Navigating Financial Statements is No Longer Just the CFO's Responsibility

Submitted by Cynthia Braman on Wed, 05/17/2017 - 1:07pm

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By Jeff Clevinger

Management team frustrated by trying to understand financials.As an executive leader, do you lack confidence that you, your team, and your Board members fully understand the financial information, data, and statements received?

Do your executives too often express that they are not “financial” individuals?

Are the continued changes in the accounting pronouncements and multiple presentation structures challenging and frustrating the understanding of your team?

We are in an environment that leaving these questions open to “yes” responses puts continued risk on the organization and you as a leader.

Last month, the SEC Chief Accountant gave a speech on “Advancing the Role and Effectiveness of Audit Committees”. He noted that audit committees “play a critical role in contributing to financial statement credibility through their oversight and resulting impact on the integrity of a company’s culture and internal control over financial reporting, the quality of financial reporting, and the quality of audits performed on behalf of investors. The importance of the audit committees’ work cannot be overstated.” Read the full text of the speech.

It seems that “corporate governance” is in the news daily. The 2001 collapse of Enron demanded more focus on the topic as multiple executives were convicted of criminal behavior.  Sarbanes-Oxley was enacted in 2002.

A renewed enthusiasm for the topic followed the 2008 collapse of Lehman Brothers. Bear Stearns, Merrill Lynch and Wachovia were also devastated and their remains were acquired by JP Morgan Chase, Bank of America and Wells Fargo, respectively. Dodd-Frank was enacted in 2010.

After the near-collapse of AIG, the NAIC reevaluated their regulatory framework and formed the NAIC Solvency Modernization Initiative. The Risk Management and Own Risk and Solvency Assessment Model Act was adopted in 2012. Insurers were required to complete their initial ORSA Summary Report following year-end 2015. ORSA becomes an accreditation standard January 1, 2018.

In 2014, the NAIC also adopted the Corporate Governance Annual Disclosure Model Act (#305) and the Corporate Governance Annual Disclosure Model Regulation (#306). A confidential discussion of governance practices is to be submitted by June 1 each year.

A couple of items stand out when considering our corporate governance history lesson. First, none of these initiatives were proactive; regulatory actions were reactionary after disasters occurred. Secondly, every initiative places increased emphasis on the responsibility that boards and executive management have for the integrity and accuracy of the financial statements. Given that many talented executives do not have a finance background, these expectations must feel burdensome.

To aid proactive boards and management teams in becoming more comfortable with financial information, Booke developed its Financial Reporting for Non-Financial Managers seminar. The goal is to present accounting, finance and actuarial concepts in a format and setting that gives participants more confidence in their understanding of such information.

 

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