The quality of financial information in business
Jul 8, 2024
The management control relies on a quantified measurement of the company’s activity and then on an analysis in order to draw conclusions and decisions regarding the strategy to adopt. In this mode of operation, the quality of the information used is of particular importance. When the strategy is based on data, their quality mechanically influences the relevance of the strategy. However, according to BlackLine, 2/3 of financial executives believe they have already made a decision based on erroneous data. This concerning figure highlights the failures of companies regarding the veracity of their financial data and their vulnerability to frequent errors.
Financial information, a key resource
Financial data must be accurate and updated to prevent potential legal and strategic issues. First of all, it goes without saying that erroneous data poses problems from a tax perspective. Indeed, the obligation to maintain up-to-date accounting assumes verified and reliable information about the accounts. Moreover, bad information can lead to rising costs and inefficiencies. Furthermore, if the company adopts management based on financial indicators, their accuracy becomes vital for decision-makers. Poor information upstream will thus result in a distorted indicator. From there, the dashboard reader will necessarily draw a wrong conclusion regarding the reality of the activity. Specifically, these data errors occur in half of companies, according to BlackLine, and require a week of corrections from the teams. For a restaurant, for example, an error in reporting the costs of raw materials will give false solid margins.
Identifying the factors reducing the quality of financial data
The first step in the solution to the poor quality of financial information is to identify the error factors. These are numerous and are primarily due to the size of the company. A large establishment is indeed more likely to have multiple collaborators responsible for a part of the reporting. While the multiplicity of sources is useful for the completeness of data, it mechanically increases the risk of error. Moreover, an entirely manual reporting process, with a shared workbook that collaborators fill out progressively, increases this same risk. Finally, beyond the multiplicity of agents, a complex proofreading chain is also a risk factor. Indeed, each proofreading, every check or modification of the data by a link in the financial chain is an opportunity to make a mistake.
Towards an organization ensuring the quality of information
Once the factors reducing the quality of financial information are identified, a solution is possible. Firstly, a reorganization of the accounting chain is a good response to the problem. This may involve rethinking the process “from top to bottom,” ensuring multiple criteria. Among these criteria, the number of data entries by a collaborator and the presence of correction systems are two aspects to prioritize. A good financial information chain will rely, among other things, on mandatory proofreading at several levels. In the case of a restaurant, it is for example feasible to have the numbers entered reviewed once by the cash supervisor by the accountant. Furthermore, redirecting them to him in case of discrepancies may constitute a policy that can increase overall quality. Finally, establishing an indicator of the quality of financial data is also a solution. Tracking the evolution of the number of errors may be the most effective way to raise awareness among teams and enhance the quality of financial information.
The software solution
A management control software better allows reconciling a wide variety of sources with certain quality. Indeed, by enabling the automation of data entry, the tool reduces the risk of input error. Furthermore, an accounts system also reduces this risk by limiting the number of accessible information by each. Lastly, its integrated proofreading system with validation increases the chances of correcting any erroneous data.
In summary:
Management control relies on a quantified measurement of the company's activity and an analysis to make strategic decisions. However, the quality of the information used is crucial for the relevance of the strategy. According to BlackLine, 2/3 of financial executives have already made a decision based on erroneous data.
Financial data must be accurate and updated to avoid legal and strategic issues. Factors reducing the quality of financial data include the size of the company, a manual reporting process, a complex proofreading chain, and a multiplicity of sources.
A reorganization of the accounting chain, mandatory proofreading at several levels, and an indicator of the quality of financial data can help improve the quality of financial information. Management control software can also assist by automating data entry, limiting access to information, and integrating a proofreading system with validation.
F.A.Q:
1. Why is the quality of financial information important for management control?
The quality of financial information is important for management control because it influences the relevance of the company’s strategy. Erroneous data can lead to legal and strategic issues, as well as rising costs and inefficiencies.
2. What are the factors reducing the quality of financial data?
Factors reducing the quality of financial data include the size of the company, a manual reporting process, a complex proofreading chain, and a multiplicity of sources.
3. How can the quality of financial information be improved?
To improve the quality of financial information, a reorganization of the accounting chain, mandatory proofreading at several levels, and an indicator of the quality of financial data can be implemented. Management control software can also assist by automating data entry, limiting access to information, and integrating a proofreading system with validation.