Most accounting and finance professionals love spreadsheets and the data that comes along with them, to be sure. However, let’s be honest. How often do you, in a hurry to get to the truth, make quick assessments based on a single set of figures?
By making decisions solely on the numbers and not taking into account the full interpretation of those numbers — the reasons “why” — you run the risk of jumping to short-sighted conclusions. You can fail to uncover the real truth and context behind the data, not to mention a business’ true financial performance.
I’ve been thinking about this disconnect lately, especially as the new year is upon us and as regulations continue to change, and came across a recent whitepaper on CFO.com that covers the topic in great detail.
The whitepaper refers to the idea of both quantitative and qualitative analysis as “Q2 Insight.” It discusses a tendency in today’s fast-paced corporate world to “declare mission accomplished” much too quickly – based on financial data alone.
I took some highlights from the whitepaper and added a few thoughts of my own in the 3 Reasons Qualitative and Quantitative Analysis is Crucial for Financial Reporting below.
1. Gaining Insight
While automation, centralization and accountability is crucial, you need to analyze what that all means. Qualitative analysis refers to the full financial intelligence of a business, including the anecdotal comments and written notations of everyone who reviews the financial data. Looking at your numbers from a qualitative standpoint gives “value-added insight” to make strategic decisions that go beyond just managing by the numbers. It also gives finance professionals and other leaders the whole picture.
2. Maintaining better control
Often times, systems, documents, emails and personal notes are managed in a disjointed manner – not keeping with the governance standards being enforced across today’s businesses. Taking a step back and compiling a qualitative analysis is crucial for audit standard, traceability and accountability. It gets to the unvarnished truth behind the numbers.
3. Strengthening the business
Most accounting and financial professionals aren’t just number crunchers. They’re business strategists. If more qualitative insight is put into analyses, it can strengthen the role of the accounting and finance functions and the business overall in many capacities. Ultimately, incorporating both qualitative and quantitative analysis into financial reporting will provide an audit trail of critical insights.
The whitepaper states, “Without this essential qualitative insight to help them zoom in on the most likely explanation (“the truth”), finance teams are relegated to the role of paleontologists, trying to form hypotheses by looking at the fossil remains of past events (i.e., the data).”
Funny, I never thought of accounting and finance professionals as paleontologists. Then again, I never thought of financial data as fossils.
What are some other reasons Q2 insight is imperative for financial reporting? Comment below and let us know!