CFOs risk producing ‘inadequate’ forecasts

KPMG has found that most of 300 chief financial officers, who participated in research, are set to produce inadequate financial forecasts because they are using the annual budget as their primary forecast of performance - which lacks flexibility and dates quickly.

The firm has warned that CFOs need to stress-test the data on their financial statements ahead of the audit season, to make sure they are in the best position to produce adequate financial forecasts.

‘Our clients are struggling to prepare reliable forecasts,’ Fiona McDermott, head of forecasting at KPMG told Accountancy. ‘Going through the audit season we found that because there’s less cash available… many of our audit clients simply don’t have a forecast in place that allows them to perform stress testing.’

KPMG said that many companies are failing to consider alternative scenarios and are focusing the forecast based solely on historic performance, which can hinder their forecasts’ visibility.

Although over half of those asked said they think their company’s forecasts should be updated on a monthly basis, only 37% actually do.

But McDermott says for larger organisations, this can be a problem. ‘Larger organisations tend to be less able to make changes quickly in some of their processes, it’s harder for them and they are more complex businesses,’ she said. ‘Whereas the UK mid-market businesses tend to make changes pretty quickly and can get oversight of their business quite quickly.’