Ep. 92: Liv Watson & David Wray - Digital Transformation: Business Reporting in the Fourth Industrial Revolution

October 12, 2020 | 19 Minutes

Liv Watson, Sr. Director of Strategic Customer Initiatives at Workiva, and David Wray, Sr. Director of Accounting and Reporting at Huawei, join Count Me In to talk about the recently published paper by IMA that they co-authored, which calls for a digital transformation to solve a critical market problem of cost and risk of compliance. The International Federation of Accountants (IFAC) estimates fragmented regulations cost the financial industry sector alone $780 billion annually. IDC has predicted that worldwide data will grow 61% per year, from 33 zettabytes to 175 zettabytes by 2025. IBM estimated annual costs incurred from low-quality data in the United States alone in 2016 reached $3.1 trillion. These staggering numbers highlight the critical need for accounting and compliance professionals and processes to transform in order to overcome these challenges—and do so fast. And Liv and David discuss exactly what that all means for you and your organization! To hear more about the RegData process, the imminent data revolution, what the future holds for data and compliance or what accounting professionals need to do to remain invaluable organizational resources, download and listen to the episode now!

Contact Liv: https://www.linkedin.com/in/livwatson/
Contact David:
IMA's Paper - "A Digital Transformation Brief: Business Reporting in the Fourth Industrial Revolution": https://www.imanet.org/-/media/e8faf3260e904bf5984fff9c9cf70382.ashx

Adam: (00:05)
Welcome back to Count Me In. IMA's podcast about all things affecting the accounting and finance world. I'm your host, Adam Larson, and I'm here to bring you episode 92 of our series. Today's conversation features two guest speakers, Liv Watson and David Wray. They joined my cohost, Mitch to talk about a paper they coauthored with others about digital transformation. The paper, A digital Transformation Brief Business Reporting and the Fourth Industrial Revolution, highlights the staggering compliance costs and boldly calls for digital transformation across businesses. Liv and David share their perspectives with Mitch as they share many facts and examples of what businesses should do to maintain compliance through the data revolution. Let's listen to their conversation now.
Mitch: (00:55)
From the research paper, you classify six reg data ecosystem challenges that are contributing factors to the material costs and risk in global compliance that you discovered during the Workiva research. Is that correct?
Liv: (01:08)
Yeah, not that the paper really was exhaustedly addressing all of the spectrum, but some of the key challenges for companies to produce regulatory reporting is obviously set in their reg data. The regulatory data, they got it captured that sits in silos in different types of systems throughout the organization, and then sometimes as a reporting goes beyond just financial systems, they are integrating non-financial data. That data is not hardly accessible in any system. So the data processes being able to access data is kind of key to be able to digitize that data. Some of the challenges are the data types, right? You have different data types, different formats of data. So they sit locked up in documents. So the data, even if it's stored digitally, it's not accessible. Standards and supporting documents. I mean, you have many standards to follow many frameworks to follow multiple regulators, asking for multiple data points that are aligned with different supporting documents and regulation. We need to digitize these documents and they need to be machine readable. They need to be discoverable. They can't just be digitized into a word document. Technical standards. There are XBRL. There is XML, there is Excel, there is Word, there is PDF. When regulators ask for data, they need to start considering one data format because, and in machine readable way, because just aggregating all of this data and then try to create documents and report both internally and externally. There's some mission marbles. There are many different ways. Some allows the software vendor to directly connect to these digital repositories, but some you have to upload some, you have to fill out an online form. We need one way or connecting, and then the digital way and data definitions. Let's not forget that. Data definitions is just an issue all around standard sharing many data definition are the same, but mean something different. Some are the same, but describe the front. We need the digital transformation in a central place, just like a library to register these data definition into taxonomies so they can be discoverable machine readable. So during this paper, we discovered some of the key points that is costing industry today. IFAC recently said  over $780 billion a year costing the industry just to address many of these problems that we discovered in our research. So yes, quite a technical challenge that we still have today, Mitchchell, thank you. 
Mitch: (04:33)
Well, thank you for that, and with this whole data revolution, you know, I'd like to direct this question to David as the seasoned finance leader, I know you were both in a publicly traded and privately held Fortune 500 companies. What is your personal observation on the willingness of compliance teams to really embrace this whole digital transformation? 
David: (04:56)
Thanks, Mitch. It's a great question. I mean what I've noticed throughout my career, and I think it's really accelerating the last few years is that users on the ground are really beyond crying and now screaming out for digital transformation. And that's now being echoed in a very loud way by CFOs. In fact, in 2018, Accenture conducted a study, which is called From the Bottom Line to the Frontline, and they found that about 80% of CFOs said that control compliance and reporting is largely going to be digitized because they want to free up those resources to be able to business partner. That's where they see value. Additionally risk and compliance data accounts for almost three quarters of all of the data requests. So the issue is definitely not going away, and of course it naturally prompts the question around how can we digitize the end to end process, so the talented finance resources can in fact be deployed to better support the business and drive value for organizations. Our paper really captures this at its most basic level, right? The ultimate reporting objective is really trustworthy auditable accessible and machine readable information that is definitely relevant to user groups. And to do so, we've gotta be near real time as Liv alluded to earlier. It probably goes without saying that any transformation success is really going to depend on robust data governance and each business reporting data and compliance framework as well. 
Mitch: (06:20)
Thank you, David. And now leave, I'd like to pose the same question to you, but from a software service provider, I know you were supporting roughly three quarters of the Fortune 500 companies. What are your observations on the willingness of companies and their compliance teams to embrace this and the data revolution as well? 
Liv: (06:38)
It's an interesting question because as our company tried to build a compliance platform that allowed companies to digitize their processes 10 years ago, we spent most of the time educating the market, what the cloud was, because sitting on system on local hard drive and data setting, you had to change your mind and trust the cloud. What we are seeing 10 years later is something that a cloud is no longer an issue. And now with the virus and these externality that must allow data to be accessible from anywhere. We are seeing a huge change in the demand of, of the solutions that can bring this, technology transfer nation, because business reporting has never been more complex. If you were to kind of just even talk about the cost of compliance and how much data that is being generated today, just in the last five years, 90% of the data has been is being generated. There is a $221 billion last year and spent on data management. The risk of noncompliance and fines are getting much higher. So the challenge is good data governance is what is going to be a use differentiator to the profession and this, and David I also say I am a, new, competency frameworks allows for a lot of these new technology skills says that the profession needs to adapt to be able to drive the digital transformation. And in our research that David, my coauthor here and we did, we also discovered speaking to accounting professionals that yes, they know they need to change and transform and software and embrace the cloud and digital technology like digital distribution blockchains. And so with that, I do think that we are reached a total new milestone where  driven by the fact that we need to have good data quality from anywhere and our profession as accountants. We need to step up and take that opportunity to not just be professionals, but also become good data governance stewardess within our organization to reduce the cost of compliance and data management and not add to the cost of compliance by storing data in local hard drive. So we need to start thinking about how that data we produced is repurposed throughout this life cycle. Thanks again, Mitchell. 
Mitch: (09:51)
What you're point right there about management accountants and really the whole response is a very nice bridge into the next question that I'd like to bring back to David. I know in the paper you made a bold statement and really valuable point by sharing your perspective that you believe accounting and compliance professionals who master this critical data in internal and external reports, it's really going to be invaluable, come the fourth industrial revolution. So I'd like you to share a little bit more about that perspective, and can you tell us what that really means to the management accounting profession? 
David: (10:26)
Sure. Thanks Mitchell. Let's really take a look at this from a reg data centric approach to illustrate the points that Liv is calling out and the ones that we've made in the paper together, along with our other coauthors. So digitization is really inevitable, right? And it's going to create much greater emphasis on data management and data governance, which is naturally going to fall to the custodians of this important asset in terms of accounting and compliance professionals. That's where it's just going to naturally sit. So that change means that the compliance and reporting environment is inevitably going to create demand for a holistic, connected and real time monitoring and reporting solution. And that's exactly what Liv as I alluded to a little bit earlier. So the specific implementation of reg data life cycles will of course vary by entity, and it probably is fairly obvious to the listeners and the reason for that. So quite simply, because it's going to depend on the nature of the data, the system disparity, because we all know that enterprise data is often housed in multiple systems in very different data types and in multiple formats. And it's further going to depend on the quantity of the data and naturally the way that the information is consumed. So there were a lot of moving parts around this and what that means to accounting and finance professionals is there's going to be a need to contribute their unique skillset and insight at every single stage of the data life cycle, and that's because they need to be able to ensure that as mentioned earlier, that the data is machine readable, it's auditable and it's fit for purpose, not only through this revolution, but well, beyond that point. So for the profession, digitalization really means acquiring new skills and data science, data visualization, and of course, new technologies. And we see that in all of the accounting bodies, including IMA, adapting, the educational programs to reflect that. So long gone are the days when the roles of accountants and finance professionals mainly revolve around accounts and financial reporting. Today's accounting and finance professionals are really expected to provide value. That goes way beyond the original scope of work. And that's really the challenge that we're all grappling with today. We're called upon as a profession to provide insights, which depend very much on the quality of the underlying data that's being processed or has been processed, but we're also expected to apply knowledge and experience, partner on business strategy, support the business to achieve their targets. And if that's not enough, we're also relied on to develop mechanisms, to review and monitor, to measure business performance or offer proactive and real time advice on either internal or external pivots that need to happen to avert those nasty business surprises that every CFO dreads. So basically the pace and scale of change is taking place around stakeholders, coupled with the increasing availability of tools and techniques such as machine readable, data cloud computing, machine learning, business analytics, big data, blockchain, distributed ledgers amongst other things, and they provide the means to effectively adapt to new key management and strategic roles. So the world has, we know it is becoming so much more exciting for accounting and finance professionals. Thanks for the question, Mitchell. 
Mitch: (13:37)
Oh no, thank you for the response, and in the middle of that, I know you said beyond this revolution, right? It's not just now it's ongoing, and I always like to wrap up these conversations by getting the speaker's perspective on their thoughts in the future. Right? What does the future of the profession look like? What other trends will we see in the industry? So I know you shared with me, the World Economic Forum recently said that this revolution, all of these emerging technologies, unprecedented connectivity, there's going to be a lot more to come, right? And I know you, I believe it was Liv who started mentioning XBRL and you just talked about innovations like blockchain. What is next? Right, I guess that's the big question. And I'd like to get both of your perspectives on this. I guess we could start with David here, but what is the next wave of reg tech or soup tech supervisory technology innovation, and what else do you see coming for this profession? 
David: (14:34)
It's a great question. And I, I love looking into the future, that's such an interesting part of, of being creative. So inevitably I really believe that data sciences and the underlying technologies that are going to be needed to both analyze understand, and to really make sense of the vast amounts of data are going to create real challenges over the next few years that are frankly, going to make the current environment look akin to stone, tablets and chisels. We really have a golden opportunity to leverage the emergence of artificial intelligence and to create smarter solutions in a way we never dreamed possible in the past. So for instance, if we look at what's happening this year with COVID-19, it's raised public consciousness in several really important areas like climate change, healthcare and social responsibility. So our paper actually can become an enabler to help accelerate the right conversations and create that kind of discussion, which will lead to meaningful action. Management accountants need to then embrace these new skills and continuously upscale themselves, not only to keep up, but frankly, to get ahead, and the world is definitely not slowing down, Mitchell
Mitch: (15:43)
Well, those are great points, David, and thank you once again, Liv, I'd love to get your perspective on this as well. 
Liv: (15:50)
Well, as I always say, we looking into the future is kind of the exciting part, right? But it's still go backs to the basic on, we need data. We need that data to turn into information. We need that information to turn into knowledge. We need that knowledge to bring insight, and then we have to turn that into this system, right? And what is the underlying basic infrastructure to digitally transform that, because these tasks are going to be just like the rules that we sit and read and proclaim to be our domain skills. So those going to be rules as code, coded into the machine. And, and so we need to, like David said, our whole profession is changing, our skill set is needed. Then as a board member of IMA and someone that was very involved with the framework for our skillsets to be adapted, we really need to become more than just domain skillset owners, because those rules and regulations that we kind of claim to be the expert in, they are going to be rules or code. So we need to be able to bring that last mile, some of the data information, knowledge, insight, and this stuff. But if I look into the future, what smart regulation will be, it will be not what we see today. Auditing is like shooting the wounded. We need continuous auditing and monitoring. Contracts will be digitized into smart contracts. So where is the future digital transformation? This train has left the station. The question, which one of us are on board.
Mitch: (17:45)
Well, Liv and David, thank you very much for your time. I know you contributing authors, but once again, as referenced the paper, Digital transformation, Brief business Reporting and the Fourth Industrial Revolution. Thank you very much for all of your information and perspectives here. 


Thanks Mitchell.
 Closing: (18:04)
 This has been Count Me In IMA's podcast, providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like what you heard and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.