What every CFO needs to know to stay ahead of deficiencies in financial reporting
Learn how CFOs can mitigate risk, prevent material weaknesses, and ensure accurate financial reporting—despite the accountant shortage and human error
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FAQs
“A CFO is somewhat more likely to be replaced after financial-reporting deficiencies are uncovered—even if the accountant shortfall may be to blame.”
It’s not your fault. There’s a significant shortage of skilled accountants. And the staff on hand, just like any other human being, is only human. Mistakes happen. But if those mistakes result in financial reporting deficiencies or even material weaknesses, your job could be on the line.
Where did all the accountants go?
“CFOs confront a critical accountant shortage, impacting financial reporting and compliance.”
(The CFO)
The shortage of accountants is deep and wide, and it’s not going to get any better:
- 75% of certified public accountants (CPAs) are at retirement age
- Fewer people are pursuing degrees in accounting than ever
- There was a 50% drop in the number of people taking the CPA exam (between 1990 and 2021).
More positions remain open for longer periods of time, and this is directly impacting the CFO’s ability to ensure financial integrity.
While some companies have resolved to raise salaries and others to hire temporary staff, the gap remains, and the risk of flawed financial reporting is great.
The material impact
“CFOs bear responsibility for the solidity of a company’s financial report.”
CFOs simply can’t afford not to bridge the gap. Even if there’s an audit management program that aims to improve internal control over financial reporting, if there isn’t the right accounting personnel in place with auditing expertise to ensure accurate financial reporting, the CFO will likely be the one to bear the brunt of the consequences.
It is the responsibility of the CFO to ensure proper financial controls, and any deficiency in financial reporting will erode investor confidence and can lead to legal and financial penalties.
In some cases, CFOs may even lose their job. Among US-listed companies that cited material weaknesses due to insufficient accounting personnel in the 12 months ending June 2024, 28% replaced their CFO.
At the heart of material weakness
“Every practical step should be taken to minimize the possibility of material auditor-initiated audit adjustments.”
When the team lacks skilled accounting personnel, the integrity of financial reporting is at risk. This risk will be further exacerbated if there are failures in internal controls or flawed internal audit processes, which can lead to a material weakness.
This underscores why continuous and effective risk assessment and detection is crucial for CFOs. It’s the only way to ensure financial integrity and make sure that ineffective internal controls are remediated and don’t result in costly and time-consuming financial restatements.
How CFOs can mitigate the risk and prevent damage
“Effective internal control over financial reporting often includes a combination of preventive and detective controls.”
Datricks brings autonomous, real-time control over financial operations, eliminating the integrity exposures that lead to material weakness and other deficiencies in financial reporting.
With human error, non-compliance, and fraud being unavoidable, Datricks enables the CFO’s team to mitigate the risk, addressing the PCAOB’s call for preventive and detective controls, with:
- Autonomous process discovery: without needing any input, Datricks automatically and continuously analyzes financial processes to understand the business context.
- Integrity exposure detection: deficiencies and risks are identified across all business data and analyzed by our AI in the context of their financial processes in real time.
- Integrity intelligence: Finance leaders get a comprehensive control tower to understand the overall financial health of their organizations, see the issues that matter, and achieve peak performance to ensure the integrity of financial reporting.
In conclusion
Finances are the pulse of enterprises, yet their integrity is exposed to human errors, non-compliance, and fraud. These issues can lead to costly ramifications for both the organization and the CFO.
With the Datricks Financial Integrity Platform, finance leaders can detect, prevent, and control risk, transforming their business from a state of exposure into a beacon of financial integrity.
To learn more about how Datricks can help you avoid deficiencies in internal control over financial reporting, we invite you to reach out to us at www.datricks.com/contact-us.