To start with, financial reporting is the accounting process of communicating financial information to an organization’s stakeholders who need it to help them make informed decisions. Financial reporting is a crucial function for any organization and it is typically presented through financial statements. At least many people are conversant with a balance sheet, income statement and statement of cash flows, statement of changes in equity as well as the notes to the accounts.
It is commonplace knowledge that a financial statement provides stakeholders with valuable insights into a company’s financial health and performance. Indeed, it enables them to plan (for the future) based on their understanding of the facts behind the figures. But many non-professionals also find it difficult to interpret and understand financial reports. This is because the traditional methods of financial reporting can be challenging due to the complex data sets. To overcome the challenges, arises the need for organizations to explore data visualization tools to make financial reporting or communication easier to understand.
Data Visualization
Data visualization is the graphical representation of data in the form of charts, infographics or statistical graphs. In the context of financial reporting or communication, data visualization tools can be used to explain a financial statement into an easy-to-understand visual (charts, graphs, and diagrams). In an era of new technologies, it has become easier than ever for finance teams to collect financial data, analyze, and present them in a visually appealing way by leveraging on data visualization tools.
Data Visualization Tools
Data visualization tools are software applications that can revolutionize the way organizations report financial data by creating interactive charts, graphs and trends and patterns. Financial data visualization tools support efficient data analytics to present graphics instead of text only reports. Data visualization tools at their most basic, are user-friendly and allow users to input a dataset and graphically alter it.
Many data visualization software applications provide drag-and-drop functionalities and other non-technical capabilities which an average business user can use to create a dashboard to monitor an organization’s critical data. However, some do offer the ability to create dashboards using code. A modern data visualization tool can handle large amounts of data from many sources including file uploads, databases and other business applications. Indeed, connecting some applications or databases may require some level of Information Technology (IT) involvement or coding knowledge and skills.
Benefits of Data Visualization Software
It is often said that a picture is worth a thousand words. This statement clearly reinforces the fact that people process images and understand the contexts much better than they do with texts only. That is why data visualization is considered a powerful tool that can transform financial reporting by enabling finance teams to communicate complex financial data with more engaging and easy-to-understand visuals. Some of the benefits of using data visualization tools are:
It is Timesaving.
Stakeholders are increasingly inundated with volumes of information in financial reports and have been compelled by the circumstances to look for convenient means to use their time more efficiently on those reports. In this regard, interactive data visualization tools remove the burden of time a non-professional stakeholder uses to process and understand information scattered around financial statements. The availability of search features, concise presentations and multiple relevant visualizations can help individuals to navigate financial reports more easily, hence spend their time more judiciously.
Detect Anomalies and Patterns
Auditors can perform faster prediction tasks using graphical information than using tabular information. Data visualization reports help to detect patterns people might otherwise not notice. The reports give auditors and other relevant stakeholders the necessary information to minimize the risk of fraudulent transactions and prevent them from occurring. Data visualization tools can help organizations including financial institutions to create dashboards for fraud detection and risk management.
Quick Identification of Trends
There is no need to sort and filter countless rows and columns of data through the traditional and laborious methods when you can generate graphical representations of any dataset with data visualization software. Thus, with visualization applications, you can create bar charts, line charts, pie charts or even heat maps instantly to enable you to identify the macro and micro details of the same situation. For example, an organization which deploys data visualization tools can look at a graph of monthly transactions to identify trends of monthly reports of performance to inform its strategies and targets.
A unified understanding of data:
The ability to anchor your claims in facts boosts your credibility during reporting as well as presentation to stakeholders. Thus, the use of visuals to present financial information in a unified format gets everyone on the same page especially when combined with a single source of truth (SSOT). Data visualization makes it easier to work with huge datasets and grants the freedom to scale datasets. Besides, data visualization tools simplify data sharing and collaboration between departments or teams in an organization to collect data, process it, analyze and present same in real-time.
Easier Interpretation of Data
Data visualization is an easy way to understand and learn from data. It is worth reiterating that since many of us are visual learners, using data visualization helps convey a message or an insight easily compared to long blocks of text or spreadsheets. The deficiency in the traditional methods is that they can only provide static data based on historical information. By the time the latest data is collected, cleaned, and processed, it becomes outdated and may not be as effective when used in decision-making.
Improves Decision-making
The visualization process allows finance teams to navigate, to select data and display it at various levels of detail and in various formats. This way, they can tell compelling stories with financial data, thereby providing assurances and improving communication which engenders trust with other stakeholders. Furthermore, allowing decision makers to interactively process information and select multiple presentations or visualizations relevant to their tasks can improve their decision-making outcomes. Data visualization also allows financial decision-makers to gain clarity on their reporting and deeper confidence in their forecasts, especially for financial planning and analysis during a market correction of declining investments or stocks.
Getting it Right
To optimize the application of data visualization tools requires that users must be aware of the following:
Selecting the right data sources
To prepare a financial statement devoid of inaccuracies means that finance teams need to start with the right data sources. This can be a challenge because there is often a large amount of financial data to choose from, and not all of it may be relevant or useful at the same time. Relevant data not only ensures credibility of reports but serves as the basis for efficient application of visualization tools.
Choosing the right visualization tool
There are many different data visualization tools available on the market, but it can be very challenging to choose the right ones to suit your interest or for a particular report. There are cloud-based automated accounting suites and other user-friendly data visualization tools that can help finance teams to instantly create detailed visual financial reports.
Stakeholder Interest
In the application of visualization tools to present reports, it is worthwhile to consider stakeholders’ varied interests and expectations. It is true that internal stakeholders’ (senior management and other employees) interests sometimes conflict with external stakeholders (regulatory agencies, tax authorities, investors, lenders) expectations. As a result, in the application of visualization tools, you must always know those conflicting interests of these interest groups so that you can clearly align your strategies and presentation to them. This is clearly the basic essence of financial reporting or communication. By extension, the choice and integration of data visualization tools into an organization’s operations is largely influenced by stakeholder needs and expectations.
Conclusion
Data visualization tools allow finance teams to present complex financial information in a more accessible format. By identifying valuable insights faster and communicating financial reports in a clear and compelling way, stakeholders are more than empowered to improve financial planning, analysis and reporting which invariably leads to better and informed decisions to drive business growth.
BERNARD BEMPONG
Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Partner of J.S Morlu (Ghana) an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to both private businesses and government.
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