Meeting today’s financial challenges - Ernst & Young - Global

The business and financial landscape is being transformed by a number of global events and trends, which are creating many challenges in the financial and accounting environment.

Five challenges in today’s transformed financial landscape

We have identified five key challenges that have emerged for management, boards and audit committees in the financial and accounting environment:

1. Corporate governance, new rules and higher expectations
• Corporate governance reform is at the top of investor, regulator and board agendas. Organizations face the prospect of new governance rules and higher expectations.
• Boards and audit committees will need to take an increasingly broader view of enterprise and external risks, and ask tough questions of management to fully understand the controls in place and any proposed changes to managing the key risks that could impact the organization’s overall performance.
2. Risk management, increasing scrutiny
• With increased investor scrutiny, risk management will expand to address more enterprise and external risks.
• Some of the specific areas of increasing risk management concern for audit committees to discuss with management and auditors include:
  1. The overall risk management infrastructure
  2. Ethics and the potential for fraud
• Companies will face challenges in moving from a decentralized, silo-based risk management model, with the resulting redundancies and gaps in coverage, to a more coordinated infrastructure, with an aligned mandate and scope, consistent risk management methods and practices, supported by common information and technology.
3. Funding and liquidity, tapping other sources of funding
• Difficulties concerning companies’ funding efforts will likely extend into 2010. Although bank lending may be improving slightly, it remains very restricted. One suggestion is for companies to build deeper relationships with multiple banks while also tapping other sources of funding, such as equity and bond issuances and asset-backed lending. Also, audit committees should monitor companies’ liquidity and funding closely.
4. New regulatory and accounting rules, evolving at a fast pace
• Regulatory developments and accounting standards continue to evolve at a fast pace, and companies must understand the implications of new rules, not only from a financial perspective, but also from a business perspective. This evolution will continue to impact how management, boards and audit committees go about their business, especially with activities related to risk identification, monitoring and strategic mitigation.
5. Financial reputations becoming linked with transparency
   • Boards will need to reflect on how to be proactive in regard to governance, yet constantly react to financial and regulatory developments, requiring them to protect one of their most important assets — their financial reputation.
   • New developments have and will continue to necessitate increased analysis, additional time, dialog and greater scrutiny to address the needs and expectations of investors, regulators and other stakeholders. The content of financial reporting will also feature more forward-looking information, with more detail on the judgments taken by management.