"Management accounting is a critical aspect of the finance function because it informs the board, investors and management why the numbers are what they are, not just what the numbers are" says Douglas Flint, Group Chairman of HSBC Holdings. He was speaking about the launch of a comprehensive framework to bring consistency to global management accounting practices around the world. It comes hard on the heels of various initiatives to improve corporate financial reporting and realign business with all its stakeholders.
Two of the world's leading accountancy bodies, the Chartered Institute of Management Accountants (CIMA) and the American Institute of CPAs (AICPA) have just proposed a comprehensive framework to bring consistency to management accounting practices around the world. But this is not just for the accountants: it is about learning the lessons of the last six years and providing a financial reporting system that will give investors, customers and the general public greater confidence in business.
Charles Tilley, CEO of CIMA, says: "Over the last few years, we've all seen how globalisation and the breakneck pace of technological progress are making change harder to predict and organisations more vulnerable. Management accountants have the ability and judgement to make objective ethical decisions that consider the public interest. But the quality of management accounting remains varied."
In order to best deploy the skills of management accounting, CIMA and AICPA have come up with a draft framework entitled 'Global Management Accounting Principles: Driving Better Business Through Improved Performance'. This is now out for consultation with feedback sought from businesses and institutions across the world - both public and private, both small and large.
These draft principles include guidance on preparing relevant information, modelling value creation, communicating with impact and establishing the professional values of management accountants. The framework, once agreed, will include a diagnostic tool to help businesses and institutions ensure they are making the most efficient use of key information.
It is exciting that this consultation will reach across a joint CIMA/AICPA network of 177 countries - it closes on May 10, 2014.
It comes against a backdrop of increased interest in integrated reporting as a tool for better corporate governance. Paul Druckman, CEO of the International Integrated Reporting Council , says: "With a focus on value creation and relevance of information, there is synergy between the Global Management Accounting Principles and Integrated Reporting. We should all support this plan to put in place a consistent global management accounting framework, which will help more and more organisations deliver value over the long-term."
Clearly, this is a co-ordinated roll-out of reform for the business of business for all its stakeholders. There are other high-profile supporters of these Principles.
Steve Marshall, Chairman of Balfour Beatty, the UK's biggest construction group by revenues, says: "Accountants have had good quality guidance on historic reporting for a long time. But the real focus of companies should be forward looking - understanding their business model, understanding how value is created and what they key drivers of the business are."
There is already support from public as well as private sector, from both sides of the Atlantic pond, and from large and small business. This is real, this is happening. Ian Powell, Chairman and Senior Partner at PwC says: "We welcome the plan for the development of a new management accountancy framework, and will encourage our clients across the world to contribute to and adopt it."
In the end, as Professor Mervyn King, chairman of the IIRC, says in this announcement : "In an era of a gradual return to economic growth, integrated thinking is essential for sustainable value creation. The ability to use information effectively will be a crucial part of sustainable growth and ensuring the business models of organisations and their outputs have positive impacts financially, socially and environmentally."
They say 'great minds think alike.' It's high time, surely, that we put them together for better business across geographical borders.
A spokesman for CIMA says: "We are looking to give boards the knowledge and best practice guidance necessary for them to benchmark their management accounting function to ensure it is the very best it can be…for better, more sustainable judgments based on a clear understanding of what the future might hold."
