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Connected reporting - what's the connection with management accountants?

Posted: Tuesday 23 February 2010 by Gillian Lees
Replies : 8
Category: Business ethics, Financial reporting, Management accounting, Risk management, Sustainability
Keywords: management accounting, reporting, Sustainability
Gillian Lees's picture

You might be aware that the Prince of Wales takes a keen interest in environmental issues.  What you might not know though is that, back in 2004, he established the Accounting for Sustainability Project (A4S) to develop the new approaches to accounting and reporting that are needed to ease the transition towards a sustainable economy.

CIMA is playing an active role in this work - you may have already seen the publication Accounting for Climate Change - based on a survey we did with A4S.

A4S is highlighting the need for a new connected and integrated reporting model.  Such a model would present a more complete picture of an organisation's performance and the factors that will influence its long-term success, aligning and linking both financial and non-financial information.  The ultimate aim is to enhance user understanding and insight. 

What tends to happen at the moment is that an organisation might, for example, report on carbon emissions and resource usage - but without linking it to the financial and strategic implications.  Another need for connectivity is to link remuneration incentives to risk and organisational behaviour.  Globally speaking, there is a dizzying array of organisations which are all active in the development of connected or integrated reporting.

So Prince Charles is going one step further by calling for the establishment of an International Connected Reporting Committee that would be responsible for overseeing and coordinating the development of a globally-agreed model.  Talks are currently underway as I write to turn this ambitious global goal into reality.

CIMA is right behind these efforts that will get companies to provide much-needed clarity on how the business is led and how employees are incentivised and remunerated to achieve sustainable business outcomes. But what really caught our eye was one of the key aims of the connected reporting model which is 'to bring reporting closer to the information used by management to run the business on a day-to-day basis'.  There is a real opportunity here for Chartered Management Accountants to contribute to the development of connected and integrated management information - that will influence the organisation's long-term success.  We'd welcome your thoughts, ideas and experiences.

 

International Organisation for Standards - ISO

Posted by Cliff Moggs on Tuesday 23 February 2010 20:41
One wonders why the ongoing work by the ISO (www.iso.ch) is not supported by the accounting fraternity? Its output is the result of global participation. Regards Cliff Moggs

Connected reporting and global stakeholders

Posted by Gillian Lees on Wednesday 24 February 2010 12:26

As mentioned in the blog, there is a very long and wide-ranging list of global organisations that have been working in the field of connected reporting.  What Prince Charles is trying to do is bring them all together in a global forum.  So, the simple answer in respect of this particular initiative is that if ISO have done work in this area, they will be involved.

You might also want to look at some of the activities of the International Federation of Accountants (IFAC) at www.ifac.org, the global umbrella body of which CIMA is a member.  If you search 'ISO' on the IFAC site, you will see  references where some of the IFAC committees have looked at an ISO standard in development and considered participation and/or liaison.    However, one comment I spotted when I read a meeting report by one of the IFAC standard-setting boards (International Auditing and Assurance Standards Board - the IAASB) was that standards developed by private organisations such as the ISO were not always freely available and had not been developed in accordance with the rigour of the IAASB due process.

Regards

Gillian Lees

 

  • Reported

A long journey from the principle to the practice?

Posted by Adrian Rutter on Friday 26 February 2010 15:03

While I can empathise with the principles behind this concept, I can't easily see how to get past a couple of complications.

First, there's an assumption that investors are actually interested in long-term sustainability. Market behaviour suggests otherwise: the herds pile in and out of investments minute by minute not generation by generation. Look at the investors who dumped Cadbury's purely for the sake of gains that seem unlikely to last much longer than a Dairylea triangle ...

And, second, if we're going to report on non-financial environmental costs like carbon output from buildings and travel, the resource implications are huge. SMEs and PLCs may have the freedom to choose to do that, but I work in the public sphere where we're constantly being told that "back-office" functions like finance and reporting can and should be sacrificed in favour of "front-line" services. Until there's a broad demand for this sort of reporting, it's hard to see many people accepting the cost<>benefit trade-offs.

I can't help feeling that trying to introduce this through the accountancy community will be like pushing at a door marked "pull" ... but maybe I've simply been to too many IFRS-planning discussions recently!

ISO 14051 (Committee Draft Stage)

Posted by Cliff Moggs on Monday 01 March 2010 20:20
Of course ISO guidelines and standards are not free but neither are they expensive. A rough guide would be that these standards cost about 20% of a day long CIMA Mastercourse, as such I would rate the ISO standards as excellent value for money. The strength of an ISO standard is in its development from a global community. An example is in the current development of “ISO 14051 Environmental Management – Material flow cost accounting – general requirements” in which some 27 countries are participating with another 30 odd as observers. (And CIMA executive remains silent as to its or not participation through the BSI)  The objectives of ISO 14051 are;- MFCA allows an organization to track the flows and stocks of materials as well as the costs thereof more effectively. This information supports managers’ decision-making processes in order to achieve both environmental and economic goals. The objectives of MFCA are as follows: -to increase transparency of material flows and energy use, -to provide accurate knowledge of material and energy efficiencies based on physical data, and the costs for various managerial decisions, including product and process design and development, production planning, and quality control, -to improve environmental performance by reducing material losses and energy consumption, -to promote the efficient allocation and consumption of materials, -to enhance economic performance by reducing costs related to the consumption of materials, manufacturing processes and waste management, and -to improve the process of coordination and communication with regard to material and energy efficiency within an organization. Tracing materials in physical units supports an assessment of material efficiency within an organization and an understanding of the amount and type of waste streams and emissions that are generated. Tracing associated costs, including material costs, system costs, energy costs and waste management costs, supports an assessment of the economic implications of materials use and waste generation. The two sets of information combined, physical and monetary, help managers identify opportunities to use materials more efficiently, which lead to reduced material and processing costs. Increased material efficiency also typically leads to reduced waste generation, which results in reduced waste management costs. As typical environmental benefits, improvement of material efficiency contributes to reducing consumption of natural resources for material extraction and production as well as waste generation, due to reduction of material used. (Copyright of the ISO)  Members may well ask, “Isn’t this what the Institute has been doing for the last 90 years, tracing the cause and effect of the use or not of its resources?” to which I would answer yes. With its global interest and use this standard (when released) will attract the attention of many more people who use the ISO as a source for management tools and guidance, A recommendation would be for management accountants, not already familiar with the work of the ISO, to look into what is available see www.iso.ch  Regards Cliff Moggs 

A reponse to a long journey...

Posted by Gillian Lees on Tuesday 02 March 2010 17:41

Hi Adrian

You're right that it will be a long journey - apart from anything else, it will be a tall order to get all the interested parties round the table!

I take your point about making greater reporting demands, but maybe this is where CIMA members have scope to make a difference - by concentrating on the information they need to run the business - rather than worrying too much in the first instance about reporting it externally.  If we could demonstrate front-line benefits from having improved information about energy costs, for example, then that would be a step in the right direction!  One small step for mankind, out of acorns tall trees grow and all that!!

Best wishes

Gillian

 

A journey of a thousand miles starts with a single step

Posted by Adrian Rutter on Tuesday 02 March 2010 19:03

Lao Tzu, around 550 BC and tr. 1904 by L Giles; still true now, though! And there's that old story about throwing starfish back into the sea, one by one.

So by all means let's see what we can do, with the resources available and within the interests out there (or at least within the interests we can attract) - but, with all due respect to Cliff's ISO standard-setters, this is one to keep well away from committees and make sure it stays firmly relevant to the people who actually make the decisions.

Its too late

Posted by Cliff Moggs on Tuesday 02 March 2010 20:23
Fortunately the ISO has already a dedicated following that 'new standards' will be welcomed. The MFCA is simply adding to an already extensive resource. I don't see any sign that this momentum is running out of steam, it would appear that they understand the need. Best regards Cliff Moggs

It's too late?

Posted by Adrian Rutter on Thursday 04 March 2010 08:26
Oh, well, there goes another rain-forest and here comes yet another out-pouring of rules completely divorced from any chance of a Plain English Award!