The global accounting profession – driving sustainable value creation

1. Redefining Value Creation: Beyond Profit to Stakeholder Impact

In trying to pin down a definition of value, it is important to recognise a shift away from a focus on merely financial profits to the broader impacts on, and dependencies of, an organisation within the society in which it operates. This fundamental shift has led to a more diverse expectation of value being required from a broad range of stakeholders¹.

The balance that needs to be struck between an organisation’s impact and its inputs has led to the rise of the field of ESG (environmental, social and governance) as a framework to determine impact and guide value creation. Consumers, and society, are increasingly demanding that products and services are delivered in a way that would result in the least amount of reasonable impact on the societies in which organisations operate².

An often-used piece of terminology defines this relationship between organisations and their stakeholders as being the bedrock of their social licence to operate. Organisations ignore this fundamental shift in demand at their own peril.

Admittedly not all stakeholders have an equal level of power or influence over an organisation. This may lead to lesser consideration being paid to some stakeholders. As we have seen in the recent past, this may be a dangerous approach as collective action could galvanise the efforts of otherwise less powerful stakeholders into a much more impactful whole³. The challenge therefore is in striking an appropriate balance.

Organisations need to balance the changing demands of consumers and other external parties with the requirements of the providers of capital. Even member-based organisations (such as professional accounting bodies) and for-purpose entities (such as not-for-profits and charities) need to carefully consider the demands of their members and beneficiaries.

For professional accounting bodies, members are increasingly expecting their organisations to be leaders and to provide contemporary education and professional development to assist them on their respective ESG journeys. Ultimately, the challenge is to avoid having a myriad of value propositions tailored for each individual stakeholder, that could ultimately cause internal confusion through a lack of clear vision. The primary goal is to ensure that the overarching value proposition is robust enough to address the needs of most stakeholders.

2. Pressure, Opportunity & The Accountant Talent Crunch

Against this challenging backdrop it is important to note that the accounting profession has a critical role to play. Accountants establish systems and processes to gather, measure, report, and obtain independent assurance on organisations’ data and their value creation journeys. Accountants also act as business partners and valued advisors to organisations in terms of their respective strategies, business operations and the underlying value propositions that would best support executing on their vision⁶.

With the broadening expectation of value and how this may potentially be defined by organisations, the way that performance is reported would stretch beyond what is shown on the traditional set of financial statements. In some instances, the impacts and value delivered would consist of both financial and non-financial outcomes. Accountants understand the need for and importance of both financial and non-financial information to cohesively articulate how organisations deliver value to a range of stakeholders.

Accountants are subsequently under increased pressure to understand, implement and report on a range of additional sustainability-related dimensions. They need to continue to act confidently in their advisory capacity to organisations, whether this includes considerations around climate, modern slavery, inclusion and diversity, etc.

It would be naïve to expect that with all the additional considerations that organisations are facing, the workload on finance teams would remain unaffected. We are aware of the increasing regulatory and reporting burden that accountants face. In the first instance any approach adopted by an organisation should seek to find an optimal balance and seek synergy between financial and non-financial reporting — or extended external reporting — providing an aligned approach to the management of an organisation’s reporting requirements. Ultimately, finance leaders should seek to create a mechanism through which reporting can aid and potentially leverage a myriad of jurisdictional specific regulatory requirements.

Apart from the regulatory and reporting burden, a further consideration is the increased expectation for external assurance, particularly as jurisdictions move towards limited assurance being obtained on sustainability-related disclosures. Although auditors have been obtaining assurance on non-financial information for a long time, the technical nature of certain sustainability-related disclosures (carbon emissions and scenario analysis, for example) would require multi-disciplinary teams that harness skills that fall outside of the traditional accounting sphere. In turn, this would require audit managers to lead teams from a variety of backgrounds, heightening the focus on key aspects of team management, communication, and other soft skills.

3. CPA Australia’s Response & The IFAC Four Pillars

In aligning the role of the accounting profession to the needs of a fast-evolving landscape, the International Federation of Accountants (IFAC) proposes a response based on four distinct pillars:

CPA Australia believes that professional accounting bodies are ideally placed to support IFAC’s pillars. This is in part due to their ability to advocate on behalf of members and in the broader public interest. Secondly, professional accounting bodies can translate changes to the sustainability landscape and how these impact business operations, reporting, and assurance into educational offerings.

Our advocacy focuses on alignment between the various regulatory frameworks and legislative instruments used by governments — in particular, how these would best align with the intent of sustainability and support businesses to report on their responses to sustainability-related risks and opportunities. With a view towards alignment, we endorse the work of the International Sustainability Standards Board (ISSB) in setting the global baseline for sustainability-related financial disclosures. It is our belief that the ISSB’s work will aid clarity and create effective synergies as it consolidates legacy frameworks into a cohesive whole.

We believe that professional accounting bodies, such as CPA Australia and the ICAI, are best placed to address the uplift required in both the technical skills and competencies of accountants through two focal strategies:

4. Reporting, Assurance & The Power of Integrated Thinking

The importance of reporting and assurance is undeniably clear. We are, however, mindful that by way of a logical sequence, organisations would benefit from considering the resilience of their business models and strategies to a range of sustainability-related considerations in the first instance. Reporting would then aid the articulation of their response to the risks and opportunities that they face. In turn, reporting would benefit from external assurance, as this would lend impartial credibility to the claims that organisations make to a range of stakeholders through their disclosures. Assurance also reduces the risk of greenwashing.

As we have already mentioned, the reporting and regulatory burden that organisations, and indeed accountants, face is substantial. It is our view that as organisations progress in maturity along their respective sustainability journeys, they will grow more adept at understanding the inter-related nature of sustainability considerations, and how best to provide a succinct and useful narrative to the users of such information.