accounting and business corporate special edition 2013
mind the skills gap why CFOs want COMPLETE FINANCE PROFESSIONALs
CFO PERSPECTIVES VIEWS FROM THE HOTSEAT
RETHINKING REPORTING DIVERSITY BUSINESS CASE ANALYTICS UNLEASHED
3 Defining a new era Language has always evolved to deal with new situations, and the post-crisis corporate world is no different. In the pages that follow, words like ‘value’, ‘sustainability’ and ‘resilience’ appear much more frequently, and with wider meanings, than they did in those heady, profit-driven days before 2007. Not that profit has become a dirty word. While the financial crisis illustrated what happens when excessive short-term profits are pursued at the expense of long-term corporate health, the fallout has underlined its importance to business survival. But the ascendancy of these new words represents today’s wider and more complex corporate imperatives. By talking about value, a business can express a wider range of objectives, encompassing not just profitability, but also its employees, supply chain, customers and approach to innovation – things that contribute to profitability over a longer time period. It can also signal its ethical approach to business. All of this adds to a company’s resilience. Similarly, ‘sustainability’ now combines an environmental focus with a wider sense of responsibility towards the long-term survival of a business. These words may be frustrating in their woolliness, but they at least provide a way of describing business’s response to the wider, more complex and challenging world that today’s finance professionals face, and the behaviours and strategies they are developing to respond to it. In these pages we explore the skills and attributes that finance professionals need in this new world – breadth and depth being key. And we look at a range of topical issues they face. I hope you find what follows useful as you navigate your way through this changing landscape. Chris Quick, editor
MORE ABOUT ACCA AT www.accaglobal.com/complete
CONTENTS 04 Change for the CFO Finance chiefs are playing a bigger role both inside and outside the business
24 Diversity Businesses that harness differences are always going to do better, says HSBC finance head
07 Talent The accountant’s skillset must now include strategic capability as well as financial expertise
25 Sustainability The trend towards the circular economy can’t be ignored
10 ACCA Qualification Why ACCA’s training is delivering complete finance professionals 13 Perspectives Finance heads from around the world explain their challenges 18 Vietnam Unilever’s country FD reveals the rewards of working in a high-growth economy
26 Analytics Accenture’s experts introduce the information tools that generate deeper insights 28 Risk How to equip a business to react faster and more effectively to adverse events 30 Outsourcing Making the most of shared services and remote delivery
20 Reporting Investors want better corporate disclosures of strategy and risk
32 The future What it will look like and the key strategic imperatives for businesses and finance professionals
22 Standards The way in which accounting rules are formulated must change
34 Resilience PwC’s international chairman on how to ride out turbulence
Editor Chris Quick, email@example.com International editor Lesley Bolton Designers Jackie Dollar, Robert Mills Sub-editors Dean Gurden, Peter Kernan, Vivienne Riddoch
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Are you an employer looking for top-quality finance professionals? Or are you looking for a new role or careers advice? ACCA Careers brings employers and members together globally. www.accacareers.com This AB Corporate special edition was published in February 2013 The Council of ACCA and the publishers do not guarantee the accuracy of statements by contributors or accept responsibility for any statement they may express in this publication. No part of this publication may be reproduced, stored or distributed in any way without the permission of ACCA. Copyright ACCA 2013.
corporate the role of the CFO
Getting out more CFOs are moving into areas of the business they have never entered before – as well as playing a greater role beyond the confines of the organisation itself
Debate has raged about the changing role of the finance director ever since Luca Pacioli came up with the idea in the 15th century that business transactions should be recorded by using two columns of figures instead of one. Technology, regulations and business models have all fuelled and transformed that debate. But it has surely been agreed for some 30 years that ‘the financial director is in an almost unique position, apart from the managing director, of being involved in almost all aspects of the business’, as the then managing director of retail group Kingfisher, Geoffrey Mulcahy, said in
1984. So it is hard to imagine that, after all that time, there can now be anything new to add to the discussion about the role of the FD. Yet recent work by ACCA and the Institute of Management Accountants (IMA) has set out to do exactly that. Through a global survey, roundtable discussions with finance leaders from across the globe and some in-depth video interviews with a few thoughtful – and thought-provoking – CFOs, new insights are revealed into how the role of the CFO is going to change in future. What is striking is that some of these insights are still a long way from being accepted as mainstream thinking.
Finance leaders are finding themselves operating in, and having to react to, an increasingly volatile and technologydriven global economy. Clockwise from top left: a young man takes a video of a protest against corruption in North Delhi, India; protesters cause havoc in clashes that erupted all over Cairo in January; traders on the New York Stock Exchange react to US lawmakers agreeing to head off the nation’s looming fiscal crisis; and pedestrians and shoppers mill around Russell Street and Times Square in Causeway Bay, Hong Kong
5 unilever cfo on sustainability www.accaglobal.com/huet
This discussion takes place against an economic backdrop of uncertainty and dismay – but not everywhere, and that’s an important factor. Asia, Latin America and, notably, Africa are all looking at growth rates that are percentage points greater than in Europe and the US. That is not to say that those fast-growing regions are having an easy ride: globalisation, competition and innovation are watchwords everywhere. The governance environment is being affected not only by the impact of the Dodd-Frank legislation on global businesses with a Wall Street presence, but less directly by Basel III and by other forthcoming banking regulations that will change the way corporates get access to finance. The risks businesses face aren’t restricted to competitive pressures or the penalties suffered from safety failures – not in a world where 140 damaging characters tapped out by a disgruntled customer or employee can be tweeted around the world within seconds, calling into question the organisation’s ethical integrity. As Helen Brand, ACCA chief executive, puts it: ‘Increasingly, CFOs will have to deliver on a wide range of fronts: driving a more competitive finance function, establishing ever more robust risk management strategies and supporting their businesses to develop effective strategies for growth while remaining cost-competitive. Finance leaders operate in a global economy that is significantly more volatile, presenting future CFOs with new challenges, but also new opportunities.’ The idea that finance must be a ‘business partner’, working with the rest of the organisation, understanding it, contributing to strategy, and generally being much more than just a beancounter, is an idea that is now hard to imagine anyone regarding as novel. One participant at an ACCA-IMA roundtable in Zurich seemed to echo
Mulcahy’s decades-old comments when they said: ‘The new CFO is pretty much the only person in the new organisation that is in a position to see all the connections and the bigger picture across the company.’ An interesting communications challenge was bolted on when that participant added: ‘The challenge is: how do you get everyone else to agree with this holistic view of the business?’
Access all areas Arguably, the single most important (and new) thing to emerge from the ACCA research is how the role of the CFO is evolving in terms of the depth of its coverage across the organisation and its encompassing of responsibilities that are beyond the parameters of the business itself. Holger Lindner, member of the advisory council at Singapore CFO Institute and CFO of TÜV SÜD Product Service, makes a telling point: ‘The finance function has a tremendous role to play and to communicate… what kind of culture the entity wants to demonstrate and… what kind of behaviour they want to encourage.’ Here is an argument that finance must not only uphold the highest ethical standards, but promulgate them.
As to how the finance function is extending beyond the borders of the organisation, one example is how it is embracing outsourcing as a way of reducing processing costs and releasing resources for more valueadding functions, such as analysis and decision support. But as Alan Johnson FCCA, CFO of Jeronimo Martins, says: ‘[That] doesn’t mean you no longer have responsibility, it just means it’s done by somebody else. That brings a new challenge and a new skillset: you now have to manage an outsourced function that is your responsibility, but no longer under your day-to-day control. One other challenge is how to develop the financial accounting skills in your own organisation when many of the financial transactions, and often reporting, are done by an outsourced entity.’ Richard Moat FCCA, CFO of Eircom and chair of the ACCA/IMA Accountants for Business Global Forum, adds: ‘It becomes more difficult to ensure that there is good control over those outsourced functions and that the finance function that is left behind (so to speak) in headquarters is operating effectively with these distant assets.’ Increasingly, CFOs need to work with suppliers and customers:
to see Alan Johnson on video: www.accaglobal.com/johnson
to see holger lindner on video: www.accaglobal.com/lindner
to see richard moat on video: www.accaglobal.com/moat
corporate the role of the CFO
‘Tomorrow’s CFO will also increasingly need to be good at… brokering the external relationships that matter for the face of the business… from their traditional partners – the banks, tax authorities, external auditors – through to customers, suppliers, supply chain partners and so on,’ says ACCA’s report, The changing role of the CFO, produced in partnership with IMA. ‘More engagement is deemed important and a priority with stakeholder groups such as customers and suppliers,’ Johnson says. ‘This is all about trying to help the business really drive and create value.’
Driving sustainability More and more attention is turning to sustainability – and not solely in terms of the environmental impact of the company itself, but also the impact of everyone in its supply chain, the waste product of their customers, and so on. So it is necessary to think about how businesses will work across the whole supply chain to drive sustainability. If this sounds too far outside the CFO’s remit, consider the words of Unilever CFO Jean-Marc Huët, who recently told ACCA’s Accountancy Futures publication that sustainability should not be seen as a ‘side concept’: ‘Sustainability drives profitable growth,’ he insisted. ‘I believe it is for finance to drive our virtuous circle of growth, because we are the ones who can bear the communication, the message and the context of what we are trying to do.’ It is worth drawing attention to an observation by Jane Fuller in Accountancy Futures, who pointed out that, in Standard & Poor’s autumn 2012 update, all the countries that were poised for a rating upgrade were in emerging parts of the world.
How the CFO’s role is changing * *
CFOs have an increasingly personal stake in regulatory adherence Finance needs to work effectively on the global stage and embrace diversity Technology can help reconfigure finance processes and deliver business insight As the nature of risk changes, CFOs have a role in ensuring an appropriate corporate ethos CFOs must transform finance functions, providing better service at zero cost impact Stakeholder management and relationships will become increasingly important going forward CFOs’ analytical skills will be increasingly called on in strategy validation and execution Reporting requirements will broaden and remain burdensome A brighter spotlight will be shone on talent, capability and behaviours in the top finance role.
* * * * * * * *
Adapted from ACCA’s report The changing role of the CFO, available at www.accaglobal.com/transformation Indonesia, for example, was a notch away from being investment grade, with Mongolia – Mongolia! – only two notches behind. Thinking about emerging markets in this way, it is easy to see that these are no longer just fast-growing markets for western companies to try to break into. Developing economies are also home to rivals for market share, capital and talent. Johnson’s lesson seems apt in this context: ‘We as finance professionals need to make sure we bring much better insights from the external environment into the business.’ The aim? To learn about the trends and key changes, and to be able to pre-empt shifts in customer behaviour or the supply chain.
Boxing clever These insights point to a need for CFOs not only to think outside the box, but also to get outside the box and work more deeply across the business and with all kinds of external third parties.
view from: Jeff Thomson IMA president and CEO ‘Today’s CFO team is expected to add value well beyond the traditional roles of cost management, controls and acting as the conscience of the organisation. These roles are challenging enough, but today’s CFO is expected to work in collaboration, by serving as the integration hub for key business processes, as a catalyst for change including business transformation, and as a consultant or trusted business adviser in helping to create sustainable growth.’
In another ACCA-IMA publication, Finance leaders survey report: December 2012, communicating and influencing skills were second on a 17-strong list of qualities deemed important for finance leaders – top was financial planning and analysis. The report said: ‘These findings correlate with results from recent CFO roundtables held by ACCA and IMA, where communication skills were cited as highly important, and the breadth of stakeholder engagement for finance leaders required an ability to ‘speak the same language’. Knowledge of the business and understanding business risks came third and fourth. Finally, there is an obvious need to look forward, not just to economic and business developments, but to determine the sorts of skills that will be needed in finance in the future. As Holger Lindner puts it: ‘It’s important that talent management is an active part of the job description of a CFO and not an afterthought or an annual one-time activity. It’s important to map out what kind of skills you want in your organisation and what kind of attitudes you would like to have.’ Or to put it another way, a very important part of the changing role of the CFO today is to think about how the role is going to continue to change. Andrew Sawers, freelance journalist specialising in issues relevant to CFOs. He was editor of Financial Director magazine from 1997 to 2009
Spanning the skills gap New research underlines the need for complete finance professionals with a breadth and depth of knowledge across a broad range of accounting and business areas, says Helen Brand Helen Brand OBE is chief executive of ACCA
Recent history shows how quickly the business environment can change and, with it, the demands placed on the finance function. Today’s CFOs have to pull off a challenging balancing act, collaborating with the top executive team to drive strategy and growth, while also ensuring the business has firm foundations in the form of effective risk management, internal controls and governance procedures. These challenges reflect the evolution of the function’s role both before and
since the financial crisis. Before the latest economic turmoil began, finance teams were increasingly seen as business partners. Management teams were focused on growth, operating in a relatively favourable economic climate, and looking for new ways of improving the decision-making of operational teams. Drawing on the skills of finance professionals in commercial insight and analysis was a key means of gaining an advantage over competitors.
Back to basics Then came the bust – bank bailouts, collapsing stock markets, rising public debt and economic uncertainty. The view from the boardroom was transformed. The external landscape was one of market uncertainty, currency volatility and funding restraint. In this subdued new world, internal control and risk management rose to the fore. The traditional activities of effective cash management, cost control, risk management and governance once again topped the priority list for the finance function. Fast forward to 2013, when businesses around the world still find themselves operating in a highly challenging environment. While not all markets were affected as strongly or dramatically as those in Europe and the US, many have been performing less robustly than they might previously have expected, suffering the knock-on effects of reduced demand and slower foreign investment. Finance leaders must therefore provide a service to the business that combines both strategic insight to identify and capitalise on any business opportunities that do arise, and a firm grip on operations through cost control, working capital optimisation and risk management. In addition, finance leaders continue to play a key role in stakeholder engagement – clearly explaining to investors and other key parties, such as the banks, how management is
driving performance and how it will deliver profitable results. They also have to be increasingly conscious of funding commitments and how any spare cash is used to please different stakeholders. As a result, today’s CFO must bring a wealth of capabilities to the table, not least the ability to demonstrate a balanced finance understanding. These issues are explored in a new ACCA report, The complete finance professional 2013: Why breadth and depth of finance matter in today’s finance function, using information based on an ACCA survey of nearly 500 CFOs in the UK, Malaysia, Russia, China and the UAE. The report finds that finance leaders have a vital part to play in supporting their organisation’s strategy and partnering with the business effectively, but to do this sustainably the business
*CURRENT PRIORITIES OF FINANCE
As finance leaders seek to build and maintain sustainable businesses, so they are increasingly assessing how environmental and social factors may impact on operations and performance. CFOs recognise the need to build capability in reporting that brings together financial, social and environmental measures, and interest in integrated reporting is growing. Introducing measures of environmental and social impact to investment decision-making processes is becoming a more widespread requirement. Reliable, measurable data on such impacts is increasingly vital for product and market development in an ever more resource-constrained world.
Forecasting Controls Business insight Working capital Risk Financial reporting Transaction efficiency Strategy
Talent Regulation Funding Tax Corporate finance Investments for growth Investor relations Corporate social responsibility 0
Source: ACCA/IMA, Finance leaders survey report: December 2012 first and foremost must be controlled. Sustainable value creation requires effective risk management processes. It depends on strong financial management to protect and maximise current and future funds generated. It needs the development of financial strategies that deliver strong performance over a substantial time horizon but which can withstand quarterly analyst scrutiny. It requires robust processes for assessing past and future investment decisions and monitoring performance. It also needs strong governance and compliance with regulatory requirements. By meeting all these needs, finance leaders provide the balanced finance stewardship essential for sustainable value creation in the current environment and into the future. Another survey of finance leaders, conducted by ACCA and IMA (the
Institute of Management Accountants) in December 2012, confirmed how finance leaders are now dividing their time across multiple activities (see graphic on facing page), with business analysis demanding most attention, followed by finance operations, statutory reporting, strategy development, risk management and business financing. In essence, finance must now provide the broadest possible service: delivering commercial partnering alongside more traditional fiduciary stewardship. According to the ACCA/ IMA survey, the top 10 areas of activity identified as important by finance leaders were cost reduction, forecasting, controls, business insight, working capital, risk, financial reporting, transaction efficiency, strategy and talent – confirming the breadth of current priorities for the typical finance function (see above).
Given this environment and the finance function’s broad remit, it should be no surprise that CFOs place high importance on newly qualified finance professionals having a broad knowledge base and the ability to understand the finance value chain. Four out of five CFOs surveyed for The complete finance professional said that it was essential for newly qualifieds to have a complete understanding of the value chain – from budgeting to external reporting – and how all the elements fitted together. The survey also revealed the many different finance areas in which CFOs believe it essential that their newly qualified hires have a good working knowledge: financial management, professionalism and ethics, corporate reporting, sustainable management accounting, governance, risk and control, strategy and innovation, leadership and management, audit and assurance, law and taxation and stakeholder relationship management.
Finance transformation When finance professionals possess broad finance skills, CFOs are able to move them freely across a wide variety of roles, while also supporting the creation of transformed finance operations. A finance function that operates more efficiently itself while also delivering better business support is an attractive goal for the CFO and the business. The process of finance transformation often results in a reorganisation of finance operations
9 into three core elements. First, to support operational decisions, commercially minded finance professionals will work as business partners, providing decision-useful financials and analytic support. Second, alongside these business partners will be a corporate team containing specialists in a range of disciplines such as tax, treasury, audit, corporate finance and financial planning, typically grouped together in a single centre of excellence. The third vital component is a service delivery arm responsible for core transactional activity (and perhaps activities higher up the value chain) and potentially encompassing control and compliance functions. Adopting this type of finance model can generate a range of benefits, including greater efficiency and lower costs, functional scalability and enhanced decision making, within both business operations and finance itself. For individual finance professionals working within such structures, a
*HOW FINANCE LEADERS SPEND THEIR TIME 13% STRATEGY DEVELOPMENT 30% BUSINESS ANALYSIS 22% FINANCE OPERATIONS 15% STATUTORY REPORTING 11% RISK MANAGEMENT 10% BUSINESS FINANCING Source: ACCA/IMA, Finance leaders survey report: December 2012 broad understanding of the roles and priorities of colleagues helps deliver maximum benefits. The hour of the balanced finance professional, combining both breadth and depth of knowledge, has clearly come.
*WHY A BROAD RANGE OF SKILLS IS ESSENTIAL The importance of understanding the entire finance value chain Itâ€™s difficult to conceive of finance professionals with statutory reporting responsibilities not having an understanding of external auditing principles. Management accountants and financial analysts should understand risk issues; those supporting finance decision-making or investment appraisal should be conversant with tax or regulatory issues that may impact on the viability of projects, and so on.
The ascent of balanced finance leadership to achieve sustainable growth Finance leaders must continue to partner with the business and ensure collaboration with the executive team to help drive the organisationâ€™s strategy. But this must be balanced with the imperative to exercise independence as the gatekeeper of the organisation. CFOs recognise that long-term value cannot be created or sustained unless the business is appropriately controlled, its risks managed, its funds protected and maximised, and core fiduciary responsibilities met.
The growth in finance priorities The breadth of priorities post-crisis for the finance function is significant. Effective cost management, better forecasting, more insight, strengthening the control environment, ensuring appropriate levels of working capital and managing risk are all key priorities. With the focus on sustainable value creation, and the drive for transparency, the finance function may also be expected to play an increasingly important role in reporting on the social and environmental performance of organisations. The changing face of finance operations Transformation of the finance function remains a priority for many businesses. Todayâ€™s global finance function is designed to drive improved capability across the entire finance value chain, delivering transactional finance mastery in shared services, offering specialist finance expertise in centres of excellence such as tax and corporate finance knowledge, and undertaking business partnering activities to drive more effective financial insight in the retained finance organisation.
The complete finance professional 2013 report can be found at www.accaglobal.com/complete The ACCA/IMA Finance leaders survey report can be found at www.accaglobal.com/transformation
Earning the partnering mandate To become a trusted commercial partner to the business, the finance function must recognise its reputation is built on its capability in its traditional fiduciary responsibilities because these remain fundamental to creating a platform for growth. Failure to meet these responsibilities also has significant reputational consequences for the business. The future of finance careers Many of the younger generation in the workforce are seeking wider business careers while some continue to want to pursue classic finance careers. Broadbased finance qualifications such as ACCA help keep career doors open to pursue a wide range of finance and business careers. From an organisational perspective, the CFO role is changing. With increasing breadth of responsibility, as well as the requirement for a strong technical finance understanding across a wide range of finance disciplines, businesses need finance leaders with broader leadership capabilities. Extracted from: The complete finance professional 2013
CORPORATE THE ACCA QUALIFICATION
Building business leaders Catherine Edwards explains how the ACCA Qualification produces complete finance professionals with the breadth of knowledge to excel in a range of finance roles Catherine Edwards is ACCA’s director of qualifications
Today’s finance professionals face multiple demands – as partners to business operations; as stewards of current and future corporate value with skills in strategic planning, risk management, business analysis and internal control; and as experts in finance operations and high-efficiency transaction processing. Gaining the necessary knowledge, experience and attitude to be able to perform well in all these various roles can be challenging. However, the ACCA Qualification has been uniquely designed to equip aspiring finance leaders with the skills and expertise they need to succeed. As they work through the successive stages of the ACCA Qualification, aspiring finance professionals develop the full range of competencies to be able to deliver maximum impact and value in their businesses. The qualification draws on ACCA’s long tradition of research and engagement with finance leaders, reflecting the needs of CFOs in terms of the knowledge-based, ethical and behavioural qualities they look for in their finance teams. A survey of over 500 chief financial officers for ACCA’s report The complete finance professional 2013: Why breadth and depth of finance matter in today’s finance function identified the key financial areas that CFOs consider have the most impact in supporting the strategic direction of their businesses. Financial management and financial analysis were seen as particularly high-impact areas, followed closely by governance risk and control, strategic management accounting and corporate reporting.
Internal audit, tax advice and planning were also widely considered to have considerable impact. Based on such feedback, the ACCA Qualification equips young professionals in the best possible way to build successful careers. ACCA accountants have broader and more complete skillsets than professionals holding competing qualifications. The ACCA Qualification is based on a comprehensive competency framework and so offers a complete syllabus covering all key knowledge areas required by finance professionals working in business. It addresses everything that a CEO might reasonably expect a finance leader to be able to handle, and potentially more.
Bigger picture Those who complete the ACCA Qualification
have the capacity not only to see the bigger picture in terms of, for example, how business strategy is underpinned by sound internal controls or the impact of tax on investment returns, but also can dive into the detail of financial management and accounting technicalities. Starting with what might be perceived as core requirements for a finance qualification, the ACCA syllabus covers sustainable management accounting, financial management and corporate reporting. Sustainable management accounting looks at creating effective systems for planning, measuring, controlling and monitoring business performance to ensure sustainable value creation. This includes exploring the interplay between financial, social and environmental performance measures – an area of growing
How important is it that newly qualified finance professionals have a good working knowledge of different finance areas? Financial management
Strategy and innovation
Audit and assurance
Law and taxation
Source: The complete finance professional 2013
11 *THE 10 KEY COMPETENCIES
Based on a comprehensive competency framework, the ACCA Qualification addresses all the key knowledge areas required of finance professionals.
Sustainable management accounting Assessing, evaluating and implementing management accounting and performance management systems for planning, measuring, controlling and monitoring business performance to ensure sustainable value creation.
Governance, risk and control Ensuring effective and appropriate governance; evaluating, monitoring and implementing appropriate risk identification procedures; designing and implementing appropriate and effective internal audit and control systems.
Strategy and innovation Assessing and evaluating strategic position and identifying imaginative options to improve performance and position; implementing strategies to ensure cost-effective and innovative business process improvement and change management. Leadership and management Managing resources and leading organisations effectively and ethically; understanding stakeholder needs and priorities.
Audit and assurance Providing high-quality external audits; evaluating information systems and internal controls; gathering evidence and performing procedures to meet the objectives of audit and assurance engagements.
Stakeholder relationship management Managing stakeholder expectations and needs; aligning the organisation to their requirements; engaging stakeholders effectively and communicating relevant information.
Financial management Implementing effective investment and financing decisions within the business environment in areas such as investment appraisal, business reorganisations, tax and risk management, treasury and working capital management to ensure value creation.
Professionalism and ethics Understanding and behaving in accordance with fundamental principles of ethical behaviour and personal ethics; ensuring implementation of appropriate corporate ethical frameworks.
Corporate reporting Preparing high-quality business reports to support stakeholder understanding and decision making.
Law and taxation Understanding laws and regulation relating to business; understanding taxation, regulation and systems to establish tax liabilities for individuals and companies, and minimising these liabilities using tax planning.
corporate the acca qualification
importance to businesses. Financial management looks at implementing good investment and financing decisions. And corporate reporting deals with the preparation of high-quality business reporting to stakeholders, to help them make good judgments and decisions. Tha ACCA Qualification also focuses on leadership and management and the requirements for achieving business resilience, on strategy and innovation, and on cost-effective performance improvements. Breadth of knowledge is further supported through the inclusion of its law and tax content, creating not only a factual understanding of laws and systems, but also a clear awareness of how prevailing tax and regulatory environments affect business performance and decisions. Similarly, ACCA-qualified finance professionals complete studies in audit and assurance, preparing them not only to work efficiently and effectively with external auditors, but also to ensure the internal controls and internal audit procedures within their organisations are fit for purpose. The ACCA syllabus also specifically addresses matters of governance, risk and control, equipping even newly qualified accountants to fulfil an important role in protecting current and future value creation based on an understanding of the interplay between risk and reward and how key risks can be effectively mitigated.
Competency framework Taking account of the bigger picture, the ACCA competency framework identifies the need for finance professionals to be informed in the area of stakeholder relationship management, so that they can manage expectations, support the alignment of the organisation with stakeholder needs, and ensure relevant information is communicated. It also places at its heart the concepts of professionalism
and ethics, understanding the complex challenges individuals can face at any level within an organisation and providing ACCA professionals with clear principles for determining appropriate ethical behaviour. While the ACCA syllabus is comprehensive, it also offers different pathways to qualification. Students can choose the most appropriate exam options at the most advanced levels of their studies. They also have flexibility in terms of choosing their technical performance objectives, although all students have to complete nine essential performance objectives focusing on areas such as effective communication, managing assignments and
using IT, to name but three. In such ways, as emerging professionals begin to form their career aspirations they can ensure the best fit between their knowledge, experience and ambitions. The CFOs surveyed for The complete finance professional 2013 see strong benefits in employing finance professionals with such a broad knowledge base. In relation to sustainable growth, 76% said that when finance professionals had the complete finance knowledge and skillset, including both financial and strategic management accounting, this really added value to their business. Similarly, 89% believed that understanding the links between all areas of finance enabled recruits to minimise future financial risks, and 88% said it equipped them to deal with financial challenges. This breadth of knowledge makes ACCA professionals an extremely flexible resource, able to be deployed in a variety of roles. The content of the ACCA Qualification – as expressed in the competency framework – helps finance professionals progress and transfer within a company or sector, or between sectors. Not only can ACCA finance professionals help save money – by implementing more effective risk controls, for example, or managing auditors better – they can also help grow sustainable value by sound budgeting and forecasting, building stakeholder engagement, or developing new forms of integrated reporting. These are vital skills, not only for newly qualified finance professionals, but also for the business leaders of tomorrow. For more details, visit www.accaglobal.com/complete
*COMPETENCY FRAMEWORK ONLINE
ACCA is launching an online interactive competency framework in April 2013. Employers, learning providers and potential students will be able to see all of the competencies that are learned through the ACCA Qualification and how it relates to job profiles. The framework will be incorporated into the ACCA website, making it accessible to all users and can be searched via six routes: the ACCA Qualification, level, behaviourial competencies, competency areas, job profiles and sector.
Views from the hotseat As the responsibilities of the finance function and expectations of it change, finance professionals from around the world give their perspectives on their roles and challenges
DR XU YUGAO
Executive vice president and CFO, CNOOC EnerTech, China Controlling the lifeblood ‘The CFO controls the lifeblood of the organisation and is the gatekeeper for outbound money, so three attributes are fundamental. ‘The first is integrity and relative conservatism in order to know which road to pick when facing risks and attractive opportunities. ‘The second is a strong capability in coordination and communications. Nowadays, enterprises are operating in a more uncertain and complicated environment, so the CFO needs to be good at traditional internal accountancy issues but must also tackle mounting pressures from policymakers, the media, investors or even non-governmental organisations. ‘The third attribute is the motivation to learn new things. We live in a fast-changing world due to new technology, geopolitical movement and demographic changes. To be a senior financial professional you have to understand the risks and opportunities embodied in such changes. ‘In a context of uncertainty, the role of the financial department is becoming more and more prominent in strategic decision-making. You have to equip your financial employees with the broader range of skills to create greater value across business activities.’
function. Our role is to proactively influence business decisions through ongoing communication, based on our accounting knowledge and judgment.’
HOWARD MILLER FCCA
ROBERT BIZZELL FCCA
CFO, Ryanair, Ireland
Director, finance and business services, Tata Steel Strip Products, UK
Look for the nuggets ‘More and more, the finance function has to get involved in issues it wouldn’t have before. It’s about rolling up your sleeves, getting your hands dirty and finding out what’s going on. You are on a treadmill process; you have to manage the business for the next three to five years, but the market is only interested in your next quarter. ‘You have to have your finger on the pulse of business, to see small changes others don’t see – and the problems or the advantages that arise. ‘We all have tremendous information systems and you have to use all the information you are aware of and apply it to a problem. You are panning for gold and you have to sift through a lot of dirt to find that one nugget for the CFO and the business.’
ALICE WONG FCCA
CFO, Hong Kong Television Network, Hong Kong Build business models ‘I see myself as my company’s business partner. My mission is the same as that of my department. Our role is not passive – we build business models for our company and pursue them. ‘Finance people always say they have difficulty in pushing other teams to meet budgets as they may consider themselves only a support
KHOLEKA MZONDEKI FCCA Non-executive director, South Africa Prophets and politics ‘The role of CFO is changing more and more. Nowadays you’re a governor, you have to read the crystal ball and try to be a prophet, you are a reporter, you have to play your compliance role, you have to be a communicator, and more importantly a trusted adviser. ‘The value of a good CFO is their lateral thinking, influencing strategy, sensing the future. If you are playing your role well and have an astute CEO, then whatever they do they must always feel the need to say, “Let me check with my CFO and see if this makes sense.” That’s where the CFO’s role as a business partner comes in.’ Mzondeki adds that CFOs must also keep their eyes firmly on politics and its effect on business. Transformation of business is vital, in particular in South Africa, not only because of employment equity legislation, but because it makes good business sense.
Mzondeki on ethics p 32
‘USE ALL THE INFORMATION. YOU ARE PANNING FOR GOLD AND YOU HAVE TO SIFT THROUGH A LOT OF DIRT TO FIND THAT ONE NUGGET FOR THE CFO AND THE BUSINESS’
Go behind the figures ‘This is a massive organisation – you probably won’t find many that are bigger – and the numbers, read on their own, are largely meaningless. It’s what sits behind the numbers that is important and there’s an event behind every figure. If you’re worth your salt, you need to really understand the business. ‘I always say to people, we run our private lives based on cash, so why do it differently at work? I tell people to think of it as their own money.’
TAN CHIN POH FCCA
Head of group finance and MD, United Overseas Bank, Singapore Risk guru ‘The CFO role has changed from focusing on reporting to one where he or she is viewed as a partner with management, providing value-add and managing risks. Now the risks are a lot more complicated, with enterprise risk management a buzzword. ‘The CFO becomes part of a team in the bank to look at how the risks will affect the business.’
15 He considers it essential for CFOs to have accountancy qualifications to deal better with the complexity of the business and also because accounting standards are evolving fast.
CARLSON HO FCCA
Finance director, Pernod Ricard, Taiwan Stay close to the customer
SIMON ROBSON FCCA
Finance director, commercial group, BSkyB, UK Bidding for the Premier League Last year, Simon Robson helped to secure the screening rights to Premier League football matches for BSkyB. In a complex bidding process, he played a crucial role within a project team that included the company’s CEO, CFO and COO. ‘Even when not providing detailed calculations, finance can add analytical rigour to complex bids. It can help deliver the flexibility in costs and timescales that will allow for a range of bid scenarios to be accounted for – there is no need to commit to a single number in the plan. ‘Being able to communicate the rationale of bids quickly and effectively is as crucial as reaching the right decision on what to bid.’ He adds that mastery of the numbers was only half the battle to win what was a crucial set of rights for BSkyB. ‘Be prepared for success,’ he says. ‘Have a post-bid communication plan for both internal and external stakeholders. And make sure you land your plan: finance will play a vital role in ensuring that decisions made during the bid are followed through on.’
For Carlson Ho, the job of CFO is changing; increasingly, he must worry about the spirits producer’s strategy, and lead projects in areas that he describes as ‘not in the job description for most accountants’. When he began his role, he set himself the challenge
of leveraging his company’s resources to turn its fortunes around. ‘In the context of Taiwan, it’s absolutely important that you stay close to customers. Understanding what they want and what they see are things that work. Make sure you work with them. Let them know that you’re here for the long haul – that you’re consistent with building your brands.’ Increasingly, regulatory management has taken up a growing portion of Ho’s time, especially as the Taiwan government looks to pass laws to combat alcohol abuse and drink driving. ‘What I experience in Taiwan is quite interesting,’ he says. ‘I’m trying to influence the lawmaking process in a way.’
*ON HAVING A COMPLETE SKILLSET ALASTAIR GODDIN FCCA
Group head of risk, Hiscox, UK ‘A complete skillset helps you add value, not just in certain niche areas of the businesss, but right across the piece. Some companies go for a silo approach to risk management, but in insurance it’s typical to have risk management professionals who can operate across all areas of risk.’
DENIS MURPHY FCCA
Finance analyst, British Airways, UK ‘A complete skillset is of benefit to an employer because it allows you to take different views of problems. You have the knowledge to look at a problem from an analytical point of view, an audit point of view or a business analysis point of view. This allows you to give a better response and help drive forward corporate goals.’
AMANDEEP JHAJ ACCA
Commercial finance partner – hospital costs, Bupa, UK ‘Having a complete skillset helps an employer because of the flexibility element. You can work across commercial finance, tax, audit and anywhere the employer needs you to work in. It’s important for businesses to grow, and this is where finance comes in and works alongside the rest of the business.’
analyse corporate culture, maintain internal values and ethical behaviour – and it all starts with setting the tone from the top.’ He adds that good corporate governance values are important: ‘Many internal audit functions shy away from governance, but this is really the best place to start instilling values.’
VIZENGE KUMWENDA FCCA
Deputy managing director, NICO Holdings, Malawi Structuring strategies ‘Globalisation is standardising the roles of finance professionals. The value of top finance professionals will lie in their ability to understand the operations of their entities and help structure strategies. At the centre of this process will be risk management, with more finance professionals moving to the centre of systems development and implementation roles.’
WEE HOCK KEE FCCA
Chairman, CG Board Asia Pacific, Malaysia
CEO, South China, and general manager, Shenzhen branch, Standard Chartered Bank, China Know the destination When looking to hire new people, including the many accountants that work in the banking industry and in the departments that she oversees, Rons Fong sets great store by a combination of potential and experience. Accountancy training is useful, she says, and an ACCA accreditation a definite plus. ‘There are lots and lots of accountants working in the banking industry,’ she says. ‘They need to understand where the bank is going, where the industry is going.’
Internal audit joins the board With more than 20 years’ experience in the field, Wee Hock Kee is a keen advocate of auditing, especially internal audit. He says: ‘Internal auditing is beginning to be viewed as a boardroom position, not just a back-room function. ‘Being an auditor is all about skills – communication skills foremost. The message you send to the board has to be short, sharp and to the point. It must be understood concisely by board members, and enable them to see at a glance where the firm’s risks lie. ‘Internal auditors need to be able to influence decision-making at the board level, to carry out governance reviews,
and locally. This, coupled with the wide spread on interest rates, has contributed to financing becoming more difficult to obtain as a result of banks being over-cautious. Most companies in the Caribbean are SMEs and without the necessary management in place. ‘Finance executives have to be innovative and decisive. While keeping your eyes on the macro level you need to be involved at the micro level to ensure proper execution. The HR aspect is becoming more important for the finance executive as keeping talent is important to the business.’
ANGELA LEE LOY FCCA
Chairman, Aegis Solutions, Trinidad Macro and micro ‘The Caribbean has been impacted by the financial meltdown both overseas
SHARON DONALDSON LEVINE FCCA
Managing director, General Accident, Jamaica Intelligence critical ‘The finance function today is driven by shareholder value, and value creation is the ultimate measure of success in private sector companies. The creation and management of business intelligence support is therefore a critical function for today’s CFO. ‘Profits and revenue growth are important drivers of shareholder value. Their accurate measurement must be a core CFO function. Success here means investing time and effort not only in understanding the drivers of profit and revenue but also participating in the design of the business strategies that will lead to strategic goal achievement. ‘The CFO is the custodian of truth reporting, which should include nuances and noises – particularly where they could negatively impact performance. It’s a far wider role than just financial performance reporting. The modern world is data-rich and the design of relevant dashboards to manage the ever-changing operating economic environment is surely a challenge to be managed.’
17 Gulf Healthcare is private equityowned, which Jawad says shapes the finance function’s objectives. ‘There are typically more stakeholders to consider; there’s also a much sharper focus on accelerated growth, and a greater imperative to provide a robust case for investment that will satisfy short and long-term growth objectives.’
ARJUMAND MINAI FCCA CEO, Standard Chartered Leasing, Pakistan Making a contribution ‘Finance professionals need to focus beyond the traditional areas of accountancy and audit. They need to appreciate cultural diversity, and to be involved in and identify sustainability issues, supply chain opportunities and the challenges of governance. ‘When you serve on the board of a major corporation, the potential to make a significant contribution to the welfare of communities is enormous.’
CAROL-ANN BOOTHE FCCA Senior manager, KPMG, US Pressure on headcount ‘Shrinking budgets are affecting finance staff in all sectors. The importance of finance staff is sometimes not recognised, and the finance headcount may be reduced more rapidly than “mission” staff in the light of shrinking budgets. With fewer people, internal controls procedures may be performed less frequently or less rigorously. ‘Also, financial management systems are getting older as system upgrades are placed on hold. As a result, a business’s overall control environment weakens, which increases audit risk. ‘Finance staff have to do more with less, including preparing more corrective action plans to address internal control weaknesses.’
ILONA WEISS FCCA
COO and vice president, ABC Data, Poland Opportunity in volatility ‘In the past few years, CFOs have had to manage in very volatile economies and financial markets. With the situation changing so fast every day, they need the flexibility to adjust decision-making processes and even acquire new skills. This volatility is not yet over, but creates opportunities as well as pitfalls, which is how CFOs should regard it. ‘As CFOs, we should concentrate on how our companies can benefit from this volatility rather than just trying to avoid the pitfalls and manage the risks. Risk management is clearly important but no more than a standard activity for CFOs. So let’s go one step further – and two steps broader.’
JAWAD JAMIL ACCA
Head of finance, Gulf Healthcare International, Dubai Drive growth, not just value ‘Being a business partner is about much more than just adding value. It’s vital that those in charge of frontline operations and other support functions understand that today’s accountants can help drive growth in revenue and profitability of the business. That is reflected by a growing number of accountants in CEO positions in FTSE 500 companies.’
ANDREY SUKHOV FCCA
Tax manager of Russia, Ukraine and the Caspian region, Shell Exploration and Production Services IFRS a shared language ‘For Russia, moving more quickly to International Financial Reporting Standards would bring the financial reporting of local companies to a standard that can be understood by European financial funds and investors. This would then help them understand Russian business and accelerate foreign investment; it would be easier for foreign investors to compare Russian companies with foreign companies. ‘They should definitely not discount the political situation – the problems which exist here in Russia and don't exist in Europe – but on a companylevel comparative basis they would still have a common language. ‘Currently you need to be either specially trained to understand the differences. Most likely, you would just be afraid and would prefer to invest in the company you understand rather than in one that is like a black box.’
‘CONCENTRATE ON HOW TO BENEFIT FROM THIS VOLATILITY RATHER THAN JUST TRYING TO AVOID THE PITFALLS’
Vietnam verve Katherine Wu FCCA, finance chief of Unilever in Vietnam, describes the challenges and rewards of working amid the growth being generated by Vietnam’s ‘golden demographic’ Vietnam is one of the top countries for attracting foreign investors, especially multinationals like consumer goods giant Unilever. ‘This is a young, dynamic country,’ says Katherine Wu, vice president of finance at Unilever Vietnam. ‘With 50% of the population under 25 years old and growing fast in purchasing power, this is one of the key markets for Unilever, and we are committed to building a sustainable business here and making Vietnamese lives better. ‘According to a Goldman Sachs and BCG projection, GDP per capita in Vietnam is going to exceed that of Indonesia, India and the Philippines by 2025.’ While this ‘golden demographic’ is the major driver behind Vietnam’s anticipated bright future, Wu says she knows it’s not simply a
matter of setting up shop and totting up numbers. Unilever entered the Vietnamese market in 1995 – a year after a US trade embargo on the country was lifted. Over the next 15 years Vietnam’s accelerated rate of development propelled it into an unprecedented era of prosperity. Per capita income grew from US$220 in 1994 to US$1,168 in 2010, while the ratio of people in poverty fell from 58% in 1993 to just 14.5% in 2008. Consumer spending is forecast to jump 42% between 2012 and 2016. Wu marvels at Vietnam’s market progression. ‘It is amazing to see how Vietnamese consumers have leapfrogged over the past decade, aspiring to better lives, a more healthy and hygienic living environment and better personal care offerings.’
VIEW FROM: ALBERT NG FCCA Managing partner of Ernst & Young Greater China, and representative of emerging markets on the firm’s Global Executive Board ‘At Ernst & Young, a presence in emerging markets is one of the most important strategies in our firm and we’ve been investing carefully. Each individual country has special challenges and opportunities. Russia has huge natural resources, but it may be lacking service industries. China has a huge domestic market, but a lack of natural resources. ‘In Brazil I was looking at the telecoms sector, which is still very behind China, yet the Chinese companies are looking to go there. One thing in common is that they all have huge opportunities. We need people with local knowledge to manage them. ‘You invest in clients and you develop relationships. You invest in people. The reason why it is called an emerging market is because it is new. Sometimes you need specialised skills and knowledge. But most important is how to develop the local talent quickly. ‘For firms operating in China, two key words are very important: long term. This is probably true for all emerging markets. Emerging economies may be more volatile than established markets. If you believe you will get quick returns, then maybe the time is not right. You have to have persistence. I’ve seen many multinational companies fail because they don’t have persistence. They go to China expecting fast results, but when they don’t see the results in two years they pull out. Everything goes back to zero and a lot of investment is wasted. What I would suggest is to take a longer-term perspective and be persistent with what you believe is right in your policies.’
Accounting standards are also developing quickly. ‘I have found an open and dynamic environment in sharing and evolving accounting standards here,’ she says. Vietnam’s youthful population also constitutes the present generation of fresh-faced graduates and young executives streamlining business practices. ‘They’re all very keen to learn and passionate – their energy and desire to make an impact is very prominent compared to some other places I have worked.’
Future leaders Unilever Vietnam cultivates talent through a future leaders programme. ‘Every new finance recruit starts in customer development and goes to sales for the first three months to get exposure to the fundamentals and connect to our consumers,’ says Wu. Versatility and a broad knowledge of company operations are of paramount importance. All management trainees who joined the leaders programme are on job rotation for two to three years and sent abroad for six months. ‘We are building our Vietnamese talents to become global talents, and our young people love the opportunities. We have Vietnamese managers working abroad in many countries; they will be the future business leaders for both Unilever and Vietnam.’ She notes that different countries provide different learning experiences and skills for her team. ‘We choose overseas opportunities that can best utilise our people’s strength, while stretching them for their areas of development. For example, we have sent people to the Singapore regional office to develop them in strategic thinking and planning roles. We have sent people to Australia to experience a sophisticated modern trade environment. Right now we have an experienced financial accountant from Singapore who has come to Vietnam looking for business exposure. The talent exchange across countries
19 ‘Every new finance recruit that joins us starts in customer development and then goes to sales for the first three months to get exposure to the fundamentals and to connect to our consumers’ creates an open and dynamic environment for our people to learn.’ Wu, who joined Unilever as a finance trainee in 1996, has worked in countries with contrasting cultures and business practices and undergoing diverse stages of development – China, Singapore, Malaysia and now Vietnam. She believes ‘a humble attitude’ is the key to adapting to a new environment.
Good listener ‘When you move to a new country, listen to people; understand them; see what the right behaviour is, what suits the local style of working. Of course, here we’re all Unilever. When you take over or the leadership changes, there is a change in personality but not company strategy. We still need to learn how to work with each other. We are one team and personal engagement is important, as are transparency and integrity. I’m confident that one year down the line [in Vietnam] we have really mingled well as a team.’ Wu believes her finance department has accomplished a lot in driving the speed and efficiency of Unilever as a whole. ‘We’ve made significant progress and this is a continuous journey, so there is much more to do.’ In the end, she knows the bottom line is a numbers game: ‘If you want to see if you’re improving compared to others, you look at the numbers until, one day, you can say, “we’re the best finance team in the industry”.’ Connla Stokes, journalist based in Ho Chi Minh City
*Wu on the evolving finance professional
‘Finance as a profession has always been evolving. In the past it was predominantly about financial accounting, getting fiscal reporting done, preparing statements and making sure everything was compliant. Nowadays, finance has to drive the business and highlight issues and opportunities – how can we make a positive impact on the way we do business from a finance perspective? ‘A career in finance has become a much more comprehensive vocation. These are the challenges that face newly emerging talent, freshly qualified accountants – how to learn, how to become a successful finance director. These are challenging times.’ Wu adds that training with ACCA played a crucial part in her career. ‘It gave me an education and entry to the financial world. It’s not just about accounting, but reporting, taxation and management analysis.’
Rethinking and redesigning Lorraine Holleway, chair of ACCA’s Global Forum for Corporate Reporting, looks at how investors and the accountancy profession are driving change in corporate reporting Lorraine Holleway FCCA is head of financial reporting at Qatar Shell
Although the financial crisis and its aftermath have thrown corporate reporting into the spotlight, the truth is that the relevance of reporting has been called into question for much longer. Now, standard-setters, accountants and companies – banks in particular – have found themselves under greater scrutiny over the way financial performance is presented to the outside world. This, along with growing concerns over the environment, has created a demand and desire for a corporate reporting that is more transparent, useful and relevant – with a greater focus on the long term and much better identification of material issues, both financial and non-financial. Despite shortcomings, corporate reporting remains the lens through which companies are viewed by investors, regulators, governments and other stakeholders. To ensure it continues to play this vital role,
we will need to refine the model. Given the core competences of ACCA members and their position at the heart of business, ACCA believes that if the accountancy profession shows leadership in this area it can play a central role in defining a 21st century model of reporting. While there have been many steps forward in multi-stakeholder reporting, the investor remains a primary audience for the report; it is therefore evident that developments will be largely driven by their needs. Good communication with investors will remain paramount. The provision of useful information will result in a company being rewarded by them with better prices for its stock and a willingness to buy into it. As the business environment grows more complex, we can expect an increasing demand for a clearer statement of all the factors relevant to past and future performance, from strategy and associated risks to a much better understanding of the sustainability of the business model in the wider social and environmental contexts. In short, investors will want to see the wider context so they can understand better the factors leading to a return on investment.
VIEW FROM: HANS HOOGERVORST Chairman, International Accounting Standards Board (IASB) ‘Following the EU’s decision to adopt IFRS in 2002 and our long period of convergence with US GAAP, we have seen more and more jurisdictions come on board. More than half of the Global Fortune 500 report using our standards, a figure we expect to grow. ‘However, there is still much work to do in establishing truly global standards. Adoption is just the first small step in a gradual process towards the full application of IFRS, particularly for jurisdictions whose economies are still developing. Many of these rapidly growing economies have the ambition of developing their own global financial centres, and the use of IFRS is increasingly seen as a prerequisite for such financial centres to exist. The IASB will seek to help them in whatever way we can.’ This is an extract from a presentation Hoogervorst gave to ACCA’s International Assembly. More at www.accaglobal.com/hoogervorst
Although the demands of investors and analysts are widening, financial reporting is likely to remain their central focus. ACCA has been pleased to see that adoption of International Financial Reporting Standards (IFRS) is progressing, with most major economies having either adopted or converged with them – or made plans to. IFRS must surely be at the heart of a relevant system of global corporate reporting. The delay by the US in making a final decision on incorporating IFRS into US GAAP is certainly a setback. But even here there is some cause for optimism; a recent ACCA survey of US investors revealed that a majority saw eventual IFRS adoption by the US as inevitable.
Integration move Integrated reporting is a new framework for corporate reporting that includes financial, governance, management commentary and sustainability reporting. Significantly, the framework being developed by the International Integrated Reporting Council (IIRC) is principles-based and market-led (ie, developed with investors in mind). The framework, to be released for consultation in April 2013, requires senior management to exercise judgment to determine which matters are material, and to ensure they are appropriately disclosed in the context of the organisation’s needs and in accordance with ‘generally accepted measurement and disclosure methods’. A step forward occurred in February, when the International Accounting Standards Board (IASB) and IIRC formally agreed to work together on a global integrated corporate reporting framework. IIRC, founded by the Global Reporting Initiative and HRH the Prince of Wales’s Accounting for Sustainability Project, had also signed a cooperation and collaboration agreement with the International Federation of Accountants (IFAC) in October 2012. At the heart of integrated reporting is how value is created – the inputs, outputs and outcomes – through
US investors who expect the country to adopt IFRS
US investors that would avoid companies using IFRS Source: IFRS in the US – an investor’s perspective is available at www.accaglobal.com/reporting
Bread not bombs: demonstrators call for a redirection of military spending during the 2012 Rio+20 UN summit, where sustainability was championed by CSRC, a powerful group of bodies campaigning for an international sustainability reporting framework
a range of capitals, which the organisation may call on in order to develop and deliver its business model. The capitals include financial, manufactured, intellectual, social, human and natural. These are being explored in a forthcoming paper being supported by ACCA. To ensure applicability and learning, Coca-Cola, HSBC, Microsoft and SK Telecom are among companies already taking part in the pilot programme organised by IIRC. ACCA itself issued an integrated report for its 2011/12 financial year. If integrated reporting is truly marketled, the obvious concern must be whether or not investors will buy into it. There are indeed some positive signs within IIRC itself, through the increasing number of investor representatives who are directly contributing to the development of the framework. Perhaps more significant are the proactive steps being taken by forwardlooking investors and stock exchanges to enhance their stewardship role. Witness the Corporate Sustainability Reporting Coalition (CSRC), convened by Aviva Investors. This powerful group of investors, supported by other bodies such as ACCA, pushed for a global sustainability reporting framework at the Rio+20 UN summit last June. Witness, too, the increasing degree to which stock exchanges are embedding corporate governance and sustainability matters into listing
requirements or highlighting best practices by their listed companies. ACCA has worked with the Shanghai Stock Exchange, for example, looking at disclosure around corporate governance standards and how this is driving performance. These are all examples of changing requirements and a shift in focus that is a step in the right direction, and where a new role for corporate reporting could emerge.
Counting the cost For the CFO, all these developments mean that companies’ finance functions will have to be adaptable so they can deal with the major changes that are taking place. In IFRS, the impact will be felt in particular in relation to revenue recognition and lease accounting. Some sectors are likely to be more affected than others – for example, banks (affected by the completion of IFRS 9, Financial Instruments), insurance contracts, emissions trading and agriculture. These are areas of complexity with both investors and regulators needing assurance that standards are being properly applied. Other issues include the length of reports, their presentation and the quantity of detailed information. CFOs are counting the cost of preparation and the need to report on different key performance indicators (a theme
explored in a conference on nonfinancial reporting organised by Deloitte, Lodestar and ACCA). There is also a growing demand for transparency, seen in such legislation as the US Dodd-Frank Act. With or without direct regulation, consumer and political interest in how companies create value is in itself a driver for companies to be more transparent, so they can tell their own story. It will be very interesting to see how assurance will play a role in this broader landscape. Finally, the medium of communicating performance is another area in flux. Will static financial reports be replaced by a wider range of performance measures, with more detailed information available, customised to the user, and more easily accessible? And given the emergence of social and mobile media platforms, can companies issue information more quickly? In some ways, the move of corporate reporting into the digital era has barely begun. So there will be more change, some driven by regulators, and some driven by peer pressure or investor market forces. It’s up to the accountancy profession to adapt and make corporate reporting relevant. It will test the judgment of the finance function as much as anything else. But as an opportunity for the profession to show leadership, it doesn’t come much better than this.
CORPORATE REGULATION AND STANDARD-SETTING
Standards for business The way in which audit and accounting issues are raised and discussed must change, and ensuring the investor’s voice is heard is a priority, says Sue Almond Sue Almond is ACCA’s technical director
Audit and accountancy have featured strongly in the public domain following the financial crisis, as policymakers, regulatory bodies and opinion formers seek to understand the role the profession played in the crisis. This heightened interest has been seen in public inquiries, reports from regulators and other authorities, consultation papers from government bodies and widespread media attention. Standard-setters have not escaped attention either. For example,
International Financial Reporting Standards (IFRS) have been a subject of media comment for some years and have been named as contributing towards the financial crisis. Along with many other organisations, ACCA has welcomed the interest as evidence of the importance of the profession in business life and an opportunity for continuous improvement. However, the way in which issues and challenges have emerged could be creating a problem rather than providing a clear agenda for the future. There remains a need for a longerterm vision in this area. We should look to how we can seek to influence the long-term development of standards and regulation in a way that seeks to resolve some of the current issues rather than wait for the next crisis –
VIEW FROM: AZIZ TAYYEBI Head of international development, ACCA ‘The rapid global growth in Islamic finance means action must be taken to harmonise the way in which it is reported and to make it more consistent. ‘Islamic financial institutions (IFIs) in different countries can report transactions in different ways. This creates uncertainty for investors trying to assess and compare IFIs not only with each other but also with their conventional counterparts. ‘The International Accounting Standards Board (IASB) needs to work with the Islamic finance industry to develop guidance and standards and to educate the investor community on the key issues in Islamic finance. An ACCA/KPMG report – based on a series of roundtables held in Kuala Lumpur, Dubai and London – has urged the IASB to consider issuing guidance on the application of IFRS when accounting for certain Islamic financial products. It should also consider issuing guidance on additional disclosures for stakeholders seeking information on an entity’s sharia-compliant operations. ‘The IASB should work with the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and other Islamic finance standardsetters and regulators to establish the gaps between IFRS and Islamic accounting standards and to review the needs of users. This review should cover IFRS terminology and consider whether such sensitive terms as ‘interest’ – forbidden in all forms in Islamic banking – can be amended or added to.’ The report, Global alignment: bringing consistency to reporting of Islamic finance through IFRS, is available at www.accaglobal.com/reporting
and the associated reactive measures – to occur. The profession needs a mechanism for constant improvement, not just when economic or corporate crises are at the top of political agendas. Businesses need standards that reflect the integrated nature of the reporting process and provide the information that stakeholders, particularly investors, need.
The current position Currently, there is a highly fragmented approach in the way in which issues are raised and discussed. Some examples include: Consultation documents are released by different government/ political bodies with no clear connection or narrative setting out a broader agenda. Nor is it always clear what urgency or importance the issues raised have in relation to each other, or what actual evidence underpins the perceived issues. The nature of standard-setting itself – with different boards responsible for different standards and regimes – means that issues are often considered from a single perspective, encouraging a silo approach. Each body considers only those issues which relate to its agenda, which in itself creates a sense of disconnectedness. Yet a financial audit can relate only to what is disclosed by a company, and the process of reporting itself is strengthened by strong ethical codes and good standards of corporate governance, so standards are ultimately interdependent and issues raised relating to one area are likely to have impacts and consequences elsewhere. But this is not a debate which is frequently held in business or in the profession. While corporate governance is integral to providing confidence to investors and a good approach is essential to effective business, there is no formal process for promulgating consistent global
23 standards around corporate governance and narrative reporting. In terms of investor confidence, effective governance is as important as transparent reporting and independent assurance. Investors, who operate in a global market and look for comparability of annual reports, observe that although the figures are prepared and audited using global standards, narrative reporting is prepared according to varying national standards, at best. In summary, it is not easy to establish a complete picture of the issues and problems and agree in what order to address them. This in part relates to the different ‘models’ applied to standard-setting and regulation but ultimately it is symptomatic of a complex global financial system, in which there are many stakeholders and diverse jurisdictions relating to accounting and auditing. As a result, there are many voices offering their views on the problems and the solutions – but few are in a position actually to drive change themselves.
The missing link There is one overriding issue that links all of the above: the voice of investors is not being clearly heard. While some investors are commenting on current issues and challenges, theirs is not a consistent voice – perhaps understandably given the range of organisations and interests that fall under the ‘investor’ heading. Investors are also far less likely to be proactively engaged when looking to prioritise issues and drive an agenda for continuous improvement. There are recent initiatives, such as the UK’s Financial Reporting Council’s Financial Reporting Lab,
that seek to achieve a more integrated approach to standard development, and the International Federation of Accountants (IFAC) and other standardsetters are increasingly looking to bring more investor input to the process. These initiatives are at an early stage and ACCA will continue to encourage the relevant bodies to adopt an inclusive approach to make sure that the investor voice is heard.
A way forward While it is not suggested that engagement with stakeholders, particularly investors, can solve all the issues identified in this article, there are a number of benefits to be gained from using a structured engagement to identify and evaluate the issues raised. These include: developing a proactive and positive agenda for change and enhancement; recognising the real impact on business of any change; placing investors at the heart of the accounting and auditing system, starting from an understanding and clear articulation of their needs, concerns and priorities; assisting policymakers and regulators in identifying issues and priorities, offering evidence and a route map to aid the legal and regulatory processes; generating an overview of all the issues in relation to each other, promoting a more integrated view of the wider financial and accounting system; obtaining structured evidence which can inform wider debates in business, the profession and the political sphere. ACCA will be working with the various stakeholder groups to articulate a more integrated ‘standards for business’ model that captures input from investors, preparers, standard-setters and regulators as a way of effectively prioritising areas for change and development in the accounting system. We will be planning events and dialogues that cut across the various silos to provide balanced input from the different groups into the corporate reporting ecosystem that delivers high-quality, reliable financial information.
The business case for diversity HSBC chief accounting officer Russell Picot believes organisations that can use our differences to their advantage are more likely to succeed in the long run Diversity isn’t a buzzword for HSBC chief accounting officer Russell Picot. For him, it’s a commercial imperative. Speaking at a joint ACCA-HSBC event on diversity in boards and senior management that took place in London last autumn, he asked: ‘How could you not think that diversity matters?’ HSBC has businesses in about 80 countries, but the London-based bank takes the attitude that it is a guest in 79 of them. As a result, Picot explained, diversity ‘forms part of the DNA of HSBC’. He emphasised that diversity is about understanding that people in different countries have different working practices, different customs and different expectations of each other. It also entails being sensitive to a wide range of cultural norms, and being comfortable communicating with employees, customers and stakeholders from differing backgrounds. ‘Most of HSBC’s senior leadership have spent much of their working life outside the UK,’ he said. ‘If you’re going to be successful in an organisation with businesses around the world, you need to understand and respect local customs and traditions.’ HSBC sees and experiences the value of diversity. At the last count, 23 languages from all corners of the world were spoken within Picot’s department. Globally, 60% of HSBC’s workforce is female, although only 14% of senior managers are women and there are four female non-executive directors on the board. Picot acknowledges that the bank, along with most other organisations, has more to do to achieve greater senior female representation. Picot himself oversees a team in London of 120 people, with just over half being female. Women make up nearly 50% of his management team. On a personal level, Picot describes his working life as being ‘hugely influenced’ by women. When he joined KPMG in 1979, for example, he was articled to the only female partner in the office in the days when female
HSBC’s Russell Picot
partners in the City of London were very rare. ‘Unconscious bias’ in the workplace is one of the greatest threats to diversity, Picot warned. ‘It’s not enough just to passively understand that the problem exists; you also need to think about how you create an environment where those invisible barriers are not raised’ he said. HSBC puts its employees through unconscious bias training, but even so, people often find it difficult not to make assumptions about others. ‘Office environments can be very male-dominated, an imbalance that can become self-perpetuating,’ Picot said. ‘This is really not beneficial for the company or the individuals involved. It can be dealt with, but it
requires positive action from all concerned.’ There is a tendency to stereotype work-life balance as an issue for women rather than men. But Picot pointed out that men can also find it difficult to reconcile heavy workloads with preserving family life. He believes it rests with an organisation’s leaders to set an example. ‘Role models really matter. It is important to maintain an appropriate work-life balance.’ Diversity might be a fashionable concept right now but, according to Picot, there is also a long-term business case for it. ‘Without diversity within your organisation, you will struggle to keep up with the competition.’ Sally Percy, journalist
*A critical component of capability
‘Diversity of ideas and business perspectives create great finance functions that drive business performance,’ said ACCA chief executive Helen Brand, who also addressed the joint ACCA and HSBC event on diversity. ‘It is a critical component of capability.’ She pointed out that in an increasingly global world, the finance function needed to be able to tap into local knowledge to navigate complex regulations and differing cultural norms. ‘The skills required of finance professionals are changing,’ she said. ‘It is not enough for them just to have technical skills. They also need enabling skills, negotiation and influencing skills, and new ideas.’ The trend towards regional shared service centres could come at the expense of diversity, she warned, since local experience and knowledge may be lost.
The circular economy
Cesar Bacani hears how companies need to adjust their systems and thinking to the ‘circular economy’, especially if they still want to be around for decades to come New rubrics are often coined at the annual meeting of the World Economic Forum in Davos in Switzerland. One of the new terms at this year’s event is the ‘circular economy’, as opposed to the ‘linear economy’. The two terms refer to sustainability and its antithesis, unsustainability, but policy wonks must have their fun. At one panel on the future of business, Peter Lacy, managing director of Accenture Sustainability Services, bounded on stage clutching two shoes. The one in his left hand, he said, was a favourite because of its comfortable fit and elegant look, but it was coming to the end of its useful life and would soon be thrown away. The shoe in his right hand was another favourite, said Lacy, but when it is no longer usable, he will return it to Timberland, the manufacturer, which will reuse the parts to make new footwear. Some 80% of the shoe is made from recyclable materials. This is what the dreamers and movers and shakers at Davos mean when they talk about the emerging circular economy. The new paradigm is exemplified by companies like Timberland, car-sharing firm Zipcar, and the website Yerdle, which uses Facebook and the internet to match people who want to share virtually any product with others who want them (and vice versa). ‘We’re implementing the circular economy,’ said Adam Werbach, the founder of Yerdle (tagline: why shop when you can share?) and a presenter at the same panel. Do you know, he asked, that there are 52 Lego pieces for every child on the planet? If those pieces are shared on Yerdle’s sharing circles and other websites and avenues, the pressure on the world’s resources
to make plastics and other materials will be lessened. But if everyone is sharing instead of buying, someone in the audience asked, won’t a lot of manufacturers go bankrupt, along with the suppliers and vendors in their ecosystem? And what are the implications for economic growth? There could be widespread dislocations in countries that had built their economy on the linear economy’s use-and-dispose model. The circular economy will not replace the linear economy overnight, was the answer. Companies will have time to adjust their business models and processes to respond to a world
of renters and sharers, rather than purchasers. The pace of change will depend on consumer demand, government incentives and taxes, the agility of the individual business and other factors. What Lacy, Werbach and others in Davos see is the slower pace in the growth of the manufacturing sector and the expansion of services. There will be a core of companies that will make, repair, recycle and upgrade ships, planes, trains and automobiles, iPads, iPhones and Android phones, televisions and washing machines, and clothes, shoes and other personal items. They will need to keep a constant eye on costs and squeeze efficiencies from all their processes. The bulk of the economy will be in services – product designers, materials researchers, logistics providers, customer care, online companies, social media players, mobile phone apps developers and so on. There could be specialist and niche industries as well. Presumably, pacemakers and dentures will not be shared (though they can certainly be recycled), while jewellery, vintage cars and art pieces will continue to end up in the hands of rich collectors and hobbyists. The circular economy is not a bluesky concept, the panellists insisted. There are already many commercial manifestations – software as a service and cloud computing being two in the business enterprise space. Companies that intend to be around in the next 10, 20 or 100 years will certainly need to input the arrival of the circular economy in their planning and budgeting. For the sake of the planet and their own bottom line, businesses should get on with the programme. Cesar Bacani is editor-in-chief of CFO Innovation Asia
Analytics unleashed Deeper insights, better decision-making and tangible business outcomes are some of the key dividends of analytics, say Julie Spillane and Edel Lynch Julie Spillane FCCA is Accenture EMEA director of business services, global director of finance excellence, and Ireland FD Edel Lynch is director of Accenture’s Dublin-based Analytics Innovation Centre
For those who wonder what the next big thing in global business services will be, we can confidently answer: analytics, and it’s already here. The combined power of the crosscountry, cross-process and crossorganisational nature of business services, married with the deep insight that analytics can bring, will unlock the next generation of value for progressive, forward-thinking finance leaders. To exploit this, finance professionals need to educate themselves about the power of analytics, start to talk the language and get real projects with tangible business outcomes under their belts.
What is analytics? Put simply, analytics is the science of analysis, and it is increasingly being used in organisations to describe, predict and improve performance. Traditional reporting and business intelligence can be regarded as ‘descriptive analytics’, a rear-view look at what has happened through the generation of standard reports and ad hoc queries.
The next evolution is ‘predictive analytics’, which focuses on answering questions such as why something has happened, what will happen next, and what is the best that can happen. It does this through the use of statistical methods (forecasting, extrapolation, predictive modelling and optimisation) to uncover and communicate meaningful patterns in data. This enables organisations to drive better, more fact-based decisionmaking, leading to more effective cost management, better controls and increased profits. Given the significant volumes of data
THE NEXT EVOLUTION IS ‘PREDICTIVE ANALYTICS’, FOCUSING ON ANSWERING WHAT WILL HAPPEN NEXT, AND WHAT IS THE BEST THAT CAN HAPPEN
collected by organisations today, predictive analytics is a powerful asset that can deliver a competitive edge. It is being applied with increasing levels of sophistication to solve real business problems and identify new opportunities in fields such as enterprise decision management, marketing, customer relationship management, credit risk, collections and fraud detection. The demand for analytics solutions is growing as data availability rapidly increases and managers recognise the critical importance of analytics in generating deeper insights.
Finance analytics in practice At Accenture we realise the value that analytics can bring to our clients and have set up nine analytics centres
What’s the best that can happen?
What will happen next?
What if these trends continue?
Ad hoc reports Std reports
Future-oriented and the source of competitive advantage if deployed pervasively
DESCRIPTIVE ANALYTICS (the ‘what’)
Where exactly is the problem?
How many, how often, where?
Degree of intelligence
globally. The Dublin-based Analytics Innovation Centre is designed to accelerate the development and delivery of innovative predictive analytics solutions focused on fraud, risk and compliance within government and industry. In a recent project, the Dublin centre partnered with finance process owners to successfully employ predictive analytics within Accenture’s global finance organisation. Accenture employees travel frequently; we need to ensure they are reimbursed promptly and accurately for out-of-pocket expenses within an effective controlled environment. We process billions of dollars of expenses annually through over two million expense claims.
What actions are needed?
The application of predictive analytics presented a significant opportunity to improve the effectiveness of the process. The aim of the project was to understand the factors driving expense claim noncompliance and use this insight to optimise the process and improve employee education. The project involved developing a model that examined over 40 lead variables associated with the claim, including employee-related data, business data, historical noncompliance data and expense claim data. Only some of these variables had previously been considered by the audit controls system. The predictive analytics model yielded a number of clear and interesting insights, including: Rules that were previously used to score claims for audit were shown not to be statistically significant predictors of non-compliance. Some of the new variables used in the model were found to be important predictors of noncompliance.
(the ‘so what’... and the ‘now what’)
Why is this happening?
‘Rearview mirror’ provides necessary foundation and insight, but does not capture full value on its own
Geographic segmentation showed * ‘over auditing’ in some regions, ‘under auditing’ in others, and differing predictors across regions. The project led to policy changes, process optimisation and much more targeted employee education campaigns. All in all, we have improved the yield of the process by over 40%. The beauty of the predictive analytics model is that it continues to learn. As employee behaviours and policies change, and as we enter new markets, the model can be refreshed to identify new predictors and archive ones that are no longer significant, ensuring we continue to derive benefit over time. This project has been a success, not only because of the insights generated by the analytics, but in how these insights have been transformed into tangible business outcomes through process redesign and the embracing of analytics by business stakeholders. This project has not only heightened our skills as finance professionals but also serves as a showcase within our own organisation and to clients.
CORPORATE RISK MANAGEMENT
A new look at handling risk If businesses are to create value sustainably for shareholders, we may be better off thinking of governance, risk and performance in terms of outcomes, says Paul Moxey Paul Moxey is head of corporate governance and risk managment at ACCA
It’s time to take a fresh look at risk management and governance. Research frequently highlights the prevalence of cognitive biases. We tend to believe we understand the world better than we actually do; this gives us overconfidence in our ability to predict the future and a misplaced faith in the extent to which we can control events and shape outcomes. Are we really so good at identifying risks, at assessing the likelihood of their happening or their impact? Recent history indicates otherwise. Risk events such as the bankruptcy of Enron (and what caused it), oil spills and the well-documented failures in the banking system have put pressure on boards and managers to ensure these sorts of thing do not happen again. This has tilted the balance away from entrepreneurs towards risk managers. Meanwhile, corporate governance, and particularly compliance with its requirements, arguably has become an end in itself, divorced from what a company is really about. In 2010 ACCA said in Risk and reward: tempering the pursuit of profit that risk should be considered in relation to the potential reward for taking it. While we can make informed predictions about the future, we cannot be certain. In business, the job of management is to maintain and grow the business sustainably in the face of uncertainty; governance is about ensuring that this is done.
ACCA sees corporate governance as having three essential components: performing – ensuring that the board directs the company in pursuit of its purpose; accounting – ensuring that the board gives account to shareholders and other stakeholders on how it has done or is doing this; holding to account – ensuring that shareholders, and in some cases stakeholders, hold the board to account if it fails in either creating value or in giving proper account. All three are vital if a company is to create value sustainably for its shareholders. Students of current economic affairs will understand the extent to which these three components have been lacking. We need to look again at governance, at risk and particularly at performance and how it is measured. Profit is an inadequate performance measure as it is too easily gamed. Stopping advertising or maintaining assets will bring an immediate short-term boost to profit and, quite probably, the company’s share price, but will also damage the business and its stakeholders over the longer term. We must get better at knowing what to measure and how to evaluate performance. This also requires a clear understanding of what a company is for. What ‘new approach’ are we suggesting? Ironically, having questioned how risks have been managed historically, we think it may be helpful to employ a risk management technique common in financial institutions – the use of probability distributions of ranges of possible outcomes. We suggest thinking of governance,
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THE RISK BELL CURVE Think of governance, risk and performance in terms of outcomes that can be measured. The classic bell curve can help you visualise this process – see text for details.
risk and performance in terms of outcomes. In the diagram above, the curve represents the range, or expected range, of possible outcomes for a particular measure. The measure could be financial (a firm’s share price, profit, sales, costs or asset values) or non-financial (quality, oil reserves, emissions, ethical health or staff motivation, contribution to some social or public good). Not all outcomes will have this classic bell curve, but understanding the shape or distribution is important if we are to get better at measurement and at making companies more successful in creating value. For measures where a positive outcome is desired, performance is about shifting the curve to the right – the large arrow at the top. The performance component of governance is about making sure that the longterm interests of shareholders and other stakeholders are satisfied, that the company has the capability to achieve, and that management pursues the desired outcomes. Another role for governance could be narrowing the range to reduce variability of outcome. Risk management is undeniably about limiting undesirable outcomes – removing the tail to the left of the red dotted line. As for the tail to the right of the black dotted line, while removing upside will certainly narrow the range, whether we want such an outcome depends on the precise aim. Is this part of risk management or is it about whether or not to take an opportunity? In my view, it is about how we deal with uncertainty, which
I believe is a key management role and needs to be separate from risk management. Managing uncertainty means managing opportunity, the upside, as well as risk, the downside. For many people in large organisations this will require a change in mindset. Accepting and being comfortable with uncertainty will make us less susceptible to confidence bias. Organisations that manage uncertainty to promote performance think differently from those that focus on avoiding risk.They are more entrepreneurial and comfortable with accepting the uncertainty associated
with the future. This type of firm is likely to react better to events as they happen, resulting in a business which is more resilient and better able to balance risks against reward in assessing opportunities. If we get the three components of governance right, it will allow businesses to create more value and in a more responsible and sustainable way. That will be good for shareholders, for society and for us all.
Risk and reward: tempering the pursuit of profit is available at www. accaglobal.com/risk
VIEW FROM: SHENILA SHALLWANI ACCA Business analyst, NIB Bank, Pakistan ‘Rises in oil prices have had an indelible impact on many industries and present a significant risk to the shipping industry. Shipping is in financial doldrums, suffering from depressed freight rates and high oil prices, moving even larger shipping companies toward operating losses. In 2012 rising crude prices drastically eroded already slim profits experienced by shipping companies. Fuel represents 60% of total ship operating costs. Bunker (any type of fuel oil used aboard ships) prices have risen steadily from US$500 per metric tonne in 2010 to US$600 in 2012. ‘To manage risk, shipping companies are using a range of measures to cut costs, including adding more vessels, steaming at lower speed, reconfiguring routes, focusing on fuel-saving measures and ship maintenance. How to recover in this climate is a matter for commercial negotiations, but the significance, magnitude and the consequences of the challenge continue to grow.’
VIEW FROM: SANDRA B RICHTERMEYER Immediate former chair-emeritus, IMA ‘Regardless of geography, organisations need sound internal controls and risk management practices to ensure performance and stakeholder protection. COSO (Committee of Sponsoring Organizations of the Treadway Commission), an organisation co-sponsored by IMA (the Institute of Management Accountants), provides thought leadership and frameworks to support strategy, risk management, and systems of internal control. COSO plans to release a refreshed Internal Control-Integrated Framework (ICIF) this year that retains the timeless concepts while adapting to today’s business environment. ‘While many have found ICIF valuable for external financial reporting, it is also very useful for reporting external non-financial information. ICIF incorporates guidance that helps with a variety of compliance requirements, in addition to reporting internal financial and non-financial information. With the refreshed ICIF, users from all types of organisations will have an even more effective means for improving internal control systems that support performance with greater agility, confidence and clarity.’ Richtermeyer is also COSO board representative for IMA
CORPORATE FINANCE TRANSFORMATION
Sourcing success CFOs have high and rising expectations of shared services and outsourcing, but new research shows many are not making the most of remote delivery, says Jamie Lyon Jamie Lyon FCCA is ACCA’s head of corporate sector
VIEW FROM: CLAUDIO ALTINI Director, sourcing advisory, KPMG, UK
TO SEE CLAUDIO ALTINI ON VIDEO: www.accaglobal.com/altini With continuing uncertainty on the horizon of the global economy, the CFO is under pressure more than ever to transform the finance function so it can support the business more effectively. But how successful are current transformation activities, and are shared services and outsourcing really living up to the promise? A study last year from ACCA, Finance leaders on sourcing success, suggests that many opportunities remain untapped. Uniquely, the survey focused on how CFOs themselves viewed the success or otherwise of shared service and outsourcing (SSO) strategies, outlining the drivers behind SSO adoption and gauging how the business outcomes that were initially sought have shifted. Almost 500 CFOs and other finance leaders across the world participated in the study, which was complemented by in-depth interviews with leading brands such as Microsoft, GE and AOL. The outcomes make compelling reading. First it is important to note that not everyone has adopted SSO, even for transactional finance activities. Some 28% of respondents to the survey said
‘The biggest challenges in the aftermath of implementing shared services or outsourcing are not the hard skills such as developing a working governance model, changing workflows or meeting SLAs/process efficiency, all of which were judged to be over 60% successful by finance professionals. Rather, the harder tasks to get right are the softer issues of company culture and retained team morale and retention; language skills is ranked as the biggest issue, which suggests service providers need to work on ensuring their staff have all the necessary language fluency to make working with the retained organisation easy.’
VIEW FROM: JEHAN PERINPANAYAGAM FCCA CEO, Infomate, Sri Lanka ‘Cost arbitrage remains a key reason for outsourcing accounting but increasingly other reasons are emerging such as access to talent, risk mitigation, focus on core business, improved controls and corporate governance and as a driver for best practices and automation. In my company, one of our clients, an accounting firm based in Europe, employs outsourcing as a strategy for growth and to gain access to the large talent pool of accountants in Sri Lanka. Others outsource to gain access to best-in-class technology and processes including scanning and workflow, guaranteed service levels and quality. Still others want to outsource their non-core, high-volume, repetitive transactions to free up their resources for strategic finance activities.’
they had not yet taken the plunge with remote delivery of some finance operations. For those CFOs that have, the survey suggests that shared
services and hybrid models are the significant preference. In many senses SSO has been an overwhelming success. The common
WHAT DOES THE FUTURE HOLD? * *
* * * * *
More CFOs aspire to implement SSO models Outsourcing of higher-value finance activities is still untapped Efficiency, cost and capability are the initial drivers for adoption Model maturity drives effectiveness Cost won’t always be the highest priority for CFOs Focus of SSO is on quality, scalability, transformation and talent
31 story is that leading companies around the world have tapped into a compelling labour arbitrage, with SSO driving process standardisation, improving controls and helping raise business performance through better data visibility and consistency. But there is also another story, where finance transformation has come about through business transformation, a result of the imperative to make global finance operations support the organisation better, future-proof it and provide scale. Improved capability and access to talent are also increasingly regarded as drivers for the transformation process now, so in many cases priorities have evolved. Despite the many positive success stories, the survey also suggests there is much more to do, particularly in expanding the scope of finance through these types of finance operations. According to the survey around 60% of respondents still keep ‘higher value’ activities within the retained finance function. The good news is that these findings don’t appear to detract from the attraction of SSO for CFOs. In fact, the survey suggests most finance leaders have high aspirations for the business outcomes that SSO can deliver. CFOs cite the usual trifecta of outcomes – cost reduction, efficiency and finance capability – as reasons for undertaking the journey in the first place, but as the journey progresses, new priorities emerge: quality, scalability, transformation and talent. As aspirations rise, the key question is whether CFOs believe SSO can deliver the outcomes desired. Here is the stumbling block – this survey suggests there are growing expectations not quite being matched. It’s a challenging picture with a consensus
The latest release of ACCA’s Research and Insights iPad app explores the whole subject of finance function transformation with a particular focus on shared services and outsourcing. You can download the app for free via www.accaglobal.com/riapp, or just search for ‘ACCA Insights’ in the iTunes App Store.
that effectiveness needs to improve. Not surprisingly, however, it is those businesses with more longevity in their SSO relationships that typically see greater effectiveness. Of course, one of the critical questions in the adoption of SSO is what success actually looks like. There is much talk about going beyond cost reduction as the barometer of success, yet this survey suggests that measures of success remain in their infancy. Businesses remain focused on measuring success through cost reduction and the achievement of service level agreements. Fewer than one in six businesses adopt broader measures of success, such as return on investment targets and profit
contribution targets. Just 5% of businesses attempt to link their SSO investment to shareholder value. So where next? Well, it’s not all bad news. CFO aspirations remain positive and this is reflected in the desire for future investment in SSO, according to the survey. Put simply, those CFOs who have invested in SSO expect to continue to add significantly to their investment. There is also, of course, growing interest in global business service models. In contrast, those who haven’t adopted remote delivery as part of the finance solution are less bullish about investing in their current finance delivery model. These findings should be seen as a wake-up call to those people involved in SSO delivery on a daily basis. The reality is that SSO won’t always be at the forefont of the CFO’s mind, and won’t always be given the focus and priority it perhaps deserves. There is no doubt that SSO has delivered significant cost reduction, improved finance processes and helped drive control transparency. SSO leaders need to continually restate and remind businesses and CFOs, and not just themselves, of the significant benefits already achieved. Our survey suggests that some CFOs may need a little bit more convincing.
Finance leaders on sourcing success is at www.accaglobal.com/ transformation
corporate future view
Survival tips for the next decade A new report outlines 10 ‘strategic action imperatives’ that need to be addressed by both businesses and finance professionals looking to thrive in an uncertain future With seismic changes sweeping the global economy, we would all like to have a crystal ball and see what future challenges await us, although with technological advances perhaps the crystal ball has had its day, to be replaced with a time-travelling portal.
To that end, a new report from ACCA, 100 drivers of change for the global accountancy profession, examines what the future could look like. Based on interviews with members of ACCA’s Accountancy Futures Academy, the report identifies the drivers for business and the profession and, analysing their potential implications, sets out a clear set of priorities that are emerging. It then consolidates them into 10 key ‘strategic action imperatives’ that need to be addressed as a matter of urgency if business and the accountancy profession are to ensure they can perform effectively in the decade of uncertainty and change that lies ahead. For a start, businesses must factor in that turbulence and develop strategies for a range of scenarios. ‘Organisations continue to handle change as a project,’ warns Marie McCrea, partner at CIL (Centre for Innovative Leadership), ‘and change is not going to come in neat little boxes called key driving forces. It’s usually an incoherent volatile mess. Businesses and individuals need to continuously assume and plan for volatility. Scenario-based strategy is key in this process.’
Kholeka Mzondeki: ‘We must not be apologetic about promoting trust and ethics’
Preparing for true globalisation is another of the five must-dos for business. ‘This goes beyond the exportation of the home country paradigm and business model,’ says Ng Boon Yew FCCA, chair of ACCA’s Accountancy Futures Academy and executive chairman of Raffles Campus in Singapore. ‘Longer-term success requires organisations to develop global management approaches encompassing everything; for example, strategy formulation right through to business innovation, and the recruitment and development of manpower.’ Equally important, he says, ‘is the capability of management to adapt to a multi-location, multicultural and age-diverse workforce’. Accountants meanwhile must embrace an enlarged strategic and commercial role in the organisation. ‘Finance professionals will increasingly be asked to be proactive in creating value and improving business effectiveness, in order to help navigate a volatile economic climate,’ says Faye Chua, head of future research at ACCA. ‘Business structures and communication channels will need to evolve to allow the closer integration of accounting with other departments, and accountants will also need to be better versed in managing the ever growing volume of data that is being amassed.’ Building your radar and introducing systematic, organisation-wide approaches for scanning the future external environment are becoming critical development priorities for businesses. ‘We have to have much better capability at scanning, analysing and interpreting what might be coming next,’ says Rohit Talwar, the report’s lead author and CEO of Fast Future. ‘Businesses are becoming aware they have to have a radar to identify issues on the horizon. They can’t simply deal with what’s on the agenda today.’ The profession also needs to be seen to be establishing trust and showing ethical leadership. ‘As accountants
33 FUTURE VIEWS ON VIDEO: www.accaglobal.com/…
Ng Boon Yew
we must not be apologetic about promoting trust and ethics,’ says independent non-executive director Kholeka Mzondeki FCCA. ‘Ethics is also very situational and we have to have emotional intelligence to be able to apply ethics in an appropriate manner.’ It is ultimately, she adds, a question of ‘what is right and what is wrong’. It is equally important for businesses to pursue technology leadership, because the ability to master these developments could be the key differentiator between success and failure. ‘For business, the impact of cloud computing, the valuation of digital assets, cybersecurity, the rise of “big data” and the value of data mining will all become mainstream very quickly and this will require new approaches to technology management,’ says Chua. Accountants need to take a holistic view of complexity, risk and performance. ‘There is a consensus about the need for reporting to provide a firm-wide view of an organisation’s health, performance and prospects,’ says Ng. As such, he says there is ‘increasing demand for annual report and accounts to focus on holistic aspects and to provide a range of non-financial indicators – risk, sustainability of revenue stream and the ability to meet with the challenges in a volatile market’. Accountants must also develop a global orientation. ‘This creates a real challenge,’ says Talwar, ‘firstly around the technical skills of learning how to do accounts in each nation, tax, profit repatriation, but then a much more interesting and complex challenge is about learning how business is done, understanding business culture, local values and practices, and things like how the accountancy profession is viewed in the country.’ A further critical success factor in a fast-changing environment is for businesses to build a ‘curious’
culture. ‘In a complex and moving environment,’ says Mzondeki, ‘you need to know what’s around the corner and the only way to actually do that is to develop a curious mind. As an accountant you’ve got to be in touch with the business, in touch with what’s going on around the world so that you can be part of a strategy.’ The final imperative is the need to reinvent the accountancy talent pool. The diverse demands on the profession are forcing a rethink of everything from training and development to the
type of recruit. Characteristics such as curiosity and creativity will assume far more significance. McCrea says: ‘Accountants can no longer look at things in boxes; systems thinking is critical to looking at the whole. Our values and our attitudes are going to be key.’ Beth Holmes, journalist
100 drivers of change for the global accountancy profession can be found at www.accaglobal.com/futures
*THE 10 IMPERATIVES FOR BUSINESS
1 Assume and plan for volatility Businesses have to factor in turbulence as a very real possibility and develop strategies to deal with it. 2 Build your radar Systematic, organisation-wide approaches are required for scanning the future external environment. 3 Pursue technology leadership New mindsets and approaches to technology management are required to exploit and extract full value from the next decade of advances. 4 Prepare for true globalisation Development of a truly global operating model is becoming a priority. 5 Develop a curious, experimental and adaptable mindset Businesses need to build a ‘curious’ culture, open to external ideas, in which participants are encouraged to forge a network of strong working relationships across the entire business ecosystem.
FOR THE ACCOUNTANCY PROFESSION
6 Embrace an enlarged strategic and commercial role The potential exists to leverage the capabilities of the accountant across all aspects of corporate decision making from strategy formulation through to defining new business models. 7 Establish trust and ethical leadership The profession needs to be seen to be addressing clear public concerns and do more to highlight and prevent failures. 8 Focus on a holistic view of complexity, risk and performance Accountants must recognise the need for reporting to provide a firm-wide view of organisational health, performance and prospects. 9 Develop a global orientation The accountancy profession must have the ability to master the language and cultural challenges of cross-border operations. 10 Reinvent the talent pool Characteristics such as entrepreneurial spirit, curiosity, creativity and strategic thinking could assume more significance in selecting tomorrow’s accountants.
Rolling with the punches Resilience is needed to withstand short-term economic turbulence while retooling the company over the long term, says PwC International chairman Dennis Nally During the past decade, we’ve seen economic volatility and disruption escalate to arguably unprecedented levels. In a globalised world – one where countries, economies and companies are more interconnected and interdependent than ever before – risks that once seemed improbable and remote have become the norm. For business leaders across the world, ‘expect the unexpected’ has become the mantra. To navigate this environment, companies need to develop resilience. This combines an ability to ride out the immediate impact of shocks with a long-term capacity to adapt to constantly changing conditions. The shift to resilience helps explain the widening gap between CEOs’ levels of confidence in their organisations’ one-year and three-year outlooks. PwC’s 16th annual global CEO survey shows just 36% of CEOs ‘very confident’ about their business’s growth prospects over the next 12 months, down from 40% in 2012 and 48% in 2011. Yet the proportion confident about growth over the next three years has held up much better. This suggests that leaders believe
their organisations can be resilient by rolling with the short-term blows while reshaping for longer-term growth. Our survey identified three common CEO strategies for becoming more resilient. First, CEOs are targeting specific pockets of opportunity for organic growth, avoiding spreading their resources too thinly. Second, they’re maintaining a clear customer
focus, taking active steps to stimulate demand, loyalty and innovation through mechanisms ranging from digital marketing platforms to collaborative R&D. And third, they’re fine-tuning their operational effectiveness by reducing costs without cutting value and by collaborating with trusted partners. The focus on trust goes much further. In the post-crisis world, trust is at a premium. But it’s also an essential component of the ongoing relationship between an organisation and all its stakeholders – and thereby an important pillar of resilience. With social media giving a voice to ever more diverse groups of stakeholders, CEOs are recognising the need to secure a stronger social mandate by rebuilding public trust. From promoting an ethical culture to increasing workforce diversity and reducing environmental impacts, they are pursuing a wide array of initiatives to simultaneously support their growth strategies, establish the right mandate and boost resilience. This article is an extract from PwC’s 16th annual global CEO survey, available at www.pwc.com/ceosurvey
*THE GROWTH OPPORTUNITIES
The PwC survey of 1,330 CEOs found that emerging markets accounted for half their top 10 growth countries Q: Excluding where you are based, which three countries are most important for your overall growth prospects in the next 12 months?
UK 6% US
Organic growth in existing domestic market
New product or service development
New M&A/ joint ventures/ strategic alliances
GERMANY 12% CHINA
INDIA 10% INDONESIA 7%
The survey also found CEOs pursuing organic growth in existing markets Q: What is the main opportunity for business growth in the next 12 months?
Organic growth in existing foreign market
15% BRAZIL Source: PwC 16th global CEO survey
New operation(s) in foreign markets
CIRCULAR ECONOMY THE NEW WORLD ORDER
INSIDE UNILEVER VIETNAM FINANCE CHIEF
ACCA COMPETENCY FRAMEWORK accountants the fUTURE RISK A NEW APPROACH?