This has left companies to figure out their financial statements on their own.

Outsourcing financial reporting helps the company’s auditor maintain their independence.

Public and private companies that outsource their financial reporting activities can potentially gain advantages in several ways. By utilizing technology and leveraging the efficiencies of an experienced provider, they can focus resources and energy on their core business while experiencing increased efficiency, more accurate reporting, reduced risk and decreased costs.