How accountants can save world business

Paul Druckman is stepping down after five years as CEO of the International Integrated Reporting Council (IIRC). But before he goes, he couldn’t resist issuing a challenge to UK practitioners.

For the past five years the former ICAEW president has been moving among the profession’s global elite, for whom integrated reporting is fast becoming a template for the future of financial reports. At the top level, there is a recognition that if accountants are to stay relevant, the information they prepare needs to be relevant to business managers and shareholders and tell a story about where the business is going, why and how far it has travelled down its intended path.

The integrated reporting movement Druckman has spearheaded aims to take a broader view of company performance than just the financial figures.

“We should be looking at how value is being created rather than the profitability and cash flow. They’re components [of performance] rather than the be-all and end-all. Just because you generate cash doesn’t mean you create a valuable business,” he said.

“I don’t think that clarity was around five years ago. I don’t think IIRC was main reason, but I think we were a catalyst for that thinking.”

More than 80 global companies including Unilever, Coca Cola, Tata and HSBC have adopted integrated reporting and IR was central to corporate governance reforms introduced in Japan. The Malaysian and Sri Lankan prime ministers also called on their businesses to adopt the integrated approach.

“I believe we have brought about a near-universal education of the financial reporting community and an acceptance that financials are part of a broader canvas of resources that must be managed holistically, not in isolation,” wrote Druckman in a blog on the organisation’s website entitled, Standing on the shoulders of giants.

But changing the philosophical foundations of an entire profession doesn’t come without a few challenges. In conversation with AccountingWEB, Druckman said he frequently gets a feisty response from high street practitioners. “They say it’s all high falutin ideas for big companies. But who actually needs the help? Bigger companies have got floors full of people who can do that. The smaller ones don’t.”

Druckman did admit that much of his time was spent talking to members of B20, the business wing of the government’s G20 association. But he emphasised that one of their biggest efforts was focused on creating a world small and medium sized enterprise forum. “When the B20 declaration came out, it talked about having better integrated reporting for SMEs,” said Druckman. “It hasn’t happened yet, but it probably will.”

Druckman accepts that culture and economic development make it difficult to impose a “one type fits all” reporting model across the world. But, he continued, “There is another dimension more around concepts. We want to build a culture.”

Taking the UK as an example, Druckman noted how the profession has basically become fed up with reporting and takes the stance: “Just tell us what to do and we’ll do it.”

He continued:  “I’d like to take the whole argument to where we’re trying to tell a story with data that more applicable to the organisation and the business.”

The problem SME accountants have to overcome is that as accountants and auditors their involvement is focused around the compliance side of statutory accounts and tax. “So the relationship becomes one of a compliance service, not a trusted adviser who understands the business. And that is a route of no return. Fees will be low, engagement with the client, interest from prospective employees will be low,” said Druckman.

“What I’ve been trying to do is say, ‘Come on accountants, is that all you can do? Is that really what you want to be doing with your clients, or should you be trying to help them with their strategy and help them understand it’

“Compliance reporting is history. When I was in business, I didn’t care what we did in past six months. I want to care about what happens in next six months. There’s far too much backward looking.

“I’m not looking for future-oriented cash flows and P&Ls, but how are we doing going forward and how can I measure that it’s going to work? Accountants at the grassroots have failed to grasp that nettle.”

For much of the past five years, Druckman’s IIRC has spent most of its time networking around capital markets. As he has noted, that was important to establish global credibility for the integrated reporting movement. But as he signs off, his final observation is: “The easier win is in the smaller sector – and it has to be through the accountants. I can’t see another route. Accountants will save the world.”

Source: Accounting Web

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