Ready for the new normal
Finance transformation approaches, combined with new technologies, can help companies to improve the data delivery to their own managers and to the market and develop even in the face of economic uncertainties.April-June | 2017
Survive the economic turmoil that Brazil experiences for more than two years and protect itself at this time still uncertain, in that a test resumption is designed for a few months, is challenging for all business decision-makers, in particular, for financial executives. Responsible for ensuring results, the financial leaders are often the drivers of challenging and rhythmic transformations for a dynamic economy, including in their own area. In this context, a comprehensive finance transformation program within the companies can become a more robust strategy than isolated changes in processes.
Experience shows that the application of this approach in the current economic and business context brings improvements in the companies’ organization, assisting the growth process for it to be sustainable and, at the same time, manage to better respond to the clients and other stakeholders’ demands. Other benefits of such a program are the construction of a stronger alignment between the stakeholders’ expectations and their financial organization’s capabilities, based on updating the technologies used and the resulting improvement in the processes.
At the same time, it assists the maintenance and longevity of the business, the finance transformation approach helps the business’ maintenance and longevity and prepares the groundwork for companies to take the following steps, with agility and aligned with their strategic aspirations.
An example: if, before, the financial reports were made in a bureaucratic way and did not have the support and understanding of all areas within a company, today, the new technological tools, with features such as dashboards (that enhance and facilitate data visualization) and analytics (which optimize the handling of such information), increases the speed of information processing and also improves the quality of communication with investors, lenders and partners.
In this context, a finance transformation program aims to propose a range of solutions to assist the preparation, interpretation and communication of information for those who are in the course of decision making, providing the manager with the ability to anticipate, understand and improve processes, communicating all of that internally and externally, according to the chosen strategy.
“Finance transformation encompasses several processes, from the least to the most complex levels” explains Fernando Augusto, Deloitte Audit partner that leads the Accounting Advisory practice in Brazil. He recalls that accounting advisory has the prerogative to pass through all the Company’s areas to collect information and objectively transform the processes.
"The accounting advisory approach can pass through all areas of a company to gather information and assist in the financial processes transformation in an optimized and objective way, generating added value and synergies for the organization."
Fernando Augusto, Deloitte Audit partner that leads the Accounting Advisory practice in Brazil
With the perspective of a professional with prior experience in audit work and complex transactions, the advisor can take a perspective that also focuses on aspects of compliance, making relevant, and often necessary, observations, always working with the client. “We apply the experience of professionals who worked as auditors for many years, in a process that can often happen prior to an audit. This knowledge helps to optimize processes, anticipate new accounting standards’ potential impacts and deal with other complex technical issues, by means of a transparent and assertive methodology. This ensures efficiency to important areas of the organization, such as finance, tax and compliance,” says Fernando Augusto.
Companies need to prepare financial statements, explanatory notes and accounting records, among other documents, to comply with regulations. The Law 11,638, of 2007, which regulates the accounting pronouncements, says that any company with revenues exceeding $300 million or assets above $240 million must be audited. “The accounting advisory professional helps the company to follow the standard, but can also participate in the preparation of the managerial accounting records. Clients see much added value because the decision-making is clearer from the moment in which the information is available and is strategically distributed,” says Fernando Augusto.
With the quicker preparation of financial reports and their easier visualization, almost in real time, the professional who provides advice turns all the processes easier to be understood. The advisor can use the scenario produced by tools such as analytics and cognitive computing to transform the database into a more palatable framework, which can be understood by several areas of the organization.
Scenario in transformation
Despite the reigning instability at the end of this half of the year, an indication of positive change in economic expectations in the last months is the fact that, until April of this year, three Brazilian companies – Hermes Pardini, Movida and Azul – have conducted Initial Public Offerings or IPOs at B3 (new name of BM&FBovespa, after its merger with Cetip). For the purposes of comparison, throughout 2016, only one company went to the market to capitalize.
“In 2017, many are looking at IPOs and debt issuances [debentures]. Last year, they didn’t. Companies that are attentive will have to seek professionals who assist in improving governance levels and also in the finance transformation. Because it is not possible to have this process without relying on experts, nor without technology at the speed in which the documents must be prepared and the rules must be complied with,” says Edmar Lopes, president of the Brazilian Institute of Investor Relations (IBRI).
For Isabelle Dassier, Deloitte Audit partner for the Accounting Advisory practice, an event such as an IPO requires transformation. “It is necessary to structure processes, systems and accountability. The finance transformation program has the tools and methodologies necessary for the company to be able to anticipate and prepare for the change in a gradual manner”, says Isabelle. “The changes can reach from standards adequacy to technological update and, certainly, will modify the financial information flow. Typically, these is long-term work, and not just for the event itself,” explains the Deloitte’s partner.
For Lopes, from IBRI, the preparation time depends on the starting point: “If the company is mature, audited, it is easier than structuring a startup, for example, because we must produce a lot of documentation, information flows, must have an audited statement of financial position. But this process is always very positive and improves governance.”
Lopes also draws attention to the consultant’s profile and the fact that finance transformation, through everyday practices, performs the companies’ migration to the digital world. “Retail is increasingly digital, with the Internet transactions made via cellphone. The call centers in several sectors are already made via artificial intelligence. This is already, to some extent, in the companies’ day-to-day.” For these reasons, for Lopes, from IBRI, professionals in the accounting and investor relations areas must be inserted in this world, in which robots are increasingly present, and must be aware of what technology offers.
With the house in order
Companies that have never prepared full financial statements and which do not have in-depth knowledge of accounting standards can use this approach to identify in which parts their processes need to be improved and upgraded to begin producing and providing all the necessary information, before entering the capital market.
“Companies not fully mature need this initial work. The already consolidated ones use it to improve the quality and the flow of information and, often, in the mapping of processes that improve their entire structure,” explains Isabelle. One example: the need to gather information from the legal department. “This would take time for the controlling area to process and for the areas to understand why they should provide such information.”
"The integrated process view and the mapping of ways to improve the information have a direct impact on the corporate governance maturity. Companies with a good governance structure are better prepared to take the next step in raising funds."
Isabelle Dassier, Deloitte Audit partner for the Accounting Advisory practice
If growing requires funding and the capital market returns to be considered as an alternative to get it, there is a long way to make an IPO on the stock exchange possible.
“The ones who rule are the market and the economic scenario. It is not possible to predict how 2017 will completely be, but the three IPOs of this year indicate that there is a perspective of improvement, and that there is space. Many companies look at the capital market again. The raise in Petrobras’ rating by the Moody’s risk rating agency [in the second quarter of 2017] also brings attention to the capital market and to areas of IPO readiness,” recalls Lopes, IBRI’s president.
For Idésio Coelho, president of the Institute of Independent Auditors of Brazil (Ibracon), publicly traded companies are more transparent and lead the improvement in their operation sectors. “When a company reaches a certain level of governance, this is reflected in its products and services. Innovation is more agile than in privately held companies. This movement improves processes and governance as a whole. This company influences all competitors and its supply chain. Everything is positively affected.”
Coelho, from Ibracon, points out a difficulty connected to a Brazilian tradition. “In addition to having to overcome the today’s political events, which affect the economic part, we have a structural difficulty, a great competitor: the interest level of Brazilian securities.” For Ibracon’s president, the high interest rates in Brazil discourage the regular investor to go to the capital market. “If this changes, we will attract more investors in addition to the qualified ones; we will attract the individual. This is a great market, but needs change to be promoted. If this happens, a virtuous circle in the economy will be created.”