In a utopian scenario, all the information available to us would be considered fair and true but that is often not the case. Results can be manipulated, numbers misconstrued, and information hidden in order to sweep small errors and bad decision making under the proverbial rug. Financials aren’t as accurate as they may seem and although there have been many debates on how to regulate how information is shown we are still far away from paradise.
Wrong Reports = Wrong Decisions = Business Failure There are countless examples of companies who have misrepresented their financials and have gone on to pay the price. Ultimately the shareholders and the people who have invested their hard-earned money have paid the price on the backs of these companies. Call it carelessness, lack of verifiable information, misinterpretation and misrepresentation of data, it has become far harder to look at a set of financials without a certain amount of doubt creeping in.According to Business Insider South Africa, Tongaat Hullet a sugar giant producer with revenues of over R 15 billion, admitted errors in the financial reports as their asset base was overstated by R4.5 billion. This has resulted in the share price further dropping and the share price is said to have fallen almost 70% since the start of the year 2019.Tongaat Hullet is an example of many cases that have happened in South Africa and other parts of the world. One can only wonder how many decisions were made by management, shareholders and other stakeholders on an incorrect asset base which affects key management metric ratios such as debt to equity and return on assets. A lot of questions come to mind, for instance how management did not pick up this error if they prepared and reviewed their monthly financial reports correctly?In 2001 Harvard business review posted an article titled “Tread Lightly Through These Accounting Minefields” in which they help shareholders recognise ways in which high powered executives misrepresent the true values of their companies.Currently, there are many regulations in place that govern how shareholders are protected; Companies Act, King Code and other regulations in different countries which protects shareholders and the general public from accounting errors and fraud. However, a business should not be dependent on regulation for it to operate, survive and stay ahead of its competitors but have well-entrenched business structures and necessary tools to ensure financial performance is correctly reported and projected.
More Accountants = Improved Financial Reporting?? Reflecting on the current case of Tongaat Hullet one can safely assume there is a large finance team with qualified accountants. The finance team is then audited once a year with a team of auditors who have a large team of qualified accountants and aspiring accountants. But all these qualified and non-qualified accountants could not pick up an error of R4.5 billion! The reasons why the accountants did not detect the error is still under investigation, however, the point is more people focused on finance is not necessarily the answer to improved financial reportingAutomation is the song being sung by many CEO’s and CFO’s being the future of business. Many businesses seeking ways to improve their process to cut out inefficiencies and increase Return on investments. Although much of the automation song is being sung seems a good concept and not reality. The finance function which reports the financial impact of automation is still operated manually. What is the impact of automating reporting? Simple, accountants will have more time to analyse results, ensure accuracy, and add more value to what direction the business must take.The consequence of a lack of innovation and automation for the finance function has resulted in terrible financial consequences to many businesses due to incorrect information being reported thus incorrect business decisions being made. Business leaders need to look at investing more in their finance function and avoid unnecessary business failures.
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